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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934
                  For the Fiscal Year Ended: December 31, 2001

                                       or

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
              For the Transition Period from _________ to _________

                         COMMISSION FILE NUMBER: 0-10196

                          INDEPENDENT BANKSHARES, INC.
             (Exact Name of Registrant as Specified in its Charter)

                TEXAS                                      75-1717279
    (State or Other Jurisdiction of                      (IRS Employer
    Incorporation or Organization)                    Identification No.)

            1617 BROADWAY
            LUBBOCK, TEXAS                                   79408
   (Address of Principal Executive Offices)                (Zip Code)

       Registrant's Telephone Number, Including Area Code: (806) 749-1850

           Securities Registered Pursuant to Section 12(b) of the Act:

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<Caption>
                                                                Name of each exchange
                     Title of each class                         on which registered
-----------------------------------------------------------   -----------------------------
 <S>                                                            <C>
 8.5% CUMULATIVE TRUST PREFERRED SECURITIES, GUARANTEED BY      AMERICAN STOCK EXCHANGE
     INDEPENDENT BANKSHARES, INC., STATED VALUE $10.00
</Table>

           Securities Registered Pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $0.25 PAR VALUE
                                (TITLE OF CLASS)

                                   ----------

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

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

     On March 5, 2002, all of the shares of the Registrant's voting stock was
held indirectly by State National Bancshares, Inc. and thus no shares were held
by non-affiliates of the Registrant. At March 5, 2002, 2,273,674 shares of the
Registrant's common stock, $0.25 par value per share, were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference into the
indicated part or parts of this report: NONE

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                                TABLE OF CONTENTS

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                                                                                                               PAGE
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PART I............................................................................................................2
         ITEM 1. BUSINESS.........................................................................................2

         ITEM 2. PROPERTIES......................................................................................13

         ITEM 3. LEGAL PROCEEDINGS...............................................................................14

         ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................14

PART II..........................................................................................................15
         ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................15

         ITEM 6. SELECTED FINANCIAL DATA.........................................................................16

         ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........17

         ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.....................................40

         ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................................................41

         ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............66

PART III.........................................................................................................68
         ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................................68

         ITEM 11. EXECUTIVE COMPENSATION.........................................................................70

         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................71

         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................72

PART IV..........................................................................................................73
         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................73

SIGNATURES.......................................................................................................75
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                                     PART I

     OTHER THAN HISTORICAL AND FACTUAL STATEMENTS, THE MATTERS AND ITEMS
DISCUSSED IN THIS ANNUAL REPORT ON FORM 10-K ARE FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS OF INDEPENDENT BANKSHARES, INC.
AND ITS SUBSIDIARIES MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT COULD CONTRIBUTE TO SUCH
DIFFERENCES ARE DISCUSSED WITH THE FORWARD-LOOKING STATEMENTS THROUGHOUT THIS
REPORT AND ARE SUMMARIZED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - FORWARD-LOOKING STATEMENTS - CAUTIONARY
LANGUAGE."

ITEM 1.  BUSINESS

GENERAL

     Independent Bankshares, Inc., a Texas corporation (the "Company") is a bank
holding company headquartered in Lubbock, Texas. The Company is an indirect
wholly owned subsidiary of State National Bancshares, Inc., Lubbock, Texas
("State National"). At December 31, 2001, the Company owned all of the common
securities of Independent Capital Trust ("Independent Capital") and indirectly
owned through a Delaware subsidiary, Independent Financial Corp. ("Independent
Financial"), 100% of the stock of State National Bank of West Texas, Lubbock,
Texas (the "Bank" or the "Lubbock Bank"). At December 31, 2001, the Bank
operated full-service banking locations in the Texas cities of Abilene (five
locations), Azle (two locations), Bangs, Big Spring, Lubbock, (3 locations),
Odessa (two locations), Plainview, San Angelo, Stamford, Trent and Winters.

     The Company's primary activities are to assist the Bank in the management
and coordination of its financial resources. The Bank operates under the
day-to-day management of its own officers and board of directors and formulates
its own policies with respect to banking matters.

     At December 31, 2001, the Company had, on a consolidated basis, total
assets of $637,383,000, total deposits of $544,030,000, total loans, net of
unearned income, of $304,246,000 and total stockholder's equity of $75,381,000.

     The Company's complete mailing address is 1617 Broadway, Lubbock, Texas
79408, and the telephone number is (806) 749-1850.

ACQUISITION OF THE COMPANY

     On August 11, 2000, State National acquired 100% of the issued and
outstanding common stock of the Company, pursuant to the terms of an Agreement
and Plan of Reorganization, dated as of March 1, 2000 ( "the Acquisition"),
between the Company and State National. Pursuant to the Merger Agreement, New
FSB, Inc., a wholly owned subsidiary of State National, merged with and into the
Company, with the Company surviving the Acquisition as a wholly owned subsidiary
of State National. As a result of the Acquisition, each share of the Company's
Common Stock was exchanged into the right to receive $20.0165 in cash,
representing total aggregate merger consideration of approximately $45,510,000.
State National obtained the funds for the purchase of the Company's Common Stock
from (i) the sale of shares of State National's common stock to certain
qualified investors and (ii) from a $10,000,000 advance on State National's line
of credit ("Loan") with the Amarillo National Bank, Amarillo, Texas. The Loan
bears interest at the rate equal to the prime rate as established by J.P.
Morgan/Chase. A principal payment of $500,000, plus interest, was made on
February 28, 2002, and a principal payment of $1,000,000, plus interest, is due
on February 28, 2003. The remaining balance, plus interest, is due on May 31,
2003. The Loan is secured by all of the common stock of the indirect bank
subsidiaries of State National, including the Bank.

REORGANIZATIONS

     UNITED BANK & TRUST. On October 24, 2000, State National, the owner of all
the common stock of the Company, contributed to the Company, and the Company, in
turn, contributed to Independent Financial, all of the capital stock of United

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Bank & Trust, of Abilene, Texas, a Texas banking association ("UB&T"). UB&T
was a community bank that offered interest and noninterest bearing depository
accounts, and made consumer and commercial loans. On November 9, 2000, UB&T
was then merged with and into First State Bank, National Association,
Abilene, Texas, the Company's subsidiary bank ("First State"). In addition,
immediately after the merger, the name of the combined bank was changed to
State National Bank of West Texas, Abilene, Texas ("the Abilene Bank"). There
was no merger consideration paid because, prior to the transactions, the
Company and UB&T were both direct or indirect subsidiaries of State National.
The merger was accounted for similar to a pooling of interests. As a result
of the merger, the balance sheet and results of operations of UB&T have been
included in the Company's consolidated financial statements since August 11,
2000, the date of the Acquisition. At August 11, 2000, UB&T had total assets
of $112,806,000, and total deposits of $93,946,000, total loans of
$70,230,000 and total stockholder's equity of $16,729,000.

     STATE NATIONAL BANK OF WEST TEXAS. On February 28, 2001, State National
contributed its ownership interest in State National Bank of West Texas,
Lubbock, Texas, a national banking association ("the Lubbock Bank"), and wholly
owned subsidiary of State National, to the Company. The Company in turn,
contributed to Independent Financial, all of the capital stock of the Lubbock
Bank. The Lubbock Bank is a community bank that offers interest and
noninterest-bearing depository accounts, and makes consumer and commercial
loans. On March 9, 2001, the Abilene Bank was merged with and into the Lubbock
Bank. The Lubbock Bank continued as the surviving entity in the merger and is an
indirect wholly owned subsidiary of the Company. There was no merger
consideration paid as, prior to the transactions, the Abilene Bank and the
Lubbock Bank were both direct or indirect subsidiaries of State National. The
merger was accounted for similar to a pooling of interests. As a result of the
merger, the balance sheet and results of operations of the Lubbock Bank have
been included in the Company's consolidated financial statements since August
11, 2000, the date of the Acquisition. At August 11, 2000, the Lubbock Bank had
total assets of $210,409,000, total deposits of $190,828,000, total loans of
$121,130,000 and stockholder" equity of $18,405,000.

THE BANK

     GENERAL. The Company conducts substantially all of its business through the
Bank and its various branches in Texas. Each of the Bank's branches is an
established franchise in its respective service area. The combined branches in
Abilene and Trent had the third largest total deposits of ten FDIC-insured
financial institutions operating in Taylor County, at June 30, 2001, the latest
date for which information is available. The combined branches in Azle had the
twenty-sixth largest total deposits of fifty-four financial institutions
operating in Tarrant County at June 30, 2001. The branch in Bangs had the
seventh largest total deposits of eight financial institutions operating in
Brown County at June 30, 2001. The branch in Big Spring had the third largest
total deposits of the six financial institutions operating in Howard County at
June 30, 2001. The branch in Lubbock had the eighth largest total deposits of
seventeen financial institutions operating in Lubbock County at June 30, 2001.
The combined branches in Odessa had the seventh largest total deposits of eleven
financial institutions operating in Ector County at June 30, 2001. The branch in
Plainview had the third largest total deposits of the seven financial
institutions operating in Hale County at June 30, 2001. The branch in San Angelo
had the ninth largest total deposits of fifteen financial institutions operating
in Tom Green County at June 30, 2001. The branch in Stamford had the third
largest total deposits of five financial institutions operating in Jones County
at June 30, 2001. The branch in Winters had the fifth largest total deposits of
seven financial institutions operating in Runnels County at June 30, 2001. The
Bank, through its branches, operates as a community bank focusing on long-term
relationships with customers and providing individualized quality service.
Reflecting its community-banking heritage, the Bank has a stable deposit base
from customers located within its Texas market area. The deposits of the Bank
are insured by the Federal Deposit Insurance Corporation (the "FDIC") to the
maximum extent provided by law.

     AT DECEMBER 31, 2001, the Bank had total assets of $636,725,000, total
deposits of $544,111,000, total loans, net of unearned income, of $304,246,000;
and total stockholder's equity of $87,514,000.

     SERVICES. The principal services provided by the Bank are as follows:

     COMMERCIAL SERVICES. The Bank provides a full range of banking services
for its commercial customers. Commercial lending activities include short-term
and medium-term loans, revolving credit arrangements, inventory and account

                                        3
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receivable financing, equipment financing and interim and permanent real
estate lending. Other services include cash management programs and federal
tax depository and night depository services.

     CONSUMER SERVICES. The Bank also provides a wide range of consumer banking
services, including checking, savings and money market accounts, savings
programs and installment and personal loans. The Bank makes automobile and other
installment loans directly to customers, as well as indirectly through
automobile dealers. The Bank makes home improvement, home equity and real estate
loans and provides safe deposit services. As a result of sharing arrangements
with the Pulse automated teller machine system network, the Bank provides
24-hour routine banking services through automated teller machines ("ATMs"). The
Pulse network provides ATM accessibility throughout the United States. The Bank
also offers investment services and banking by phone, personal computer or the
Internet.

     TRUST SERVICES. The Bank provides trust and agency services to individuals,
partnerships and corporations from its offices in Abilene, Lubbock and Odessa.
The trust division also provides investment management, administration and
advisory services for agency and trust accounts, and acts as trustee for pension
and profit sharing plans.

     SUPERMARKET BRANCHES. On July 15, 2001, the Bank closed three branch
banking facilities located in large supermarkets: one in Abilene and two in
Odessa.

OTHER SUBSIDIARIES

     At the present time, the Company does not have any subsidiaries other than
Independent Capital, Independent Financial and the Bank.

BUSINESS OBJECTIVES AND STRATEGY

     The Company's principal business objectives are to increase its
profitability and shareholder value by building a valuable Texas banking
franchise using core deposits as a funding base to support local commercial and
consumer lending programs. The Company employs several strategies, including the
following, to accomplish its objectives:

     SOPHISTICATION AND BREADTH OF PRODUCTS; PERSONAL SERVICES. The Company's
goal is to provide customers with the business sophistication and breadth of
products of a regional financial services company, while retaining the special
attention to personal service and the local appeal of a community bank. The
Company believes that, as a result of consolidation in the financial industry
within the Company's marketplace, there are few financial institutions in its
market area that have larger lending limits than the Company that are also
willing to provide the personal customer service that the Company is committed
to providing to its customers.

     DECENTRALIZED DECISION MAKING. The Company's decentralized decision making
authority, vested in the president and senior officers of the Abilene, Azle,
Lubbock and Odessa branches, allows for rapid response time and flexibility in
dealing with customer requests and credit needs.

     EFFICIENT AND CONVENIENT DELIVERY SYSTEMS. The Company's efforts to
maintain and expand efficient and convenient delivery systems for its products
and services have included the introduction of computer and telephone home
banking and Internet banking. The Company also maintains twelve ATMs throughout
its market area.

     ACQUISITION ACTIVITY. The Company's strategy of opportunistically acquiring
banks in its West Texas market resulted in its acquisition of four banks and one
branch in the six-year period ended December 31, 1999. Since the acquisition of
the Company by State National on August 11, 2000, the Company has grown by the
reorganizations in which it acquired UB&T and the Lubbock Bank. Subsequent to
the Acquisition, the Company's acquisition strategy remains the same. See
"Reorganizations" above. The Company currently has locations in or near five of
the major markets in West and North Central Texas.

                                        4
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SUPERVISION AND REGULATION

GENERAL

     The Company and the Bank are extensively regulated under federal and state
law. These laws and regulations are intended to protect consumers and
depositors, not shareholders. To the extent that the following information
describes or summarizes statutory or regulatory provisions, it is qualified in
its entirety by reference to the particular statutory or regulatory provisions.
Any change in applicable laws or regulations may have a material effect on the
business and prospects of the Company. The operations of the Company may be
affected by legislative changes and by the policies of various regulatory
authorities. The Company is unable to predict the nature or the extent of the
effects on its business and earnings that fiscal or monetary policies, economic
controls or new federal or state legislation may have in the future.

     The Company is a registered bank holding company under the Bank Holding
Company Act of 1956 (as amended, the "BHCA") and, as such, is subject to
regulation, supervision and examination by the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). The Company is required to file annual
reports with the Federal Reserve and to provide the Federal Reserve such
additional information as it may require.

     The BHCA imposes certain limitations on extensions of credit and other
transactions by and between banks that are members of the Federal Reserve and
other banks and non-bank companies in the same holding company. Under the BHCA
and the Federal Reserve's regulations, a bank holding company and its
subsidiaries are prohibited from engaging in certain tying arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.

     The Bank, a national banking association organized under the National Bank
Act, is subject to the supervision and regulation of the Office of the
Comptroller of the Currency (the "Comptroller"). Because the FDIC provides
deposit insurance to the Bank, the Bank is also subject to supervision and
regulation by the FDIC (even though the FDIC is not the primary federal
regulator of the Bank).

     The Company, as an affiliate of the Bank, is subject to certain
restrictions regarding transactions between a bank and companies with which it
is affiliated. These provisions limit extensions of credit (including guarantees
of loans) by the Bank to affiliates, investments in the stock or other
securities of the Company by the Bank, and the nature and amount of collateral
that the Bank may accept from any affiliate to secure loans extended to the
affiliate.

SIGNIFICANT LEGISLATION

     The enactment of the legislation described below has significantly affected
the banking industry generally and will have an ongoing effect on the Company
and the Bank in the future.

     FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989

     The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") reorganized and reformed the regulatory structure applicable to
financial institutions generally. FIRREA, among other things, enhanced the
supervisory and enforcement powers of the federal bank regulatory agencies,
required insured financial institutions to guarantee repayment of losses
incurred by the FDIC in connection with the failure of an affiliated financial
institution, required financial institutions to provide their primary federal
regulator with notice (under certain circumstances) of changes in senior
management and broadened authority for bank holding companies to acquire savings
institutions.

     Under FIRREA, federal bank regulators were granted expanded enforcement
authority over "institution-affiliated parties" (i.e., officers, directors,
controlling shareholders, as well as attorneys, appraisers or accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured institution). Federal banking regulators have greater
flexibility to bring enforcement actions against insured institutions and
institution-affiliated parties, including cease and desist orders, prohibition
orders, civil money penalties, termination of insurance and the imposition of
operating restrictions and capital plan requirements. These enforcement actions,
in general, may be initiated for violations of laws and regulations and unsafe
or unsound practices. Since the enactment of FIRREA, the federal bank regulators

                                        5
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have significantly increased the use of written agreements to correct
compliance deficiencies with respect to applicable laws and regulations and
to ensure safe and sound practices. Violations of such written agreements are
grounds for initiation of cease-and-desist proceedings. FIRREA granted the
FDIC back-up enforcement authority to recommend enforcement action to an
appropriate federal banking agency and to bring such enforcement action
against a financial institution or an institution-affiliated party if such
federal banking agency fails to follow the FDIC's recommendation.

     FIRREA also established a cross-guarantee provision pursuant to which the
FDIC may recover from a depository institution losses that the FDIC incurs in
providing assistance to, or paying off the insured depositors of, any of such
depository institution's affiliated insured banks or thrifts. The
cross-guarantee thus enables the FDIC to assess a holding company's healthy Bank
Insurance Fund ("BIF") members and Savings Association Insurance Fund ("SAIF")
members for the losses of any of such holding company's failed BIF and SAIF
members. Cross-guarantee liabilities are generally superior in priority to
obligations of the depository institution to its shareholders due solely to
their status as shareholders and obligations to other affiliates.
Cross-guarantee liabilities are generally subordinated, except with respect to
affiliates, deposit liabilities, secured obligations or any other general or
senior liabilities, and any obligations subordinated to depositors or other
general creditors.

     THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991

     The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was adopted to recapitalize the BIF and impose certain supervisory
and regulatory reforms on insured depository institutions. FDICIA, in general,
includes provisions, among others, to:

     -  reform the deposit insurance system, including the implementation of
        risk-based deposit insurance premiums;

     -  establish a format for closer monitoring of financial institutions to
        enable prompt corrective action by banking regulators when a financial
        institution begins to experience financial difficulty;

     -  establish five capital levels for financial institutions ("well
        capitalized," "adequately capitalized," "undercapitalized,"
        "significantly undercapitalized" and "critically undercapitalized") that
        impose more scrutiny and restrictions on less capitalized institutions;

     -  require banking regulators to set operational and managerial standards
        for all insured depository institutions and their holding companies,
        including limits on excessive compensation to executive officers,
        directors, employees and principal shareholders, and establish standards
        for loans secured by real estate;

     -  adopt certain accounting reforms and require annual on-site examinations
        of federally insured institutions, including the ability to require
        independent audits of banks and thrifts; and

     -  revise risk-based capital standards to ensure that they take adequate
        account of interest-rate changes, concentration of credit risk and the
        risks of nontraditional activities, and reflect the actual performance
        and expected risk of loss of multi-family mortgages.

FDICIA also authorized the FDIC to make special assessments on insured
depository institutions, in amounts determined by the FDIC to be necessary to
give it sufficient assessment income to repay amounts borrowed from the U.S.
Treasury and other sources or for any other purpose the FDIC deems necessary.
FDICIA also grants authority to the FDIC to establish semiannual assessment
rates on BIF and SAIF member banks so as to maintain these funds at the
designated reserve ratios.

     FDICIA, as noted above, authorizes and (under certain circumstances)
requires the federal banking agencies to take certain actions against
institutions that fail to meet certain capital-based requirements. The federal
banking agencies are required, under FDICIA, to establish five levels of
insured depository institutions based on leverage limit and risk-based capital

                                        6
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requirements established for institutions subject to their jurisdiction plus,
in their discretion, individual additional capital requirements for such
institutions. Under the final rules that have been adopted by each of the
federal banking agencies, an institution is designated:

     -  "well-capitalized" if the institution has a total risk-based capital
        ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
        greater, and a leverage ratio of 5% or greater, and the institution is
        not subject to an order, written agreement, capital directive, or prompt
        corrective action directive to meet and maintain a specific capital
        level for any capital measure;

     -  "adequately capitalized" if the institution has a total risk-based
        capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4%
        or greater, or a leverage ratio of 4% or greater;

     -  "undercapitalized" if the institution has a total risk-based capital
        ratio that is less than 8%, a Tier 1 risk-based capital ratio that is
        less than 4%, or a leverage ratio that is less than 4%;

     -  "significantly undercapitalized" if the institution has a total
        risk-based capital ratio that is less than 6%, a Tier 1 risk-based
        capital ratio that is less than 3%, or a leverage ratio that is less
        than 3%; and

     -  "critically undercapitalized" if the institution has a ratio of tangible
        equity to total assets that is equal to or less than 2%.

     "Undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" institutions are required to submit capital restoration plans
to the appropriate federal banking agency and are subject to certain operational
restrictions. Companies controlling an undercapitalized institution are also
required to guarantee the subsidiary institution's compliance with the capital
restoration plan subject to an aggregate limitation of the lesser of 5% of the
institution's assets at the time it received notice that it was undercapitalized
or the amount of the capital deficiency when the institution first failed to
meet the plan.

     Significantly or critically undercapitalized institutions and
undercapitalized institutions that do not submit or comply with acceptable
capital restoration plans are subject to restrictions on the compensation of
senior executive officers and to additional regulatory sanctions and forced or
mandated actions. FDICIA generally requires the appointment of a conservator or
receiver within 90 days after an institution becomes critically
undercapitalized. The federal banking agencies have adopted uniform procedures
for the issuance of directives by the appropriate federal banking agency. Under
these procedures, an institution will generally be provided advance notice when
the appropriate federal banking agency proposes to impose one or more of the
sanctions set forth above. These procedures provide an opportunity for the
institution to respond to the proposed agency action or, where circumstances
warrant immediate agency action, an opportunity for administrative review of the
agency's action.

     As described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Resources," both the Company and
the Bank were "well capitalized" at December 31, 2001.

     Pursuant to FDICIA, the Federal Reserve and the other federal banking
agencies adopted real estate lending guidelines pursuant to which each insured
depository institution is required to adopt and maintain written real estate
lending policies in conformity with the prescribed guidelines. Under these
guidelines, each institution is expected to set loan-to-value ratios not
exceeding the supervisory limits set forth in the guidelines. A loan-to-value
ratio is generally defined as the total loan amount divided by the appraised
value of the property at the time the loan is originated. The guidelines require
that the institution's real estate policy include proper loan documentation and
prudent underwriting standards. These rules have had no material adverse impact
on the Company and the Bank.

     FDICIA also contained the Truth in Savings Act, which requires clear and
uniform disclosure of the rates of interest payable on deposit accounts by
depository institutions, and the fees assessable against deposit accounts, so
that consumers can make a meaningful comparison between the competing claims of
financial institutions with regard to deposit accounts and products.

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     RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994

     Congress enacted the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") in September 1994. Since September
1995, bank holding companies have the right to expand, by acquiring existing
banks, into all states, even those, which had previously restricted entry. The
legislation also provided that, subject to future action by individual states, a
holding company has the right, commencing in 1997, to convert the banks which it
owns in different states to branches of a single bank. A state was permitted to
"opt out" of provisions of the Interstate Act that permitted conversion of
separate banks to branches, but was not permitted to "opt out" of the law
allowing bank holding companies from other states to enter the state. The
federal legislation also establishes limits on acquisitions by large banking
organizations, providing that no acquisition may be undertaken if it would
result in the organization having deposits exceeding either 10% of all bank
deposits in the United States or 30% of the bank deposits in the state in which
the acquisition would occur.

     Although Texas originally adopted legislation to "opt out" of the
interstate branching provisions, Texas' decision to opt out of these provisions
was rendered ineffective with the 1998 decision of the United States District
Court for the Northern District of Texas affirming the Comptroller's decision to
permit an interstate merger involving a Texas national bank. The Texas
Legislature responded in 1999 by passing The Interstate Banking and Branching
Bill, which became effective September 1, 1999. This legislation provides a
framework for interstate branching in Texas, providing for DE NOVO branching by
banks headquartered in states offering reciprocity to Texas institutions or
institutions authorized to branch in Texas. However, banks in other,
nonreciprocal states, are prohibited from acquiring a Texas bank in an
interstate merger transaction if the Texas bank has not been in existence and in
continuous operation for at least five years. The legislation also clarifies
other provisions of Texas law relating to interstate banks operating in Texas,
and included a "super parity" provision that provides a framework for a bank
chartered in Texas, upon application, to conduct any of the activities allowed
to any other state or federal financial institution in the nation.

     GRAMM-LEACH-BLILEY ACT OF 1999

     Historically, the Company has been prohibited from acquiring a direct or
indirect interest in or control of more than 5% of the voting shares of any
company that is not a bank or bank holding company and from engaging directly or
indirectly in activities other than those of banking, managing or controlling
banks or furnishing services to the Bank, except that the Federal Reserve has
permitted bank holding companies to engage in and own shares of companies
engaged in certain activities found by the Federal Reserve to be so closely
related to banking or managing and controlling banks as to be a proper incident
thereto. These activities include, among others, operating a mortgage, finance,
credit card, or factoring company; performing certain data processing
operations; providing investment and financial advice; acting as an insurance
agent for certain types of credit-related insurance; leasing personal property
on a full pay out, non-operating basis; and providing certain stock brokerage
and investment advisory services. In approving acquisitions or the addition of
activities, the Federal Reserve has considered whether the acquisition or the
additional activities can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh such possible adverse effects as undue concentration
of resources, decreased or unfair competition, and conflicts of interest or
unsound banking practices. In considering any application for approval of an
acquisition or merger, the Federal Reserve is also required to consider the
financial and managerial resources of the companies and the banks concerned, as
well as the applicant's record of compliance with the Community Reinvestment
Act, which generally requires a financial institution to take affirmative action
to ascertain and meet the credit needs of its entire community, including low
and moderate income neighborhoods.

     The Gramm-Leach-Bliley Act ("Gramm-Leach"), enacted by Congress in November
1999, now permits bank holding companies with subsidiary banks meeting certain
capital and management requirements to elect to become "financial holding
companies." Beginning in March 2000, financial holding companies may engage in a
full range of financial activities, including not only banking, insurance and
securities activities, but also merchant banking and additional activities
determined to be "financial in nature." Gramm-Leach also provides that the list
of permissible activities will be expanded as necessary for a financial holding
company to keep abreast of competitive and technological change.

                                        8
<Page>

     Although it preserves the Federal Reserve as the umbrella supervisor of
financial holding companies, Gramm-Leach adopts an administrative approach to
regulation that defers to the approval and supervisory requirements of the
functional regulators of insurers and insurance agents, broker-dealers,
investment companies and banks, as applicable. Thus, the various state and
federal regulators of a financial holding company's operating subsidiaries would
retain their jurisdiction and authority over the operating entities. As the
umbrella supervisor, however, the Federal Reserve has the potential to affect
the operations and activities of financial holding companies' subsidiaries
through its power over the financial holding company parent. In addition,
Gramm-Leach contains numerous trigger points related to legal noncompliance and
other serious problems affecting bank affiliates that could lead to direct
Federal Reserve involvement and to the possible exercise of remedial authority
affecting both financial holding companies and their affiliated operating
companies.

     The Company has not, as of the date hereof, elected to become a financial
holding company.

PENDING LEGISLATION

     Proposals to change the laws and regulations governing the banking and
financial services industry are frequently introduced in Congress, in the state
legislatures and before the various bank regulatory agencies. The likelihood and
timing of any such changes and the impact such changes might have on the Company
and the Bank cannot be determined at this time.

INSURANCE OF ACCOUNTS

     The FDIC provides insurance, through the BIF, to deposit accounts at the
Bank to a maximum of $100,000 for each insured depositor. Effective January 1,
1996, the FDIC implemented an amendment to the BIF risk-based assessment
schedule that effectively eliminated deposit insurance assessments for most
commercial banks and other depository institutions with deposits insured by the
BIF only. At this time, the deposit insurance assessment rate for institutions
in the lowest risk-based premium category is zero and slightly higher for other
risk categories.

REGULATIONS GOVERNING CAPITAL ADEQUACY

     The federal bank regulatory agencies use capital adequacy guidelines in
their examination and regulation of bank holding companies and banks. If the
capital falls below the minimum levels established by these guidelines, the bank
holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open facilities.

     The Federal Reserve and the Comptroller have adopted risk-based capital
guidelines for banks and bank holding companies. The risk-based capital
guidelines are designed to make regulatory capital requirements more sensitive
to differences in risk profile among banks and bank holding companies, to
account for off-balance sheet exposure and to minimize disincentives for holding
liquid assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and off-balance
sheet items. The Federal Reserve has noted that bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimums. Under these guidelines, all bank holding companies and federally
regulated banks must maintain a minimum risk-based total capital ratio equal to
8%, of which at least one-half must be Tier 1 capital.

     The Federal Reserve also has implemented a leverage ratio, which is Tier 1
capital to total assets, to be used as a supplement to the risk-based
guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding company may leverage
its equity capital base. The Federal Reserve requires a minimum leverage ratio
of 3%. For all but the most highly rated bank holding companies and for bank
holding companies seeking to expand, however, the Federal Reserve expects that
additional capital sufficient to increase the ratio by at least 100 to 200 basis
points will be maintained.

     See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Capital Resources" for a discussion of the capital
adequacy of the Company and the Bank.

                                        9
<Page>

     Management of the Company believes that the risk weighting of assets and
the risk-based capital guidelines do not have a material adverse impact on the
Company's operations or on the operations of the Bank. The requirement of
deducting certain intangibles in computing capital ratios contained in the
guidelines, however, could adversely affect the ability of the Company to make
acquisitions in the future in transactions that would be accounted for using the
purchase method of accounting.

CHANGE IN BANK CONTROL ACT

     The Change in Bank Control Act prohibits a person or group of persons from
acquiring "control" of a bank holding company, unless the Federal Reserve has
been notified and has not objected to the transaction. Under a rebuttal
presumption established by the Federal Reserve, the acquisition of 10% or more
of a class of voting stock of a bank holding company with a class of securities
registered under Section 12 of the Exchange Act, such as the Company, would,
under the circumstance set forth in the presumption, constitute acquisition of
control of the bank holding company. In addition, a company is required to
obtain the approval of the Federal Reserve under the Bank Holding Company Act
before acquiring 25% (5% in the case of an acquirer that is a bank holding
company) or more of any class of outstanding voting stock of a bank holding
company, or otherwise obtaining control or a "controlling influence" over that
bank holding company.

COMMUNITY REINVESTMENT ACT

     The Community Reinvestment Act of 1977 requires that, in connection with
examinations of financial institutions within their jurisdiction, the federal
banking regulators must evaluate the record of the financial institutions in
meeting the credit needs of their local communities, including low and moderate
income neighborhoods, consistent with the safe and sound operation of those
banks. These factors are also considered in evaluating mergers, acquisitions and
applications to open a branch or facility.

REGULATIONS GOVERNING EXTENSIONS OF CREDIT

     The Bank is subject to certain restrictions imposed by the Federal Reserve
Act on extensions of credit to the Company or the Bank or investments in their
securities and on the use of their securities as collateral for loans to any
borrowers. These regulations and restrictions limit the ability of the Company
to borrow funds from the Bank for its cash needs, including funds for
acquisitions and for payment of dividends, interest and operating expenses.
Further, under the BHCA and certain regulations of the Federal Reserve, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tying arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. For example, the Bank may not generally
require a customer to obtain other services from the Bank or the Company, and
may not require the customer to promise not to obtain other services from a
competitor as a condition to an extension of credit to the customer.

     The Bank is also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
shareholders or any related interest of such persons. Extensions of credit (i)
must be made on substantially the same terms, including interest rates and
collateral as, and following credit underwriting procedures that are not less
stringent than, those prevailing at the time for comparable transactions with
persons not covered above and who are not employees, and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features.
The Bank is also subject to certain lending limits and restrictions on
overdrafts to such persons.

RESERVE REQUIREMENTS

     The Federal Reserve requires all depository institutions to maintain
reserves against their transaction accounts and non-personal time deposits.
Reserves of 3% must be maintained against net transaction accounts of $42.8
million or less (subject to adjustment by the Federal Reserve) and an initial
reserve of $1,284,000 plus 10% of the amount over $42.8 million (subject to
adjustment by the Federal Reserve) must be maintained against that portion of
net transaction accounts in excess of such amount. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy liquidity requirements.

                                       10
<Page>

     Institutions are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve regulations require institutions to
exhaust other reasonable alternative sources of funds before borrowing from the
Federal Reserve Bank.

DIVIDENDS

     The Company's primary sources of funds have been the dividends, current tax
liabilities and management fees paid by the Bank. The ability of the Bank to pay
dividends and management fees is limited by various state and federal laws, by
the regulations promulgated by its primary regulators and by the principles of
prudent bank management. Since the Acquisition, the Bank has not paid management
fees to the Company.

TECHNOLOGY RISK MANAGEMENT

     Federal banking regulators have issued various policy statements
emphasizing the importance of technology risk management and supervision in
evaluating the safety and soundness of depository institutions. Banks are
contracting increasingly with outside vendors to provide data processing and
core banking functions. The use of technology-related products, services,
delivery channels, and processes expose a bank to various risks, particularly
operational, privacy, security, strategic, reputation and compliance risk. Banks
are generally expected to successfully manage technology-related risks with all
other risks to ensure that the bank's risk management is integrated and
comprehensive, primarily through identifying, measuring, monitoring and
controlling risks associated with the use of technology.

MONETARY POLICY AND ECONOMIC CONTROL

     The commercial banking business in which the Company engages is affected
not only by general economic conditions, but also by the monetary policies of
the Federal Reserve. Changes in the discount rate on member bank borrowing,
availability of borrowing at the "discount window," open market operations, the
imposition of changes in reserve requirements against member banks deposits and
assets of foreign branches, and the imposition of and changes in reserve
requirements against certain borrowings by banks and their affiliates are some
of the instruments of monetary policy available to the Federal Reserve. These
monetary policies are used in varying combinations to influence overall growth
and distributions of bank loans, investments and deposits, and such use may
affect interest rates charged on loans or paid on deposits. The monetary
policies of the Federal Reserve have had a significant effect on the operating
results of commercial banks and are expected to do so in the future. The
monetary policies of the Federal Reserve are influenced by various factors,
including inflation, unemployment, short-term and long-term changes in the
international trade balance and in the fiscal policies of the U.S. Government.
Future monetary policies and the effect of such policies on the future business
and earnings of the Company and the Bank cannot be predicted.

COMPETITION

     The activities in which the Company and the Bank engage are highly
competitive. Each activity engaged in and the geographic market served involves
competition with other banks and savings and loan associations as well as with
nonbanking financial institutions and nonfinancial enterprises. In Texas,
savings and loan associations and banks are allowed to establish statewide
branch offices. The Bank actively competes with other banks in its effort to
obtain deposits and make loans, in the scope and type of services offered, in
interest rates paid on time deposits and charged on loans and in other aspects
of banking. In addition to competing with other commercial banks within and
without its primary service areas, the Bank competes with other financial
institutions engaged in the business of making loans or accepting deposits, such
as savings and loan associations, credit unions, insurance companies, small loan
companies, finance companies, mortgage companies, real estate investment trusts,
factors, certain governmental agencies, credit card organizations and other
enterprises. Additional competition for deposits comes from government and
private issues of debt obligations and other investment alternatives for
depositors such as money market funds. The Bank also competes with suppliers of
equipment in providing equipment financing.

                                       11
<Page>

EMPLOYEES

     At March 5, 2002, the Company and the Bank had 243 full-time equivalent
employees. Employees are provided with employee benefits, such as a 401(k)
profit sharing plan and life, health and long-term disability insurance plans.
The Company considers the relationship of the Bank with its employees to be
good.

                                       12
<Page>

ITEM 2.  PROPERTIES

     At March 5, 2002, the Company occupied approximately 2,600 square feet of
space for its corporate offices at 1617 Broadway, Lubbock, Texas. The Broadway
Branch of the Bank occupies approximately 9,800 square feet at this same
facility. The following table sets forth, at March 5, 2002, certain information
with respect to the banking premises owned or leased by the Company and the
Bank. The Company considers such premises adequate for its needs and the needs
of the Bank.

<Table>
<Caption>
                              APPROXIMATE
        LOCATION             SQUARE FOOTAGE                           OWNERSHIP AND OCCUPANCY
-----------------------     ----------------   ---------------------------------------------------------------------
<S>                             <C>            <C>
Abilene, Texas                   8,600         Owned by the Bank; occupied by the Chestnut Branch

Abilene, Texas                   3,500         Owned by the Bank; occupied by the Wylie Branch

Abilene, Texas                  58,900(1)      Owned by the Bank; occupied and leased by the North 3rd Street Branch

Abilene, Texas                   1,200         Leased by the Bank; occupied by the South 14th Street Branch

Azle, Texas                     20,400(2)      Owned by the Bank and three other condominium owners; occupied and
                                                 leased by the Azle Main Branch

Azle, Texas                      3,900         Owned by the Bank; occupied by the Azle North Branch

Bangs, Texas                     5,800(3)      Owned by the Bank; occupied by the Bangs Branch

Big Spring, Texas                3,200         Owned by the Bank; occupied by the Big Spring Branch

Lubbock, Texas                  12,400         Owned by the Bank; occupied by the Broadway Branch and the Company

Lubbock, Texas                  15,300         Leased by the Bank; occupied by Operations

Lubbock, Texas                  23,200(4)      Owned by the Bank; occupied and leased by the 82nd Street Branch

Lubbock, Texas                   1,800         Owned by the Bank; occupied by the Indiana Branch

Odessa, Texas                   62,400(5)      Owned by the Bank; occupied and leased by the Odessa Main Branch

Odessa, Texas                    2,400         Leased by the Bank; occupied by the Winwood Branch

Plainview, Texas                 6,300         Owned by the Bank; occupied by the Plainview Branch

San Angelo, Texas                6,800(6)      Owned by the Bank; occupied and leased by the San Angelo Branch

Stamford, Texas                 14,000         Owned by the Bank; occupied by the Stamford Branch

Trent, Texas                     4,900         Leased by the Bank; occupied by the Trent Branch

Winters, Texas                   9,500         Owned by the Bank; occupied by the Winters Branch
</Table>

----------
(1)  The North 3rd Street Branch occupies approximately 14,400 square feet and
     leases approximately 44,500 square feet to third parties.
(2)  The Bank owns condominium interests totaling approximately 16,800 square
     feet. Three other condominium owners own units totaling approximately 3,600
     square feet.
(3)  The Bangs Branch occupies approximately 3,600 square feet and donates the
     usage of approximately 2,200 square feet to a nonprofit agency.
(4)  The 82nd Street Branch occupies approximately 13,300 square feet, leases
     approximately 6,300 square feet to third parties and is attempting to lease
     the remaining approximately 3,600 square feet.
(5)  The Odessa Main Branch occupies approximately 18,500 square feet, leases
     approximately 26,100 square feet to third parties and is attempting to
     lease the remaining approximately 17,800 square feet.
(6)  The San Angelo Branch occupies approximately 3,400 square feet, leases
     approximately 3,400 square feet to third parties.

                                       13
<Page>

     The Bank owns or leases certain additional tracts of land for parking,
drive-in facilities and for future expansion or construction of new premises.
Aggregate annual rentals of the Company and the Bank for all leased premises
during the year ended December 31, 2001, were $242,000. This amount represents
rentals paid for the lease of land by the Wylie Branches and of banking premises
by the Operations Center, and the South 14th Street, Winwood and Trent Branches
of the Bank.

ITEM 3.  LEGAL PROCEEDINGS.

     The Estate of Harry V. Howard, Deceased, filed a lawsuit against the Bank
(as successor to First State Bank of Odessa, N.A.), (JOHN AND BILLY NEAL STORIE
V. FIRST STATE BANK OF ODESSA, N.A., ODESSA, TEXAS, Cause No. 22080-B) in the
104th District Court for Taylor County, Texas. The plaintiffs' lawsuit related
to the Bank's management of the Harry V. Howard Trust, wherein plaintiff's
alleged that the Bank, in its capacity as trustee of this testamentary trust,
failed to adequately oversee the trust assets and allowed waste to occur to the
trust principal. Additionally, the plaintiff's alleged that the Bank made
inappropriate distributions to the current beneficiary of the trust, that there
were other acts of mismanagement and breach of fiduciary duty. The trial on this
matter began on October 7, 2001. On October 10, 2001, the parties reached a
mutual settlement of the matter. The terms of the settlement call for the
Company's insurer to pay a nominal sum to the plaintiffs in return for a full
release of the Bank and a dismissal with prejudice by the plaintiffs of this
matter.

     From time to time, the Company is involved in litigation proceedings
incidental to the normal course of its business. In the opinion of management,
the ultimate liability, if any, resulting from known, current litigation, either
singularly or in aggregate, would not reasonable be expected to have a material
adverse effect on the Company's financial position or results of operations.

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

     During the fourth quarter of the fiscal year, no matter was submitted by
the Company to a vote of its shareholders through the solicitation of proxies or
otherwise.

                                       14
<Page>

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

MARKET INFORMATION

     Until August 11, 2000, the Company's Common Stock was traded on the
American Stock Exchange (the "AMEX") under the symbol "IBK." Upon completion of
the Acquisition, listing of the Company's Common Stock on the AMEX ceased.
Independent Capital's Trust Preferred Securities currently trade on the AMEX
under the symbol "IBK.Pr." The following table sets forth, for the periods
indicated, the high and low sales prices for the Common Stock and Trust
Preferred Securities as quoted on the AMEX and the amount of cash dividends and
distributions paid per share.

<Table>
<Caption>
                                                     Common Stock                     Trust Preferred Securities
                                         -----------------------------------    ---------------------------------------
                                                                      Cash                                Distributions
                                                                   Dividends                                  Per
                                            High         Low       Per Share       High          Low        Security
                                         ----------  -----------   ---------    -----------  -----------  -------------
<S>                                       <C>         <C>             <C>         <C>         <C>               <C>
YEAR ENDED DECEMBER 31, 2000
First Quarter                             $ 21.125    $ 11.75         $ 0.06      $   8.75    $ 6.4375          $  0.21
Second Quarter                                19.5      17.25           0.06          8.75       7.625             0.21
Third Quarter (through August 11
  For Common Stock)                             20         18             --        8.5625        8.75             0.21
Fourth Quarter                                 N/A        N/A            N/A          8.25       6.625             0.22

YEAR ENDED DECEMBER 31, 2001
First Quarter                                  N/A        N/A            N/A      $   9.44    $   8.00          $  0.22
Second Quarter                                 N/A        N/A            N/A         10.10        9.00             0.21
Third Quarter                                  N/A        N/A            N/A         10.15        8.75             0.22
Fourth Quarter                                 N/A        N/A            N/A         10.25        9.20             0.22

YEAR ENDED DECEMBER 31, 2002
First Quarter (through March 5)                N/A        N/A            N/A      $  10.00    $   9.60          $  0.21
</Table>

SHAREHOLDERS

     At March 5, 2002, all of the Company's Common Stock was owned indirectly by
State National.

DIVIDEND POLICY

     As the holder of all of the Common Stock, State National is entitled to
receive any cash dividends that may be declared by the Company's Board of
Directors. The declaration and payment of future dividends to State National
will be at the discretion of the Company's Board of Directors and will depend
upon a number of factors, including the extent of funds legally available for
the payment of dividends, the Company's earnings and financial condition,
capital requirements of its subsidiaries, regulatory requirements and
considerations and such other factors as the Company's Board of Directors may
deem relevant. In addition, the Company is prohibited from paying dividends on
the Common Stock in the event that it is in default under the terms of its
junior subordinated debentures issued to Independent Capital in connection with
the issuance of the Trust Preferred Securities or the Company extends the
regular interest payment date with respect to its debentures to Independent
Capital.

     As a holding company, the Company is ultimately dependent upon its
subsidiaries to provide funding for its operating expenses, debt service and
dividends. Various banking laws applicable to the Company's subsidiaries

                                       15
<Page>

limit the payment of dividends, management fees and other distributions by such
subsidiaries to the Company and may therefore limit the ability of the Company
to make dividend payments.

ITEM 6.  SELECTED FINANCIAL DATA

     The following table presents selected consolidated financial information
for the last five years. This financial information has been restated to reflect
the 5-for-4 stock split, effected in the form of a 25% stock dividend, paid to
stockholders in May 1997. See "Note 1: Summary of Significant Accounting
Policies-Principles of Consolidation," "Note 2: Acquisition of the Company,"
"Note 3: Bank Merger," "Note 12: Earnings Per Share" and the Other Notes in the
Company's Consolidated Financial Statements for an explanation of changes in
financial statement items.

<Table>
<Caption>
                                                            August 12,    January 1,
                                                              2000,         2000,
                                                             through       through
                                                             December     August 11,
                                                2001         31, 2000        2000             1999          1998           1997
                                              ---------     ----------    ----------      -----------    -----------   -----------
                                                          (Dollars in thousands, except per share amounts)
<S>                                           <C>            <C>           <C>            <C>            <C>           <C>
Balance sheet information:
   Assets                                     $ 637,383      $ 695,270     $      --      $   358,262    $   370,178   $   264,574
   Loans, net of unearned income                304,246        366,933            --          186,626        184,560       140,853
   Deposits                                     544,030        593,605            --          318,299        330,804       242,801
   Note payable                                       0              0            --                0              1            57
   Stockholder's equity                          75,381         81,984            --           25,356         24,505        20,527

Income statement information:
   Total interest income                      $  41,183         19,724     $  15,273      $    24,206    $    20,434   $    18,324
   Net interest income                           22,012         10,472         8,918           14,308         11,158         9,665
   Net income (loss)                             (7,197)           235        (1,908)           2,452          2,188         2,110

Basic earnings (loss) per common share
   available to common stockholders                 N/A            N/A     $    (.84)     $      1.12    $      1.07   $      1.12

Diluted earnings (loss) per share available
   to common stockholders                           N/A            N/A     $    (.84)     $      1.08    $      1.02   $      1.03

Cash dividends per common share                     N/A            N/A     $    0.12      $      0.20    $      0.20   $      0.19

Weighted average common shares outstanding:
   Basic                                            N/A            N/A         2,262            2,178          2,031         1,842
   Diluted                                          N/A            N/A         2,262            2,275          2,151         2,048
</Table>

                                       16
<Page>

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

FORWARD-LOOKING STATEMENTS--CAUTIONARY STATEMENTS

     THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION
RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT ARE BASED ON THE BELIEFS OF
THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION
CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS REPORT, THE
WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND "INTEND" AND WORDS OR
PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY OR ITS SUBSIDIARIES OR
COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS REFLECT THE CURRENT VIEW OF THE COMPANY WITH RESPECT TO FUTURE EVENTS
AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATED TO
CERTAIN FACTORS INCLUDING, WITHOUT LIMITATION, COMPETITIVE FACTORS, GENERAL
ECONOMIC CONDITIONS, CUSTOMER RELATIONS, THE INTEREST RATE ENVIRONMENT,
GOVERNMENTAL REGULATION AND SUPERVISION, NONPERFORMING ASSET LEVELS, LOAN
CONCENTRATIONS, CHANGES IN INDUSTRY PRACTICES, ACTS OF TERRORISM AND WAR, ONE
TIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN. BASED UPON CHANGING CONDITIONS,
SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD
ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY
FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR
INTENDED. THE COMPANY DOES NOT INTEND TO UPDATE THESE FORWARD-LOOKING
STATEMENTS.

GENERAL

     The following discussion and analysis presents the more significant factors
affecting the Company's financial condition at December 31, 2001 and 2000, and
results of operations for each of the three years in the period ended December
31, 2001, after accounting for the Acquisition and the Mergers (defined below)
as described in Note 2 and 3 in the Company's consolidated financial statements.
This discussion and analysis should be read in conjunction with the Company's
consolidated financial statements, notes thereto and other financial information
appearing elsewhere in this annual report. The results of operations for the
Company for the year ended December 31, 2000, include the results of operations
for UB&T and the Lubbock Bank beginning August 11, 2000, the date of the
Acquisition. UB&T and the Lubbock Bank were previously owned subsidiaries of
State National, which were merged with and into the Bank ("the Mergers"). The
Mergers were accounted for similar to a pooling of interests. The name of the
resulting bank was changed to State National Bank of West Texas, Lubbock, Texas
(previously defined as the "Bank" or the "Lubbock Bank").

     On March 1, 2000, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with State National for the Acquisition. The
Company and State National consummated the Acquisition at the close of business
August 11, 2000. Pursuant to the terms of the Agreement, each share of common
stock of the Company was exchanged for $20.0165 in cash. Upon consummation of
the Acquisition, State National became the sole shareholder of the Company,
owning all 2,273,647 outstanding shares of the Company's common stock. In
connection with the Acquisition, State National agreed to assume and guarantee
the outstanding Trust Preferred Securities issued by Independent Capital, a
Delaware business trust controlled by the Company.

     State National accounted for its acquisition of the Company as a purchase
business combination, and purchase accounting adjustments, including goodwill,
have been pushed down and reflected in the consolidated financial statements of
the Company subsequent to August 11, 2000. The consolidated financial statements
of the Company for the periods ended before August 12, 2000 (predecessor), were
prepared using the Company's historical basis of accounting. The comparability
of operating results for these periods and the periods encompassing push down
accounting are affected by the purchase accounting adjustments, including the
amortization of goodwill (straight-line method) and core deposit intangibles
(accelerated method) over a period of 20 and 10 years, respectively.

                                       17
<Page>

RESULTS OF OPERATIONS

GENERAL

     The net loss for the year ended December 31, 2001 was $7,197,000. The net
loss for the period from January 1, 2000, through August 11, 2000, the date of
the Acquisition, was $1,908,000 ($0.84 diluted loss per common share). The net
income for the period from August 12, 2000, through December 31, 2000, was
$235,000. Net income for the year ended December 31, 1999, amounted to
$2,452,000 ($1.08 diluted earnings per common share). The net losses recorded
during 2001 were due primarily to loan loss provisions recorded during the year
related to the further deterioration of the Bank's collateral position on two
particular large borrowing relationships from the original IBK loan portfolio,
as well as further evaluation of the credit quality of the original IBK loan
portfolio, all of which existed at the date of Acquisition. Net losses recorded
in 2000 were due primarily to expenses incurred in connection with the
Acquisition and increases in the provisions for loan losses.

NET INTEREST INCOME

     Net interest income represents the amount by which interest income on
interest-earning assets, including loans and securities, exceeds interest paid
on interest-bearing liabilities, including deposits and other borrowed funds.
Net interest income is the principal source of the Company's earnings. Interest
rate fluctuations, as well as changes in the amount and type of interest-earning
assets and interest-bearing liabilities, combine to affect net interest income.

     Net interest income amounted to $22,012,000 for 2001, an increase of
$2,622,000, or 13.5%, from 2000. Net interest income for 2000 was $19,390,000,
an increase of $5,082,000, or 35.5%, from 1999. The increase in 2001 and 2000
were primarily due to the Mergers. The net interest margin on a fully
taxable-equivalent basis was 3.88% for 2001, compared to 4.64% for 2000 and
4.57% for 1999. The primary reason for the decrease in the net interest margin
during 2001 was the lag in repricing for time deposits as compared to the
repricing of assets. As the drop in interest rates occurred, the assets repriced
much faster than did some of the longer-term time deposits. The decrease was
partially offset by a stabilization of the yield related to securities. This
stabilization is primarily due to the Company reinvesting security funds into
higher yielding, longer maturity investments subsequent to the Acquisition and
the Mergers. The primary reasons for the increase in the net interest margin
during 2000 was the Mergers. UB&T had a historically higher loan to deposit
ratio than the Company and the Lubbock Bank prior to the Mergers.

     At December 31, 2001, approximately $143,689,000, or 47.2%, of the
Company's total loans, net of unearned income, were loans with floating interest
rates. Approximately 53.9% of loans, excluding loans to individuals, were loans
with floating interest rates.

     Average overall rates paid for various types of certificates of deposit
decreased during 2001 when compared to 2000. For example, the average rate paid
for certificates of deposit less than $100,000 decreased from 5.66% in 2000 to
5.29% in 2001, while the average rate paid by the Company for certificates of
deposit of $100,000 or more also decreased from 5.90% during 2000 to 5.65% in
2001. Rates on other types of deposits, such as interest-bearing demand, savings
and money market deposits, decreased from an average of 2.56% in 2000 to an
average of 1.82% in 2001. As noted under "Analysis of Financial
Condition-Interest Rate Sensitivity" below, by excluding interest-bearing
demand, savings and money market deposits, the company would be in an asset
sensitive position or positive gap. These deposits are excluded, as it has been
the Company's experience that interest rates change more slowly for these types
of deposits. Given the fact that the Company's interest-bearing assets are
subject to repricing faster than its interest-earning liabilities in the short
term, when excluding the slower changing deposits, an overall declining interest
rate environment, as was experienced during 2001, would normally produce a lower
net interest margin than in a rising rate environment.

     The following table presents the average balance sheets of the Company for
each of the last three fiscal years and indicates the interest earned or paid on
each major category of interest-earning assets and interest-bearing liabilities
on a fully taxable-equivalent basis, and the average rates earned or paid on
each major category. This analysis details the contribution of interest-earning
assets and the overall impact of the cost of funds on net interest income.

                                       18
<Page>

<Table>
<Caption>
                                                                Year Ended December 31,
                                           ----------------------------------------------------------------
                                                           2001                         2000(1)(2)
                                           -------------------------------  -------------------------------
                                                       Interest                         Interest
                                            Average     Income/    Yield/    Average     Income/     Yield/
                                            Balance     Expense     Rate     Balance     Expense      Rate
                                           ---------   ---------  --------  ---------   ---------   -------
                                                                 (Dollars in thousands)
<S>                                        <C>         <C>           <C>   <C>          <C>           <C>
ASSETS
Interest-earning assets:
   Loans, net of unearned income (3)       $ 326,920   $  27,292     8.35% $ 258,327    $ 24,851      9.62%
   Securities (4)                            185,333      11,632     6.28    135,765       8,507      6.27
   Time Deposits in Other banks                  709          28     3.95        194          12      6.19
   Federal funds sold                         59,010       2,428     4.11     28,025       1,846      6.59
                                           ---------   ---------  --------  ---------   ---------   -------
     Total interest-earning assets           571,972      41,380     7.23    422,311      35,216      8.34
                                           ---------   ---------  --------  ---------   ---------   -------

Noninterest-earning assets:
   Cash and due from banks                    32,767                          24,653
   Intangible assets                          46,908                          25,979
   Premises and equipment, net                15,929                          11,826
   Accrued interest receivable and other
     assets                                   16,084                           7,789
   Allowance for possible loan losses         (6,763)                         (4,512)
                                           ---------                       ---------
     Total noninterest-earning assets        104,925                          65,735
                                           ---------                       ---------
           Total assets                    $ 676,897                       $ 488,046
                                           =========

LIABILITIES AND STOCKHOLDER'S EQUITY
Interest-bearing liabilities:
   Demand, savings and money market
     deposits                              $ 186,941   $   3,407     1.82% $ 136,829    $  3,505       2.56%
   Time deposits                             290,547      15,760     5.42    210,502      12,095       5.75
   Fed funds purchased and securities
     sold Under agreement to repurchase          150           4     2.67        373           7       1.88
                                           ---------   ---------  --------  ---------   ---------   --------
       Total interest-bearing liabilities    477,638      19,171     4.01    347,704      15,607       4.49
Noninterest-bearing liabilities:
   Demand deposits                           100,197                          75,425
   Accrued interest payable and other
     liabilities                               8,056                           4,975
                                           ---------                       ---------
       Total noninterest-bearing
         liabilities                         108,253                          80,400
                                           ---------                       ---------
           Total liabilities                 585,891                         428,104
Guaranteed preferred beneficial
   interests in the Company's
   subordinated debentures                    10,918                          12,126
Stockholder's equity                          80,088                          47,816
                                           ---------                       ---------
           Total liabilities and
              stockholder's equity         $ 676,897                       $ 488,046
                                           =========                       ==========

Net interest income                                    $  22,209                        $ 19,609
                                                       =========                        =========

Interest rate spread (5)                                             3.22%                             3.85%
                                                                  ========                          =======

Net interest margin (6)                                              3.88%                             4.64%
                                                                  ========                          =======

<Page>

<Caption>
                                              Year Ended December 31,
                                           -------------------------------
                                                       1999
                                           -------------------------------
                                                       Interest
                                            Average     Income/    Yield/
                                            Balance     Expense     Rate
                                           ---------   ---------  --------
                                                (Dollars in thousands)
<S>                                        <C>         <C>            <C>
ASSETS
Interest-earning assets:
   Loans, net of unearned income (3)       $ 184,471   $  17,027      9.23%
   Securities (4)                            106,782       6,074      5.69
   Time Deposits in Other banks                    0           0      0.00
   Federal funds sold                         26,826       1,332      4.97
                                           ---------   ---------  --------
     Total interest-earning assets           318,079      24,433      7.68
                                           ---------   ---------  --------

Noninterest-earning assets:
   Cash and due from banks                    19,539
   Intangible assets                          10,480
   Premises and equipment, net                10,034
   Accrued interest receivable and other
     assets                                    6,099

   Allowance for possible loan losses         (1,787)
                                           ---------
     Total noninterest-earning assets         44,365
                                           ---------
         Total assets                      $ 362,444
                                           =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Interest-bearing liabilities:
   Demand, savings and money market
     deposits                              $ 106,485   $   2,231      2.10%

   Time deposits                             157,994       7,667      4.85
   Fed funds purchased and securities
     sold Under agreement to repurchase            0           0      0.00
                                           ---------   ---------  --------
       Total interest-bearing liabilities    264,479       9,898      3.74
Noninterest-bearing liabilities:
   Demand deposits                            58,041
   Accrued interest payable and other
     liabilities                               2,070

       Total noninterest-bearing           ---------
         liabilities                          60,111
                                           ---------
           Total liabilities                 324,590
Guaranteed preferred beneficial
   interests in the Company's
   subordinated debentures                    13,000
Stockholder's equity                          24,854
                                           ---------
           Total liabilities and
              stockholder's equity         $ 362,444
                                           =========

Net interest income                                    $  14,535
                                                       =========

Interest rate spread (5)                                              3.94%
                                                                  ========

Net interest margin (6)                                               4.57%
                                                                  ========
</Table>

----------
(1)  The Average Balance and Interest Income/Expense columns include the balance
     sheet and income statement accounts of Abilene Bank and Lubbock Bank from
     August 12, 2000, through December 31, 2000.
(2)  The Average Balance and Interest Income/Expense columns for the year ended
     December 31, 2000, included information for the predecessor Company
     pre-Acquisition (January 1, 2000, through August 11, 2000) and
     post-Acquisition (August 12, 2000, through December 31, 2000).
(3)  Nonaccrual loans are included in the Average Balance columns and income
     recognized on these loans, if any, is included in the Interest
     Income/Expense columns. Interest income on loans includes fees on loans,
     which are not material in amount.
(4)  Nontaxable interest income on securities was adjusted to a taxable yield
     assuming a tax rate of 34%.
(5)  The interest rate spread is the difference between the average yield on
     interest-earning assets and the average cost of interest-bearing
     liabilities.
(6)  The net interest margin is equal to net interest income, on a fully
     taxable-equivalent basis, divided by average interest-earning assets.

                                       19
<Page>

     The following table presents the changes in the components of net interest
income and identifies the part of each change due to differences in the average
volume of interest-earning assets and interest-bearing liabilities and the part
of each change due to the average rate on those assets and liabilities. The
changes in interest due to both volume and rate in the table have been allocated
to volume or rate change in proportion to the absolute amounts of the change in
each.

<Table>
<Caption>
                                                  2001 vs. 2000(1)                        2000(1) vs. 1999
                                       ------------------------------------    ------------------------------------
                                             Increase (Decrease) Due To              Increase (Decrease) Due To
                                       ------------------------------------    ------------------------------------
                                                     Changes In:                           Changes In:
                                       ------------------------------------    ------------------------------------
                                        Volume         Rate          Total       Volume         Rate         Total
                                       --------      --------       -------    ---------    ----------    ---------
                                                                   (Dollars in thousands)
<S>                                    <C>           <C>            <C>        <C>          <C>           <C>
Interest-earning assets:
   Loans, net of unearned income       $  6,599      $ (4,158)      $ 2,441    $   6,817    $    1,007    $   7,824
   Securities (2)                         3,106            19         3,125        1,649           784        2,433
   Time deposits in other banks              32           (16)           16           12             0           12
   Federal funds sold                     2,041        (1,459)          582           60           454          514
                                       --------      --------       -------    ---------    ----------    ---------
       Total interest income             11,778        (5,614)        6,164        8,538         2,245       10,783
                                       --------      --------       -------    ---------    ----------    ---------
Interest-bearing liabilities:
   Deposits:
     Demand, savings and money
       market deposits                    1,284        (1,382)          (98)         636           638        1,274
     Time deposits                        4,599          (934)        3,665        2,548         1,880        4,428
     Fed Funds Purchased and
        Securities sold under
        Agreement to repurchase              (4)            1            (3)           7             0            7
                                       --------      --------       -------    ---------    ----------    ---------
            Total interest expense        5,879        (2,315)        3,564        3,191         2,518        5,709
                                       --------      --------       -------    ---------    ----------    ---------
Increase (Decrease) in net
   interest income                     $  5,899      $ (3,299)      $ 2,600    $   5,347    $     (273)   $   5,074
                                       ========      ========       =======    =========    ==========    =========
</Table>

----------
(1)  Income statement items include the income statement accounts of the Abilene
     Bank and the Lubbock Bank beginning August 12, 2000, through December 31,
     2000.
(2)  Information with respect to interest income on tax-exempt securities is
     provided on a fully taxable-equivalent basis assuming a tax rate of 34%.

PROVISION FOR LOAN LOSSES

     The amount of the provision for loan losses is based on periodic (not less
than quarterly) evaluations of the loan portfolio, especially nonperforming and
other potential problem loans. During these evaluations, consideration is given
to such factors as: management's evaluation of specific loans; the level and
composition of nonperforming loans; historical loss experience; results of
examinations by regulatory agencies; an internal asset review process conducted
by the Company that is independent of the management of the Bank; expectations
of future economic conditions and their impact on particular industries and
individual borrowers; the market value of collateral; the strength of available
guarantees; concentrations of credit; and other judgmental factors. The
provision for loan losses for the year ended December 31, 2001, was $10,765,000,
compared to $2,278,000 for the previous year. The provision in 2001 represented
an increase of $8,487,000, or 372.6%, from the 2000 provision. The provision
recorded in 2001 was primarily related to the further deterioration of the
Bank's collateral position on two particular large borrowing relationships from
the original IBK loan portfolio, as well as further evaluation of the credit
quality of the original IBK loan portfolio, all of which existed at the date of
Acquisition. The provision in 2000 represented an increase of $1,833,000, or
411.9%, from the 1999 provision primarily due to increased classified,
nonperforming and charged off loans during the second half of 2000.

                                       20
<Page>

NONINTEREST INCOME

     Noninterest income increased $1,614,000, or 42.6%, from $3,792,000 in 2000
to $5,406,000 in 2001. Noninterest income for 2000 increased $525,000, or 16.1%,
from $3,267,000 in 1999.

     Service charges on deposit accounts and charges for other types of services
are the major source of noninterest income to the Company. This source of income
increased $279,000, or 8.6%, from $3,227,000 for 2000 to $3,506,000 for 2001.
The increase was attributable to the Mergers. Service charge income increased
$385,000, or 13.5%, from $2,842,000 for 1999 to $3,227,000 for 2000 primarily
due to the Mergers.

     Trust fees from trust operations increased $234,000, or 90.7%, from
$258,000 in 2000 to $492,000 in 2001. Trust fees also increased $50,000, or
24.0%, from $208,000 during 1999 to $258,000 during 2000. The increases in 2001
and 2000 are due to an overall increase in the value of assets under management
of the trust department. In particular, during the fourth quarter of 2000, the
Bank purchased approximately $33,000,000 in trust assets from another trust
company.

     Other income is the sum of several components of noninterest income
including other customer service fees, brokerage service fees, credit and debit
card income, safe deposit box rental income and other sources of miscellaneous
income. Other income increased $1,101,000, or 358.6%, from $307,000 in 2000 to
$1,408,000 in 2001 primarily due to the Mergers as well as income generated from
the Bank Owned Life Insurance ("BOLI") purchased in 2001. Other income increased
$90,000, or 41.5%, from $217,000 in 1999 to $307,000 for 2000, primarily due to
the Mergers.

NONINTEREST EXPENSES

     Noninterest expenses increased $5,074,000, or 23.1%, from $21,981,000 in
2000 to $27,055,000 in 2001, primarily as a result of the Mergers. Noninterest
expenses increased $8,477,000, or 62.8%, from $13,504,000 in 1999 to $21,981,000
in 2000. The increase in 2000 was primarily a result of costs incurred in
association with the Acquisition and due to the Mergers.

     Salaries and benefits rose $2,390,000, or 28.8%, from $8,291,000 in 2000 to
$10,681,000 in 2001, primarily due to the Mergers. Salaries and employee
benefits increased $2,245,000, or 37.1%, from $6,046,000 in 1999 to $8,291,000
in 2000, primarily due to the Mergers.

     Merger-related expenses totaled $51,000 for the year ended December 31,
2001,and $1,970,000 for the year ended December 31, 2000, a decrease of
$1,919,000 or 97.4%. The expenses in 2000 include approximately $887,000 in
accrued retention agreement payments payable to certain officers of the Company
and the Bank, approximately $605,000 in payments made to the Company's
investment advisor in connection with the Acquisition, approximately $319,000
paid for legal services rendered to the Company in connection with the
Acquisition, approximately $65,000 for the purchase of tail insurance covering
the Company's former officers and directors subsequent to the Acquisition and
other miscellaneous expenses related to the Acquisition.

     Amortization of intangible assets increased $2,269,000, or 108.2%, from
$2,098,000 for 2000 to $4,367,000 for 2001, and increased $1,425,000, or 211.7%,
from $673,000 for 1999 to $2,098,000 for 2000. The increase in 2001 and 2000 is
due to the amortization of the additional core deposit intangible and goodwill
recorded as a result of the Acquisition.

     Net occupancy expense increased $611,000, or 49.4%, from $1,237,000 in 2000
to $1,848,000 in 2001. The increase was due to the Mergers. Net occupancy
expense increased $293,000, or 31.0%, from $944,000 in 1999 to $1,237,000 in
2000. This increase was due to the Mergers and increases in property taxes and
utilities in 2000.

     Distributions on guaranteed preferred beneficial interests in the Company's
Subordinated Debentures increased $7,000, or 0.6%, from $1,112,000 for 2000 to
$1,119,000 for 2001 and increased $7,000, or 0.6% from $1,105,000 for 1999 to
$1,112,000 for 2000. The increase in 2001 and 2000 are due to the accretion into
expense of the purchase accounting discount recorded on the Trust Preferred
Securities in connection with the Acquisition.

                                       21
<Page>

     Equipment expense increased $438,000, or 30.4%, from $1,440,000 in 2000 to
$1,878,000 in 2001. The increase was primarily due to increased depreciation
expense caused by the Mergers. Equipment expense increased $337,000, or 30.6%,
from $1,103,000 in 1999 to $1,440,000 for 2000. The increase was due to the
Mergers and the write-off of equipment and capitalized data processing
conversion costs which would not be utilized or have any future value subsequent
to the Acquisition.

     Professional fees, which include legal, accounting and other professional
fees, decreased $293,000, or 24.8%, from $1,181,000 during 2000 to $888,000
during 2001, primarily due to the Acquisition completed in 2000. Professional
fees increased $745,000, or 170.9%, from $436,000 during 1999 to $1,181,000 for
2000. The increase in 2000 is primarily a result of increased professional fees
due to the Acquisition and the Mergers, as well as consulting and other
professional fees paid for services subsequent to and related to the
Acquisition.

     Stationery, printing and supplies expense increased $15,000, or 2.5%, from
$612,000 for 2000 to $627,000 for 2001 due to the Mergers. Stationery, printing
and supplies expense increased $38,000, or 6.6%, from $574,000 for 1999 to
$612,000 for 2000, primarily caused by the Acquisition and the Mergers.

     Communication expense increased $261,000, or 39.3%, from $664,000 in 2000
to $925,000 in 2001, and increased $175,000, or 35.8%, from $489,000 in 1999 to
$664,000 in 2000. The increase was due to enhanced voice and data communication
capacity necessary to support a larger number of Bank branch locations as a
result of the Mergers.

     Data processing expense increased $149,000, or 29.5%, from $505,000 in 2000
to $654,000 in 2001, and increased $170,000, or 50.7%, from $335,000 in 1999 to
$505,000 in 2000. The increase was due to several data processing conversions
that were performed as a result of the Acquisition and the Mergers and the fact
that State National out-sources the Company's data processing function, which
had previously been performed by the Company in-house prior to the Acquisition.

     Advertising and business development expense decreased $35,000 or 6.1% from
$575,000 in 2000 to $540,000 in 2001 primarily due to the large increase in
advertising which occurred in the fourth quarter of 2000 needed to promote the
newly merged banks. Advertising and business development expense increased
$438,000 or 319.7% from $137,000 in 1999 to $575,000 for 2000 due primarily to
the Mergers and the more aggressive advertising and public relations campaign
employed by State National as compared to the Company prior to the Acquisition.

     Net costs applicable to other real estate and other repossessed assets
consist of expenses associated with holding and maintaining various repossessed
assets, the net gain or loss on the sales of such assets, the write-down of the
carrying value of the assets and any rental income on such assets that is
credited as a reduction in such expenses. The Company recorded net costs of
$95,000 in 2001 compared to net costs of $6,000 in 2000, an increase of $89,000,
or 1,483.3%. The increase in net costs during 2001 was primarily due to an
increase in foreclosures on loans, most of which existed at the time of the
Acquisition. Net costs for the Company were $6,000 in 2000 compared to $91,000
in 1999. The decrease for 2000 is primarily due to a decrease in the number of
repossessed automobiles during 2000 as a result of a reduction in the number of
outstanding indirect installment loans secured by automobiles.

     Other noninterest expense includes, among many other items, postage, loan
and collection expenses, armored car and courier fees, travel, insurance, ATM
transaction expenses, regulatory examinations, franchise taxes, dues and
subscriptions, Federal Deposit Insurance Corporation ("FDIC") insurance expense
and director's fees. These expenses increased $1,092,000, or 47.7%, from
$2,290,000 during 2000 to $3,382,000 during 2001. The majority of the increase
is due to the Mergers. These expenses increased $719,000, or 45.8%, from
$1,571,000 for 1999 to $2,290,000 for 2000. The increase was primarily due to
the Mergers.

                                       22
<Page>

FEDERAL INCOME TAXES

     The Company recorded a federal income tax benefit of $3,205,000 for 2001
and provided for $596,000 and $1,174,000 in federal income taxes in 2000 and
1999, respectively. The benefit was recorded due to the pretax loss incurred in
2001. The provision was made in 2000 despite the fact that the Company had a
pretax loss due to a substantial amount of nondeductible Acquisition related
expenses that were incurred during the year ended December 31, 2000. The
effective tax rate for the Company was 32.4% for the year ended December 31,
1999.

IMPACT OF INFLATION

     The effects of inflation on the local economy and on the Company's
operating results have been relatively modest for the past several years.
Because substantially all of the Company's assets and liabilities are monetary
in nature, such as cash, securities, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates. The Company attempts
to control the impact of interest rate fluctuations by managing the relationship
between its interest rate sensitive assets and liabilities. See "Analysis of
Financial Condition--Interest Rate Sensitivity" below.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The business of the Company and the composition of its consolidated balance
sheet consists of investments in interest-earning assets (primarily loans and
investment securities), which are primarily funded by interest-bearing
liabilities (deposits). Such financial instruments have varying levels of
sensitivity to changes in market interest rates resulting in the market risk.

     INTEREST RATE RISK MEASUREMENT

     Interest rate risk arises when an interest-earning asset matures or when
its rate of interest changes in a time frame different from that of the
supporting interest-bearing liability. The Company seeks to minimize the
difference between the amount of interest-earning assets and the amount of
interest-bearing liabilities that could change interest rates in the same time
frame in an attempt to reduce the risk of significant adverse effects on the
Company's net interest income caused by interest rate changes. The Company does
not attempt to match each interest-earning asset with a specific
interest-bearing liability. Instead, as shown in the following table, it
aggregates all of its interest-earning assets and interest-bearing liabilities
to determine the difference between the two in specific time frames. This
difference is known as the rate-sensitivity gap. A company is considered to be
asset sensitive, or having a positive gap, when the amount of its
interest-earning assets maturing or repricing within a given period exceeds the
amount of its interest bearing liabilities also maturing or repricing within
that time period. Conversely, a company is considered to be liability sensitive,
or having a negative gap, when the amount of its interest-bearing liabilities
maturing or repricing within a given time period exceeds the amount of its
interest-earning assets also maturing or repricing within that time period.
During a period of rising interest rates, a negative gap would tend to affect
net interest income adversely, while a positive gap would tend to result in an
increase in net interest income. During a period of falling interest rates, as
experienced in 2001, a negative gap would tend to result in an increase in net
interest income, while a positive gap would tend to affect net interest income
adversely. Maintaining a balanced position will reduce risk associated with
interest rate changes, but it will not guarantee a stable interest rate spread
because the various rates within a time frame may change by differing amounts
and occasionally change in different directions. Management regularly monitors
the interest sensitivity position and considers this position in its decisions
in regard to interest rates and maturities for interest-earning assets acquired
and interest-bearing liabilities accepted.

     In adjusting the Company's asset/liability position, management attempts to
manage the Company's interest rate risk while enhancing net interest margins.
The rates, terms and interest rate indices of the Company's interest-earning
assets result primarily from the Company's strategy of investing in loans and
securities, which permit the Company to limit its exposure to interest rate
risk, together with credit risk, while at the same time achieving a positive and
relatively stable interest rate spread from the difference between the income
earned on interest-earning assets and the cost of interest-bearing liabilities.

     The Company's ratios of interest-sensitive assets to interest-sensitive
liabilities, as shown in the following tables, are 63.4% at the 90-day interval,
63.3% at the 180-day interval and 63.5% at the 365-day interval at December

                                       23
<Page>

31, 2001. Currently, the Company is in a liability-sensitive position at the
three intervals. However, the Company had $180,021,000 of interest-bearing
demand, savings and money market deposits at December 31, 2001, which from the
Company's experience, change more slowly in a declining interest rate
environment than do the other types of deposits. Therefore, excluding these
types of deposits, the Company's interest-sensitive assets to interest-sensitive
liabilities ratio at the 365-day interval would have been 114.3% at December 31,
2001, a positive gap position. The interest sensitivity position is presented as
of a point in time and can be modified to some extent by management as changing
conditions dictate.

     The following table shows the interest rate sensitivity position of the
Company at December 31, 2001:

<Table>
<Caption>
                                                                                         Volumes
                                                       Cumulative Volumes               Subject to
                                                  Subject to Repricing Within           Repricing
                                             --------------------------------------       After
                                               90 Days     180 Days      365 Days         1 Year          Total
                                             ----------   -----------   ----------      ----------     ----------
                                                                  (Dollars in thousands)
<S>                                          <C>          <C>           <C>             <C>            <C>
Interest-earning assets:
   Federal funds sold                        $   10,528   $    10,528   $   10,528      $        0     $   10,528
   Securities                                    17,961        42,114       58,803         157,309        216,112
   Loans, net of unearned income                153,286       162,614      187,619         116,651        304,270
                                             ----------   -----------   ----------      ----------     ----------
     Total interest-earning assets              181,775       215,256      256,950         273,960        530,910
                                             ----------   -----------   ----------      ----------     ----------
Interest-bearing liabilities:
   Demand, savings and money market
     Deposits                                   180,021       180,021      180,021               0        180,021
   Securities sold under agreement to
       Repurchase                                   151           151          151               0            151
   Time deposits                                106,585       159,854      224,626          27,339        251,965
                                             ----------   -----------   ----------      ----------     ----------
     Total interest-bearing liabilities         286,757       340,026      404,798          27,339        432,137
                                             ----------   -----------   ----------      ----------     ----------

Rate-sensitivity gap (1)                     $ (104,982)  $  (124,770)   $(147,848)     $  246,621      $  98,773
                                             ==========   ===========   ==========      ==========     ==========

Rate-sensitivity ratio (2)                         63.4%         63.3%        63.5%
                                             ==========   ===========   ==========
</Table>

----------
(1)  Rate-sensitive interest-earning assets less rate-sensitive interest-bearing
     liabilities.
(2)  Rate-sensitive interest-earning assets divided by rate-sensitive
     interest-bearing liabilities.

     NET ECONOMIC VALUE

     The interest rate risk ("IRR") component is a dollar amount that is
deducted from total capital for the purpose of calculating an institution's
risk-based capital requirement and is measured in terms of the sensitivity of
its net economic value ("NEV") to changes in interest rates. An institution's
NEV is calculated as the net discounted cash flows from assets, liabilities and
off-balance sheet contracts. As an institution's IRR component is measured as
the change in the ratio of NEV to the net present value of total assets as a
result of a hypothetical 200 basis point change in market interest rates, a
resulting decline in this ratio of more than 2% of the estimated present value
of an institution's total assets prior to the hypothetical 200 basis point
change will require the institution to deduct from its regulatory capital 50% of
that excess decline. Based on quarterly calculations, the Bank experienced no
such decline.

     Although certain assets and liabilities may have similar maturities or
periods of repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate mortgage loans, have
features that restrict changes in interest rates on a short-term basis and over

                                       24
<Page>

the life of the loan. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels could deviate significantly from those
assumed in calculating the table. Finally, the ability of many borrowers to
service their debt may decrease in the event of a significant interest rate
increase. The Company considers all of these factors in monitoring its
exposure to interest rate risk.

     The repricing of certain categories of assets and liabilities are subject
to competitive and other pressures beyond the Company's control. As a result,
certain assets and liabilities indicated as maturing or otherwise repricing
within a stated period may in fact mature or reprice at different times and at
different volumes.

                                       25
<Page>

     The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. Except for the
effects of prepayments and scheduled principal amortization on mortgage
related assets, the table presents principal cash flows and related weighted
average interest rates by the contractual terms to maturity. Nonaccrual loans
are included in the loan totals. All investments are classified as
available-for-sale.

<Table>
<Caption>
                                            Year Ending December 31,
                             ------------------------------------------------------
                               2002         2003       2004       2005       2006     Thereafter     Total     Fair Value
                             ---------    --------    -------    -------    -------   ----------    --------   ----------
                                                               (Dollars in thousands)
<S>                          <C>          <C>         <C>        <C>        <C>       <C>           <C>        <C>
Fixed Rate Loans:
   Maturities                $  50,465    $ 27,823    $27,823    $18,854    $18,854   $   16,762    $160,581   $  163,298
   Average interest rate          8.11%       9.04%      9.04%      8.72%      8.72%        8.38%       8.60%

Adjustable Rate Loans:
   Maturities                   80,335      10,482     10,482     11,953     11,953       18,484     143,689      143,689
   Average interest rate          5.30%       5.73%      5.73%      5.47%      5.47%        6.84%      5.59%

Securities and Other
   Interest-earning Assets:
     Maturities                 84,271      47,043     48,308     18,696     18,696        9,626     226,640      226,640
     Average interest rate        5.21%       5.13%      4.96%      6.43%      6.43%        6.74%      5.41%

Total interest-earning
   Assets:
     Maturities              $ 215,071    $ 85,348    $86,613    $49,503    $49,503   $   44,872    $530,910   $  533,627
     Average interest rate        5.92%       6.48%      6.36%      7.07%      7.07%        7.39%       6.42%

Savings Deposits:
   Maturities                $       0    $      0    $     0    $     0    $     0   $   22,721    $ 22,721   $   22,721
   Average interest rate            --%         --%        --%        --%        --%        0.36%       0.36%

NOW Deposits:
   Maturities                        0           0          0          0          0       81,646      81,646       81,646
   Average interest rate            --%         --%        --%        --%        --%        0.34%       0.34%

Money Market Deposits:
   Maturities                        0           0          0          0          0       75,654      75,654       75,654
   Average interest rate            --%         --%        --%        --%        --%        1.53%       1.53%

Certificates of Deposit:
   Maturities                  224,626      18,133      4,702      3,321      1,164           19     251,965      255,257
   Average interest rate          3.91%       5.59%      5.79%      6.57%      5.02%        3.70%       4.11%

Total Interest-bearing
   Liabilities:
     Maturities               $224,626    $ 18,133   $  4,702   $  3,321   $  1,164   $  180,040    $431,986   $  435,278
     Average interest rate        3.91%       5.59%      5.79%     6.574%      5.02%         .84%       2.75%
</Table>

     The Company assumes that 100% of savings, NOW and money market deposits at
December 31, 2001, are core deposits and are, therefore, expected to roll off
after five years. No roll-off is applied to certificates of deposit. Fixed
maturity deposits reprice at maturity.

ANALYSIS OF FINANCIAL CONDITION

ASSETS

     Total assets decreased $57,887,000, or 8.3%, from $695,270,000 at December
31, 2000, to $637,383,000 at December 31, 2001, due primarily to decreases in
net loans and cash, which are related to decreases in total deposits. The
decreases in net loans and cash were partially offset by an increase in
securities.

CASH AND CASH EQUIVALENTS

     At December 31, 2001, the Company had $46,590,000 in cash and cash
equivalents, down $36,995,000, or 44.3%, from $83,585,000 at December 31, 2000,
due primarily to the use of cash to fund an increase in the securities balance.

                                       26
<Page>

SECURITIES

     Securities increased $38,918,000, or 22.0%, from $177,194,000 at December
31, 2000, to $216,112,000 at December 31, 2001. The increase in 2001 was due
primarily to the inflow of cash from loans, which were paid off, and the
investment of those proceeds into securities.

     The board of directors of the Bank reviews all securities transactions
monthly and the securities portfolio periodically. The Company's current
investment policy provides for the purchase of U.S. Treasury securities, U.S.
Government agency securities, mortgage-backed securities having maturities of
twelve years or less and for the purchase of state, county and municipal
agencies' securities with maximum maturities of 10 years. The Company's policy
is to maintain a securities portfolio with staggered maturities to meet its
overall liquidity needs. Municipal securities must be rated A or better. Certain
school district issues, however, are acceptable with a Baa rating. All
securities are classified as available-for-sale and are carried at fair value at
December 31, 2001. The decision to sell securities classified as
available-for-sale is based upon management's assessment of changes in economic
or financial market conditions.

     Certain of the Company's securities are pledged to secure public and trust
fund deposits and for other purposes required or permitted by law. At December
31, 2001, the carrying value of U.S. Government and other securities so pledged
amounted to $47,785,000, or 22.1% of the total securities portfolio.

     The following table summarizes the amounts and the distribution of the
Company's investment securities held at the dates indicated:

<Table>
<Caption>
                                                                          December 31,
                                           ------------------------------------------------------------------------
                                                    2001                      2000                      1999
                                           ---------------------      --------------------       ------------------
                                            Amount           %         Amount        %            Amount       %
                                           --------       ------      --------    --------       --------    ------
                                                                   (Dollars in thousands)
<S>                                        <C>             <C>        <C>            <C>         <C>          <C>
Carrying value:
   U.S. Treasury securities and
     obligations of U.S. Government
     agencies and corporations             $136,025         62.9%     $129,038        72.8%      $ 90,998      83.6%
   Mortgage-backed securities and
     collateralized mortgage obligations     69,735         32.3        36,694        20.7          7,783       7.1
   Obligations of states and political
     subdivisions                             7,109          3.3         8,334         4.7          9,103       8.4
   Other securities                           3,243          1.5         3,128         1.8          1,019       0.9
                                           --------       ------      --------    --------       --------    ------
       Total securities                    $216,112        100.0%     $177,194       100.0%      $108,903     100.0%
                                           ========       ======      ========    ========       ========    ======

       Total fair value                    $216,112                   $177,161                   $107,608
                                           ========                   ========                   ========
</Table>

                                       27
<Page>

     The following table provides the maturity distribution and weighted average
interest rates of the Company's total securities portfolio at December 31, 2001.
The yield has been computed by relating the forward income stream on the
securities, plus or minus the anticipated amortization of premium or accretion
of discount, to the carrying value of securities. The book value of securities
classified as held-to-maturity was their historical cost, adjusted for premium
amortization and discount accretion. The adjustment of the yields on tax-exempt
securities to a fully taxable-equivalent basis has been computed assuming a tax
rate of 34%.

<Table>
<Caption>
                                                                                                      Weighted
                                                                Principal     Carrying    Estimated    Average
    Type and Maturity Grouping at December 31, 2001               Amount        Value    Fair Value     Yield
-----------------------------------------------------------     ---------     --------   ----------   --------
                                                                              (Dollars in thousands)
<S>                                                             <C>           <C>          <C>             <C>
U.S. Treasury securities and obligations of U.S. Government
   agencies and corporations:
     Within one year                                            $  22,172     $ 22,567     $ 22,567       6.76%
     After one but within five years                               97,845      100,441      100,441       5.11%
     After five but within ten years                               12,346       13,017       13,017       6.57%
                                                                ---------     --------     --------   --------
       Total U.S. Treasury securities and obligations of
         U.S. Government agencies and corporations                132,363      136,025      136,025       5.52%
                                                                ---------     --------     --------   --------

Mortgage-backed securities and collateralized mortgage
   obligations                                                     68,943       69,735       69,735       5.74%

Obligations of states and political subdivisions:

   Within one year                                                    325          326          326       6.88%
   After one but within five years                                  5,032        5,113        5,113       7.55%
   After five but within ten years                                  1,508        1,542        1,542       6.82%
   After ten years                                                    120          128          128       8.02%
                                                                ---------     --------     --------   --------
       Total obligations of states and political
         subdivisions                                               6,985        7,109        7,109       7.37%
                                                                ---------     --------     --------   --------

Other securities:
   Within one year                                                      0            0            0       0.00%
   After one but within five years                                      0            0            0       0.00%
   After five but within ten years                                      0            0            0       0.00%
   After ten years                                                  3,243        3,243        3,243       1.75%
                                                                ---------     --------     --------   --------
       Total other securities                                       3,243        3,243        3,243       1.75%
                                                                ---------     --------     --------   --------

         Total securities                                       $ 211,534     $216,112     $216,112       5.60%
                                                                =========     ========     ========   ========
</Table>

LOAN PORTFOLIO

     Total loans, net of unearned income, decreased $62,687,000, or 17.1%, from
$366,933,000 at December 31, 2000, to $304,246,000 at December 31, 2001. The
decrease in loans in 2001 was primarily a result of a decrease in commercial
loans associated with a restructuring of the general loan portfolio due to the
Acquisition and a decrease in loans to individuals.

     The Bank primarily makes installment loans to individuals and commercial
loans to small to medium-sized businesses and professionals. The Bank offers a
variety of commercial lending products including revolving lines of credit,
letters of credit, working capital loans, loans to finance accounts receivable,
inventory and equipment and various types of agriculture loans. Typically, the
Bank's commercial loans have floating rates of interest, are for varying terms
(generally not exceeding five years), are personally guaranteed by the borrower
and are collateralized by real estate, accounts receivable, inventory or other
business assets.

     Due to the diminished loan demand during the early 1990's, the Bank
instituted an installment loan program whereby it began to purchase automobile
loans from automobile dealerships in its market areas. At December 31, 2001 and
2000, the Company had approximately $5,016,000 and $13,133,000, net of unearned
income, respectively, of this type of loan outstanding. The decrease during 2000
is due to management's decision to shift the loan portfolio toward more
commercial and real estate loans and less toward indirect installment loans.

                                       28
<Page>

     The following table presents the Company's loan balances at the dates
indicated separated by loan type:

<Table>
<Caption>
                                                                December 31,
                                          --------------------------------------------------------
                                            2001       2000        1999        1998         1997
                                          --------  ----------   ---------   ---------    --------
                                                             (Dollars in thousands)
<S>                                      <C>        <C>          <C>         <C>          <C>
Real estate loans                        $ 135,544  $  127,510   $  72,268   $  71,901    $ 44,569
Commercial loans                            98,129     127,205      55,270      47,551      24,184
Loans to individuals                        37,873      53,308      46,748      57,564      67,453
Agriculture and other loans                 32,724      59,036      12,857       9,310       6,109
                                          --------  ----------   ---------   ---------    --------
   Total loans                             304,270     367,059     187,143     186,326     142,315
Less unearned income                            24         126         517       1,766       1,462
                                          --------  ----------   ---------   ---------    --------

     Loans, net of unearned income       $ 304,246  $  366,933   $ 186,626   $ 184,560    $140,853
                                          ========  ==========   =========   =========    ========
</Table>

     Loan concentrations are considered to exist when there are amounts loaned
to a multiple number of borrowers engaged in similar activities that would cause
them to be similarly impacted by economic or other conditions. The Company had
no concentrations of loans at December 31, 2001, except for those described
above and a geographic concentration of loans in West and North Texas. The Bank
had no loans outstanding to foreign countries or borrowers headquartered in
foreign countries at December 31, 2001.

     Management of the Bank may renew loans at maturity when requested by a
customer whose financial strength appears to support such renewal or when such
renewal appears to be in the Company's best interest. The Company requires
payment of accrued interest in such instances and may adjust the rate of
interest, require a principal reduction or modify other terms of the loan at the
time of renewal.

     The following table presents the distribution of the maturity of the
Company's loans and the interest rate sensitivity of those loans, excluding
loans to individuals, at December 31, 2001. The table also presents the portion
of loans that have fixed interest rates or interest rates that fluctuate over
the life of the loans in accordance with changes in the interest rate
environment as represented by the prime rate.

<Table>
<Caption>
                                            One to                 Total
                                One Year     Five     Over Five  Carrying
                                and Less    Years       Years      Value
                                --------   --------   ---------  ---------
                                          (Dollars in thousands)
 <S>                            <C>        <C>        <C>        <C>
 Real estate loans              $ 63,864   $ 58,914   $  12,766  $ 135,544
 Commercial loans                 80,096     14,386       3,647     98,129
 Agriculture and other loans      30,447      2,049         227     32,723
                                --------   --------   ---------  ---------

    Total loans                 $174,407   $ 75,349   $  16,640  $ 266,396
                                ========   ========   =========  =========

 With fixed interest rates      $ 37,253   $ 69,078   $  16,376  $ 122,707
 With variable interest rates    137,154      6,271         264    143,689
                                --------   --------   ---------  ---------

    Total loans                 $174,407   $ 75,349   $  16,640  $ 266,396
                                ========   ========   =========  =========
</Table>

NONPERFORMING ASSETS

     Nonperforming loans consist of nonaccrual, past due and restructured loans.
A past due loan is an accruing loan that is contractually past due 90 days or
more as to principal or interest payments. Loans on which management does not
expect to collect interest in the normal course of business are placed on
nonaccrual or are restructured. When a loan is placed on nonaccrual status, any
interest previously accrued, but not yet collected, is reversed against current
income unless, in the opinion of management, the outstanding interest remains
collectible. Thereafter, interest is included in income only to the extent of
cash received. A loan is restored to accrual status when all interest and
principal payments are current and the borrower has demonstrated to management
the ability to make payments of principal and interest as scheduled.

     A "troubled debt restructuring" is a restructured loan upon which interest
accrues at a below market rate or upon which certain principal has been forgiven
so as to aid the borrower in the final repayment of the loan, with any interest
previously accrued, but not yet collected, being reversed against current
income. Interest is accrued based upon the new loan terms.

                                       29
<Page>

     Nonperforming loans are fully or substantially collateralized by assets,
with any excess of loan balances over collateral values allocated in the
allowance for loan loss. Assets acquired through foreclosure are carried at the
lower of cost or estimated fair value, net of estimated costs of disposal, if
any. See "Other Real Estate and Other Repossessed Assets" below.

     The following table lists nonaccrual, past due and restructured loans and
other real estate and other repossessed assets at year-end for each of the past
five years.

<Table>
<Caption>
                                                                               December 31,
                                                        ---------------------------------------------------
                                                          2001       2000      1999        1998      1997
                                                        ---------  --------   -------    --------   -------
                                                                          (Dollars in thousands)
<S>                                                     <C>        <C>        <C>        <C>        <C>
Nonaccrual loans                                        $   5,581  $  3,337   $   236    $    238   $    70
Accruing loans contractually past due over 90 days            223     2,572       203         198       121
Restructured loans                                             29       119       186         110       104
Other real estate and other repossessed assets                691       576       272         630       739
                                                        ---------  --------   -------    --------   -------

   Total nonperforming assets                           $   6,524  $  6,604   $   897    $  1,176   $ 1,034
                                                        =========  ========   =======    ========   =======
   Total Allowance for Loan Loss Reserve to Total
      nonperforming assets                                  100.0%    126.9%    204.3%      156.6%    113.4%
                                                        =========  ========   =======    ========   =======
</Table>

     The gross interest income that would have been recorded in 2001 on the
Company's nonaccrual loans if such loans had been current, in accordance with
the original terms thereof and had been outstanding throughout the period or, if
shorter, since origination, was approximately $582,000. A total of $1,000 in
interest on nonaccrual loans was actually recorded (received) during 2001.

     A potential problem loan is defined as a loan where information about
possible credit problems of the borrower is known, causing management to have
serious doubts as to the ability of the borrower to comply with the present loan
repayment terms and which may result in the inclusion of such loan in one of the
nonperforming asset categories. The Company does not believe it has any
potential problem loans other than those reported in the above table or those
included on the watch list as discussed below.

     The Company follows a loan review program to evaluate the credit risk in
its loan portfolio. Through the loan review process, the Bank maintains an
internally classified loan list that, along with the list of nonperforming loans
discussed below, helps management assess the overall quality of the loan
portfolio and the adequacy of the allowance. Loans classified as "substandard"
are those loans with clear and defined weaknesses such as highly leveraged
positions, unfavorable financial ratios, uncertain repayment sources,
involvement in bankruptcy proceedings or poor financial condition, which may
jeopardize recoverability of the loan. Loans classified as "doubtful" are those
loans that have characteristics similar to substandard loans, but also have an
increased risk that a loss may occur or at least a portion of the loan may
require a charge-off if liquidated at present. Although loans classified as
substandard do not duplicate loans classified as doubtful, both substandard and
doubtful loans may include some loans that are past due at least 90 days, are on
nonaccrual status or have been restructured. Loans classified as "loss" are
those loans that are in the process of being charged off. At December 31, 2001,
substandard loans totaled $12,460,000, of which $4,366,000 were loans designated
as nonaccrual, 90 days past due or restructured, and doubtful loans totaled
$976,000, of which $945,000 were loans designated as nonaccrual or 90 days past
due. There were no loans designated as loss as of December 31, 2001. Substandard
and doubtful loans at December 31, 2000 were $15,082,000 and $1,742,000,
respectively.

     In addition to the internally classified loans, the Bank also has a
"watch list" of loans that further assists the Bank in monitoring its loan
portfolio. A loan is included on the watch list if it demonstrates one or
more deficiencies requiring attention in the near term or if the loan's
ratios have weakened to a point where more frequent monitoring is warranted.
These loans do not have all the characteristics of a classified loan
(substandard, doubtful or loss), but do have weakened elements as compared
with those of a satisfactory credit. Management of the Bank reviews these
loans to assist in assessing the adequacy of the allowance. Substantially all
of the loans on the watch list at December 31, 2001, were current and paying in

                                       30
<Page>

accordance with loan terms. At December 31, 2001, watch list loans totaled
$12,011,000. At such date, $53,000 of loans on the watch list were designated
as nonaccrual or 90 days past due. In addition, at December 31, 2001,
$441,000 of unclassified loans were designated as nonaccrual, 90 days past
due or restructured.

OTHER REAL ESTATE AND OTHER REPOSSESSED ASSETS

     Foreclosures on defaulted loans result in the Company acquiring other real
estate and other repossessed assets. Accordingly, the Company incurs other
expenses, specifically net costs applicable to other real estate and other
repossessed assets, in maintaining, insuring and selling such assets. The Bank
attempts to convert nonperforming loans into interest-earning assets, although
usually at a lower dollar amount than the face value of such loans, either
through liquidation of the collateral securing the loan or through intensified
collection efforts.

     Other real estate and other repossessed assets consist of real property and
other assets unrelated to banking premises or facilities. Income derived from
other real estate and other repossessed assets, if any, is generally less than
that which would have been earned as interest at the original contract rates on
the related loans. At December 31, 2001 and 2000, other real estate and other
repossessed assets had an aggregate book value of $691,000 and $576,000,
respectively. Other real estate and other repossessed assets increased $115,000,
or 20.0%, during 2001. The increase was primarily due to an increase in
foreclosures on loans that existed at the time of acquisition. The December 31,
2001, balance of $691,000 included four commercial properties ($565,000), three
residential properties ($70,000) and eight repossessed automobiles ($56,000). Of
the December 31, 2000, balance of $576,000, $434,000 represented six commercial
properties, $62,000 represented two residential properties and $80,000
represented sixteen repossessed automobiles.

ALLOWANCE FOR LOAN LOSSES

     Implicit in the Company's lending activities is the fact that loan losses
will be experienced and that the risk of loss will vary with the type of loan
being made and the creditworthiness of the borrower over the term of the loan.
To reflect the currently perceived risk of loss associated with the Company's
loan portfolio, additions are made to the Company's allowance for loan losses
(the "allowance"). The allowance is created by direct charges against income
(the "provision" for loan losses), and the allowance is available to absorb
possible loan losses. See "Results of Operations--Provision for Loan Losses"
above.

     The allowance is reduced by loan charge-offs and increased by recoveries of
loans previously charged off and the loan provision necessary to bring the
allowance to an amount determined by management to be adequate. The Company's
allowance was $6,525,000, or 2.14% of loans, net of unearned income, at December
31, 2001, compared to $8,379,000, or 2.28% of loans, net of unearned income, at
December 31, 2000, and compared to $1,833,000, or 0.98% of loans, net of
unearned income, at December 31, 1999. The decrease in the balance of the
allowance from December 31, 2000, to December 31, 2001, and the decrease in the
ratio of the allowance to total loans, net of unearned income, during the past
year, are primarily due to the net charge off of loans, most of which existed at
the time of Acquisition, of $12,619,000. Provisions to loan loss of $10,765,000
offset net charge offs.

     Credit and loan decisions are made by management and the board of directors
of the Bank in conformity with loan policies established by the board of
directors of the Company. The Company's practice is to charge off any loan or
portion of a loan when the loan is determined by management to be uncollectible
due to the borrower's failure to meet repayment terms, the borrower's
deteriorating or deteriorated financial condition, the depreciation of the
underlying collateral, the loan's classification as a loss by regulatory
examiners or for other reasons. The Company charged off $13,694,000 in loans
during 2001. Charge-offs for 2001 were concentrated in the following categories:
commercial loans--$9,565,000, or 69.9%; agriculture and other loans--$2,892,000,
or 21.1%; and loans to individuals--$1,237,000, or 9.0%. These charge-offs were
primarily due to the further deterioration of the Bank's collateral position on
two large borrowing relationships, which existed at the date of the Acquisition.
The outstanding loan balances associated with these relationships have continued
to be reduced through charge offs as noted above, to estimated net realizable
balances of the underlying collateral. Recoveries during 2001 were $1,075,000
and were concentrated in commercial loans, which accounted for $909,000, or
84.6%, of total recoveries during 2001.

                                       31
<Page>

     The following table presents the activity in the allowance for the year
ended 2001, the period from January 1, 2000, to August 11, 2000, the period from
August 12, 2000, to December 31, 2000, and the years ended December 31, 1999,
1998 and 1997. Also presented are average loans outstanding and certain
pertinent ratios for the last five years.

<Table>
<Caption>
                                                                  August 12,     January 1,
                                                  Year Ended       2000, to       2000, to          Years Ended December 31,
                                                 December 31,    December 31,    August 11,   ---------------------------------
                                                     2001           2000(1)         2000         1999       1998(2)     1997(3)
                                                 ------------    ------------   -----------   --------    --------     --------
                                                                              (Dollars in thousands)
<S>                                              <C>             <C>            <C>           <C>         <C>          <C>
Analysis of allowance for possible loan losses:
Balance, beginning of period                     $      8,379    $      6,371   $     1,833   $  1,842    $  1,173     $    793
   Provision for loan losses                           10,765             618         1,660        445         570          250
   Purchase accounting adjustment                           0               0         3,028          0           0            0
   Bank acquisition/merger                                  0           3,147            0           0         726          395
                                                 ------------    ------------   -----------   --------    --------     --------
                                                       19,144          10,136         6,521      2,287       2,469        1,438
                                                 ------------    ------------   -----------   --------    --------     --------
Loans charged off:
   Real estate loans                                        0              19             0          5          40            6
   Commercial loans                                     9,565           1,459            50        106          18          107
   Loans to individuals                                 1,237             308           174        586         671          457
   Agriculture and other loans                          2,892              10             6          0           0           11
                                                 ------------    ------------   -----------   --------    --------     --------
     Total charge-offs                                 13,694           1,796           230        697         729          581
                                                 ------------    ------------   -----------   --------    --------     --------

Recoveries of loans previously charged off:
     Real estate loans                                      2               0             1        104          16           35
     Commercial loans                                     909               6             6         20          41          220
     Loans to individuals                                 158              33            72        118          45           60
     Agriculture and other loans                            6               0             1          1           0            1
                                                 ------------    ------------   -----------   --------    --------     --------
       Total recoveries                                 1,075              39            80        243         102          316
                                                 ------------    ------------   -----------   --------    --------     --------
         Net loans charged off                         12,619           1,757           150        454         627          265
                                                 ------------    ------------   -----------   --------    --------     --------

           Balance, end of period                $      6,525    $      8,379   $     6,371   $  1,833    $  1,842     $  1,173
                                                 ============    ============   ===========   ========    ========     ========

Average loans outstanding, net of
   unearned income, for the year ended
   December 31                                   $    326,920        $374,347                 $184,471    $153,188     $132,891
                                                 ============    ============                 ========    ========     ========
Ratio of net loan charge-offs to
   average loans, net of unearned
   income, for the year ended December 31                3.86%           0.47%                    0.25%       0.41%        0.20%
                                                 ============    ============                 ========    ========     ========
Ratio of allowance for possible loan
   losses to total loans, net of
   unearned income, at December 31                       2.14%           2.28%                    0.98%       1.00%      0.83%
                                                 ============    ============                 ========    ========     ========
</Table>

----------
(1)  Average loans, net of unearned income, for 2000 include the average loans,
     net of unearned income, of UB&T and the Lubbock Bank from August 12, to
     December 31, 2000.
(2)  Average loans, net of unearned income, for 1998 include the average loans,
     net of unearned income, of Azle State from September 22 through December
     31, 1998.
(3)  Average loans, net of unearned income, for 1997 include the average loans,
     net of unearned income, of Western National Bank, Lubbock, Texas, from
     January 28 through December 31, 1997.

                                       32
<Page>

     The increase in the allowance of $3,028,000 related to purchase accounting
adjustments is due primarily to five borrowing relationships with whom
predecessor management had intended to continue to work and extend or renew the
loans as necessary. Predecessor management believed that the net carrying
amount, after considering specific reserves, was adequate to reflect the
estimated carrying amount of the loans. Successor management has determined that
the Company will no longer maintain a relationship with these borrowers, has
informed the borrowers that the borrowers will have to pay off their respective
loans with the Company and, if necessary, liquidate the collateral supporting
the loans within no later than one year of the Acquisition date. As of December
31, 2001, substantially all of these relationships have been exited. The Company
also offered a reduction in principal to one borrower to provide an incentive
for the borrower to move its loan relationship. As these loans are collateral
dependent, the estimated losses on these loans are primarily due to estimated
collateral liquidation value shortfalls. Overall, successor management has
determined that the intended method of ultimate recovery on loans from these
five borrowing relationships is demonstrably different from the plans that had
served as the basis for predecessor management's estimation of recovery on such
loans. The provision for loan losses for the period of August 12, 2000, to
December 31, 2000, includes the impact of successor management conforming
certain predecessor loan loss methodology to its loan loss calculation
methodology. Specifically, successor management has conformed certain charge-off
factors on pools of loans to its own historical loan loss factors.

     The amount of the allowance is established by management based upon
estimated risks inherent in the existing loan portfolio. The allowance is
comprised of three components: specific reserves on specific problem loans,
historical loss percentages applied to pools of loans with similar
characteristics, and an unallocated portion. Management reviews the loan
portfolio on a continuing basis to evaluate potential problem loans. This review
encompasses management's estimate of current economic conditions and the
potential impact on various industries, prior loan loss experience and the
financial conditions of individual borrowers. Loans that have been specifically
identified as problem or nonperforming loans are reviewed on at least a
quarterly basis, and management critically evaluates the prospect of ultimate
losses arising from such loans, based on the borrower's financial condition and
the value of available collateral. When a risk can be specifically quantified
for a loan, that amount is specifically allocated in the allowance. In addition,
the Company allocates the allowance based upon the historical loan loss
experience of the different types of loans. Despite such allocation, both the
allocated and unallocated portions of the allowance are available for
charge-offs for all loans.

     The following table shows the allocations in the allowance and the
respective percentages of each loan category to total loans at year-end for each
of the past five years.

<Table>
<Caption>
                                                                       December 31,
                                     --------------------------------------------------------------------------------
                                               2001                        2000                       1999
                                     -------------------------  --------------------------  -------------------------
                                                                                                          Percent of
                                                   Percent of                  Percent of                  Loans by
                                                    Loans by                    Loans by                   Category
                                      Amount of   Category to    Amount of    Category to    Amount of     to Loans,
                                      Allowance    Loans, Net    Allowance     Loans, Net    Allowance      Net of,
                                      Allocated   of Unearned    Allocated    of Unearned    Allocated     Unearned
                                     to Category     Income     to Category      Income     to Category    Income
                                     -----------  -----------  ------------  ------------  -------------  -----------
                                                                  (Dollars in thousands)
<S>                                  <C>                 <C>    <C>                 <C>    <C>                  <C>
Real estate loans                    $     1,092          44.5% $        685         34.7% $         198         38.7%
Commercial loans                           1,714          32.3         3,434         34.7            254         29.6
Loans to individuals                         868          12.4         1,248         14.5            672         24.8
Agriculture and other loans                   19          10.8         1,819         16.1             37          6.9
                                     -----------  ------------  ------------ ------------  ------------- ------------
   Total allocated                         3,693         100.0%        7,186        100.0%         1,161        100.0%
                                                  ============               ============                ============
   Unallocated                             2,832                       1,193                         672
                                     -----------                ------------               -------------
     Total allowance for possible
       loan losses                   $     6,525                $      8,379               $       1,833
                                     ===========                =============              =============
</Table>
                                       33
<Page>

<Table>
<Caption>
                                                         December 31,
                                     ----------------------------------------------------
                                               1998                        1997
                                     ------------------------  --------------------------
                                                   Percent of                 Percent of
                                                    Loans by                   Loans by
                                      Amount of   Category to    Amount of    Category to
                                      Allowance    Loans, Net    Allowance    Loans, Net
                                      Allocated   of Unearned    Allocated    of Unearned
                                     to Category     Income     to Category     Income
                                     -----------  -----------  -------------  -----------
                                                    (Dollars in thousands)
<S>                                  <C>                <C>     <C>                 <C>
Real estate loans                    $       106         39.0%  $        52          31.6%
Commercial loans                             164         25.8           193          17.2
Loans to individuals                         577         30.2           570          46.8
Agriculture and other loans                    9          5.0            28           4.4
                                     -----------  -----------   -----------   -----------
   Total allocated                           856        100.0%          843         100.0%
                                                  ===========                 ===========
   Unallocated                               986                        330
                                     -----------                -----------
     Total allowance for possible
       loan losses                   $     1,842                $     1,173
                                     ===========                ===========
</Table>

     The increase of $1,639,000 in the unallocated portion of the reserve from
December 31, 2000 to December 31, 2001 is primarily caused by the decline in
current economic conditions and the recent loan loss experience.

INTANGIBLE ASSETS

     Intangible assets decreased $5,457,000, or 11.1%, from $49,176,000 at
December 31, 2000, to $43,719,000 at December 31, 2001, primarily due to
amortization of the intangible balance during the 2001.

PREMISES AND EQUIPMENT

     Premises and equipment decreased $475,000, or 3.0%, from $15,855,000 at
December 31, 2000, to $15,380,000 at December 31, 2001. The decrease was
primarily due to the depreciation of premises and equipment occurring in 2001.
This decrease was partially offset by additions to premises and equipment during
the year.

ACCRUED INTEREST RECEIVABLE

     Accrued interest receivable consists of interest that has accrued on
securities and loans, but is not yet payable under the terms of the related
agreements. The balance of accrued interest receivable decreased $2,694,000, or
33.6%, from $8,015,000 at December 31, 2000, to $5,321,000 at December 31, 2001.
The decrease during 2001 was a result of decreases in the loan balance during
the year as well as decreases in the interest rates charged on loans. This
decrease was partially offset by increases in accrued interest due to higher
security balances and higher yields on securities. Of the total balance at
December 31, 2001, $2,953,000, or 55.5%, was interest accrued on loans and
$2,368,000, or 44.5%, was interest accrued on securities.

OTHER ASSETS

     The balance of other assets increased $9,534,000, or 411.8%, to $11,849,000
at December 31, 2001, from $2,315,000 at December 31, 2000, due principally to
the purchase of bank owned life insurance on various officers of the Bank.

DEPOSITS

         The Bank's lending and investing activities are funded almost entirely
by core deposits, 53.7% of which were noninterest-bearing and interest-bearing
demand deposits at December 31, 2001. Total deposits decreased $49,575,000, or
8.4%, from $593,605,000 at December 31, 2000, to $544,030,000 at December 31,
2001. The decrease in deposits was primarily due to prime rates falling during
the year, which allowed the bank to lower rates paid on deposits. These lower

                                       34
<Page>

rates caused customers to remove their deposits in favor of other types of
investment opportunities. The Bank does not have any brokered deposits.

     The following table presents the average amounts of and the average rate
paid on deposits of the Company for each of the last three years:

<Table>
<Caption>
                                                                    Year Ended December 31,
                                            ----------------------------------------------------------------------
                                                     2001                    2000(1)                   1999
                                            ---------------------    ---------------------     -------------------
                                             Average      Average     Average     Average      Average     Average
                                             Amount        Rate        Amount       Rate        Amount      Rate
                                            --------      -------    ----------    -------     ---------   -------
                                                                     (Dollars in thousands)
<S>                                        <C>              <C>     <C>              <C>      <C>            <C>
Noninterest-bearing demand deposits        $ 100,197           --%   $   75,425         --%    $  58,041        --%
Interest-bearing demand, savings and
   money market deposits                     186,941         1.82       136,829       2.56       106,485      2.10
Time deposits of less than $100,000          182,860         5.29       138,167       5.66       109,140      4.81
Time deposits of $100,000 or more            107,687         5.65        72,335       5.90        48,854      4.95
                                           ---------      -------    ----------    -------     ---------   -------

     Total deposits                        $ 577,685         3.32%   $  422,756       3.69%    $ 322,520      3.07%
                                           =========      =======    ==========    =======     =========   =======
</Table>

----------
(1) The average amounts and average rates paid on deposits for the year ended
    December 31, 2000, include the averages of UB&T and the Lubbock Bank from
    August 12 through December 31, 2000.

     The maturity distribution of time deposits of $100,000 or more at December
31, 2001, is presented below:

<Table>
<Caption>
                                                      December 31, 2001
                                                      -----------------
                                                        (In thousands)
          <S>                                             <C>
          3 months or less                                $ 40,563
          Over 3 through 6 months                           16,332
          Over 6 through 12 months                          22,604
          Over 12 months                                     9,149
                                                           -------

             Total time deposits of $100,000 or more       $88,648
                                                           =======
</Table>

     The Bank experiences relatively limited reliance on time deposits of
$100,000 or more. Time deposits of $100,000 or more are a more volatile and
costly source of funds than other deposits and are most likely to affect the
Company's future earnings because of interest rate sensitivity. At December 31,
2001, time deposits of $100,000 or more represented 16.3% of the Company's total
deposits compared to 18.3% of the Company's total deposits at December 31, 2000.

FED FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE

     The balance of fed funds purchased and securities sold under agreement to
repurchase increased $151,000 or 100.0%, from $0 at December 31, 2000 to
$151,000 at December 31, 2001. The market of securities sold under agreement to
repurchase was entered into during 2001 due to the advantageous conditions that
exist of obtaining funds at favorable interest rates.

ACCRUED INTEREST PAYABLE

     Accrued interest payable consists of interest that has accrued on deposits,
but is not yet payable under the terms of the related agreements. The balance of
accrued interest payable decreased $1,026,000, or 41.2%, from $2,488,000 at
December 31, 2000, to $1,462,000 at December 31, 2001, due to a decrease in
interest rates being paid on interest-bearing time deposits.

                                       35
<Page>

OTHER LIABILITIES

     The balance of other liabilities decreased $848,000, or 13.5%, from
$6,289,000 at December 31, 2000, to $5,441,000 at December 31, 2001, due
primarily to a reduction in deferred taxes payable associated with the
amortization of the core deposit intangible.

SELECTED FINANCIAL RATIOS

     The following table presents selected financial ratios for each of the last
three fiscal years:

<Table>
<Caption>
                                                              Year Ended December 31,
                                                        ----------------------------------
                                                        2001         2000(1)          1999
                                                        -------  --------------  ---------
<S>                                                     <C>           <C>            <C>
Net income (loss) to:
   Average assets                                       (1.06)%       (0.34)%         0.68%
   Average interest-earning assets                      (1.26)        (0.40)          0.77
   Average stockholder's equity                         (8.99)        (3.50)          9.87
Dividend payout (2) to:
   Net income (loss)                                      N/A           N/A          17.82
   Average stockholder's equity                           N/A           N/A           1.76
Average stockholder's equity to:
   Average total assets                                 11.83          9.80           6.86
   Average loans (3)                                    24.50         18.51          13.47
   Average total deposits                               13.86         11.31           7.71
Average interest-earning assets to:
   Average total assets                                 84.50         86.53          87.76
   Average total deposits                               99.01         99.89          98.62
   Average total liabilities                            97.62         98.65          97.99
Ratio to total average deposits of:

   Average loans (3)                                    56.59         61.11          57.20
   Average noninterest bearing deposits                 17.34         17.84          18.00
   Average interest-bearing deposits                    82.66         82.16          82.00
Total interest expense to total interest income         46.55         44.60          40.89
Efficiency Ratio (4)                                    78.13         72.45          66.20
</Table>

----------
(1)  Average balance sheet and income statement items for 2000 include the
     averages for UB&T and the Lubbock Bank from August 12 through December 31,
     2000.
(2)  Dividends for Common Stock only.
(3)  Before allowance for loan losses.
(4)  Calculated as noninterest expense less distributions on guaranteed
     preferred beneficial interests in the Company's subordinated debentures,
     amortization of intangibles, merger-related expense and net costs
     (revenues) related to other real estate and other repossessed assets
     divided by the sum of net interest income before provision for loan losses
     and total noninterest income, excluding securities gains and losses.

LIQUIDITY

THE BANK

     Liquidity with respect to a financial institution is the ability to meet
its short-term needs for cash without suffering an unfavorable impact on its
on-going operations. The need for the Bank to maintain funds on hand arises
principally from maturities of short-term borrowings, deposit withdrawals,
customers' borrowing needs and the maintenance of reserve requirements.
Liquidity with respect to a financial institution can be met from either assets
or liabilities. On the asset side, the primary sources of liquidity are cash and
due from banks, federal funds sold, maturities of securities and scheduled
repayments and maturities of loans. The Bank maintains adequate levels of cash
and near-cash investments to meet their day-to-day needs. Cash and due from
banks averaged $32,767,000 and $24,653,000 during the years ended December 31,
2001 and 2000, respectively. These amounts comprised 4.8% and 5.05% of average

                                       36
<Page>

total assets during the years ended December 31, 2001 and 2000, respectively.
The average level of securities, time deposits in other banks and federal
funds sold was $245,052,000 and $163,984,000 during the years ended December
31, 2001 and 2000, respectively. The increases from 2000 to 2001 were
primarily due to the Mergers.

     A total of $59,919,000 and $42,692,000 of securities classified as
available-for-sale were sold during the years ended December 31, 2001 and 2000.
At December 31, 2001, $22,893,000, or 15.6%, of the Company's securities
portfolio, excluding mortgage-backed securities, matured within one year and
$105,554,000, or 72.1%, excluding mortgage-backed securities, matured after one
but within five years. The Bank's commercial and real estate lending activities
are concentrated in loans with maturities of less than five years with both
fixed and adjustable interest rates, while its installment lending activities
are concentrated in loans with maturities of three to five years with primarily
fixed interest rates. At December 31, 2001, approximately $187,619,000, or
61.7%, of the Company's loans, net of unearned income, matured within one year
and/or had adjustable interest rates. Approximately $174,408,000, or 65.5%, of
the Company's loans (excluding loans to individuals) matured within one year
and/or had adjustable interest rates. See "Analysis of Financial Condition--Loan
Portfolio" above.

     On the liability side, the principal sources of liquidity are deposits,
borrowed funds and the accessibility to money and capital markets. Customer
deposits are by far the largest source of funds. During the years ended December
31, 2001 and 2000, the Company's average deposits were $577,685,000, or 85.3% of
average total assets, and $422,756,000, or 86.6% of average total assets,
respectively. The Company attracts its deposits primarily from individuals and
businesses located within the market areas served by the Bank. See "Analysis of
Financial Condition--Deposits" above.

THE COMPANY

     The Company depends on the Bank for liquidity in the form of cash flow,
primarily to meet distribution requirements on Independent Capital's Trust
Preferred Securities and to cover other operating expenses. Prior to the
Acquisition, this cash flow came from three sources: (1) dividends resulting
from earnings of the Bank, (2) current tax liabilities generated by the Bank and
(3) management and service fees for services performed for the Bank. Subsequent
to the Acquisition, the Company ceased charging management fees to the Bank. The
Company's immediate liquidity needs have been and can continue to be satisfied
by advances from the Company's parent company.

     The payment of dividends from the Bank is subject to applicable law and the
scrutiny of regulatory authorities. Dividends paid by the Bank to Independent
Financial in 2001 aggregated $700,000; in turn, Independent Financial and
Independent Capital paid dividends to the Company totaling $734,000 during 2001.
Dividends paid by the Bank to Independent Financial during 2000 aggregated
$2,900,000; in turn, Independent Financial and Independent Capital paid
dividends to the Company totaling $2,935,000. At December 31, 2001, there were
no dividends available for payment to Independent Financial by the Bank without
prior regulatory approval.

     Pursuant to a tax-sharing agreement, the Bank pays to the Company an amount
equal to its individual tax liability on the accrual method of federal income
tax reporting. The accrual method generates more timely payments of current tax
liabilities by the Bank to the Company, increasing the regularity of cash flow
and shifting the time value of such funds to the Company. In the event that the
Bank incurs losses, the Company may be required to refund tax liabilities
previously collected. There were no current tax liabilities generated by the
Bank during 2001 due to the pre-tax loss incurred by the Bank and current tax
liabilities totaling $1,096,000 were paid by the Bank to the Company during
2000.

     Prior to the Acquisition, the Bank paid management fees to the Company for
services performed. These services included, but were not limited to, financial
and accounting consultation, attendance at the Bank's board meetings, audit and
loan review services and related expenses. The Bank paid a total of $102,000 in
management fees to the Company during 2000. The Company's fees must be
reasonable in relation to the management services rendered, and the Bank was
prohibited from paying management fees to the Company if the Bank would have
been undercapitalized after any such distribution or payment.

                                       37
<Page>

CAPITAL RESOURCES

     At December 31, 2001, stockholders' equity totaled $75,381,000, or 11.8% of
total assets, compared to $81,984,000, or 11.8% of total assets, at December 31,
2000. The reason for the decrease is the net loss recorded in 2001.

     Bank regulatory authorities in the United States have risk-based capital
standards by which all bank holding companies and banks are evaluated in terms
of capital adequacy. These guidelines relate a banking company's capital to the
risk profile of its assets. The risk-based capital standards require all banking
companies to have Tier 1 capital of at least 4%, and total capital (Tier 1 and
Tier 2 capital) of at least 8%, of net risk-weighted assets, and to be
designated as "well-capitalized", the banking company must have Tier 1 and total
risk based capital ratios of 6% and 10%, respectively. For the Company, Tier 1
capital includes common stockholder's equity (net of available for sale fair
value adjustment) and qualifying guaranteed preferred beneficial interests in
the Company's subordinated debentures, reduced by intangible assets, net of the
deferred tax liability associated with the core deposit intangible, and any
deferred tax asset disallowed for regulatory capital purposes. For the Company,
Tier 2 capital is comprised of the remainder of guaranteed preferred beneficial
interests in the Company's subordinated debentures not qualifying as Tier 1
capital and the qualifying amount of the allowance for possible loan losses.

     Banking regulators also have leverage ratio requirements. The leverage
ratio requirement is measured as the ratio of Tier 1 capital to adjusted
quarterly average assets. The leverage ratio standards require all banking
companies to have a minimum leverage ratio of at least 4% and to be designated
as well-capitalized, the banking company must have a leverage ratio of at least
5%. The following tables provide a calculation of the Company's risk-based
capital ratios and leverage ratio and a comparison of the Company's and the
Bank's risk-based capital ratios and leverage ratio to the minimum regulatory
and well-capitalized minimum requirements at December 31, 2001:

<Table>
<Caption>
                                                           December 31,        Minimum     "Well
                                                      --------------------     Capital   Capitalized"
                                                        2001        2000        Ratios     Ratios
                                                      --------    --------     -------   ------------
                                                                  (Dollars in thousands)
<S>                                                   <C>         <C>            <C>       <C>
Tier 1 capital                                        $ 42,640    $ 45,667

Total capital                                           47,048      49,680

Net risk-weighted assets                               350,516     316,641

Adjusted quarterly average assets                      608,689     514,958

Capital ratios:

  Tier 1 capital to net risk-weighted assets             12.16%      14.42%      4.00%      6.00%

  Total capital to net risk-weighted assets              13.42       15.69       8.00      10.00

  Tier 1 capital to adjusted quarterly average assets     7.01        8.87       4.00       5.00
</Table>

                                       38

<Page>

     The minimum regulatory capital ratios, minimum capital ratios for "well
capitalized" banks and the Bank's actual capital ratios at December 31, 2001,
were as follows:

<Table>
<Caption>
                                           Regulatory Minimum       Minimum Ratio for      Actual Ratios at
                                             Ratio for Banks    "Well Capitalized" Banks  December 31, 2001
                                           ------------------   ------------------------  -----------------
<S>                                                <C>                  <C>                     <C>
Tier 1 capital to net risk-weighted assets         4.00%                 6.00%                  12.41%

Total capital to net risk-weighted assets          8.00                 10.00                   13.67

Tier 1 capital to adjusted quarterly
   average assets                                  4.00                  5.00                    7.15
</Table>

     The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires each federal banking agency to revise its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risks of non-traditional activities,
as well as reflect the actual performance and expected risk of loss on
multi-family mortgages. The law also requires each federal banking agency to
specify the levels at which an insured institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under the FDIC's
regulations, the Company and the Bank were both "well capitalized" at December
31, 2001.

     The Company's ability to generate capital internally through retention of
earnings and access to capital markets is essential for satisfying the capital
guidelines for bank holding companies as prescribed by the Federal Reserve
Board.

     The payment of dividends is determined by the Company's board of directors
in light of circumstances and conditions then existing, including the earnings
of the Company and the Bank, funding requirements and financial condition and
applicable laws and regulations. The Company's ability to pay cash dividends is
restricted by the requirement that it maintain a certain level of capital as
discussed above in accordance with regulatory guidelines. The Federal Reserve
Board has promulgated a policy prohibiting bank holding companies from paying
dividends on common stock unless such bank holding company can pay such
dividends from current earnings.

     At December 31, 2001, retained earnings of the Bank included $0 that was
available for payment of dividends to the Company without prior approval of
regulatory authorities. The Company's immediate liquidity needs have been and
can continue to be satisfied by advances from the Company's parent company.

PENDING ADOPTION OF ACCOUNTING STANDARDS

     In June 2001, the Financial Accounting Standards board issued Statement of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS. Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. Statement 141 also included guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. Statement 142 prohibits the
amortization of goodwill and intangible assets with indefinite useful lives.
Statement 142 requires that these assets be reviewed for impairment at least
annually. Intangible assets with finite lives will continue to be amortized over
their estimated useful lives. Additionally, Statement 142 requires that goodwill
included in the carrying value of equity method investments no longer be
amortized.

     The Company will apply Statement 142 beginning in the first quarter 2002.
Application of the nonamortization provisions of Statement 142 is expected to
result in an increase in net income before cumulative effect of a change in
accounting principle of $1,730,000 pre tax in 2002. The company will test
goodwill for impairment using the two-step process prescribed in Statement 142.
The first step is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. The Company expects to perform
the first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002 in the first quarter of 2002. Based on
steps the Company has taken to prepare for the adoption of Statement 142, it is
likely between $10,000,000 and $15,000,000 of the goodwill related to
Independent Bankshares, Inc. will be impaired using the impairment test required
by Statement 142. The Company currently evaluates goodwill for impairment by the
standards set forth in Statement of Financial Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, which does not result in an indicated impairment. An impairment
that is required to be recognized when adopting Statement 142 will be reflected
as the cumulative effect of a change in accounting principle in the first

                                       39
<Page>

quarter of 2002. The Company has not yet determined the exact amount of the
potential impairment loss.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

     For quantitative and qualitative disclosures about market risk affecting
the Company, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Quantitative and Qualitative Disclosures about Market
Risk" in Item 7 above, which is incorporated herein by reference.

                                       40
<Page>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                               PAGE
                                                                                                               ----
<S>                                                                                                              <C>
Report of Independent Auditors...................................................................................42

Report of Independent Accountants................................................................................43

Consolidated Balance Sheets as of December 31, 2001 and 2000.....................................................44

Consolidated Statements of Operations and Comprehensive Income (Loss) for the
  Year ended December 31, 2001, the Period from August 12, 2000, through
  December 31, 2000, the Period from January 1, 2000, through August 11, 2000,
  and the Year ended December 31, 1999...........................................................................45

Consolidated Statements of Changes in Stockholder's Equity for the Year ended
  December 31, 2001, the Period from August 12, 2000, through December 31, 2000,
  the Period from January 1, 2000, through August 11, 2000, and the Year
  ended December 31, 1999........................................................................................46

Consolidated Statements of Cash Flows for the Year ended December 31, 2001, the
  Period from August 12, 2000, through December 31, 2000, the Period from
  January 1, 2000, through August 11, 2000, and the Year ended December 31, 1999 ................................47

Notes to Consolidated Financial Statements.......................................................................48

Quarterly Data (Unaudited).......................................................................................66
</Table>

                                       41
<Page>

                                      DRAFT

                         REPORT OF INDEPENDENT AUDITORS

The Stockholder and Board of Directors
Independent Bankshares, Inc.

We have audited the accompanying consolidated balance sheets of Independent
Bankshares, Inc., a wholly owned subsidiary of State National Bancshares, Inc.,
as of December 31, 2001 and 2000, and the related consolidated statements of
operations and comprehensive income (loss), changes in stockholder's equity, and
cash flows for the year ended December 31, 2001 and each of the periods from
August 12, 2000 through December 31, 2000 and from January 1, 2000 through
August 11, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Independent Bankshares, Inc. at December 31, 2001 and 2000, and the consolidated
results of its operations and its cash flows for the year ended December 31,
2001 and the periods from August 12, 2000 through December 31, 2000 and from
January 1, 2000 through August 11, 2000, in conformity with accounting
principles generally accepted in the United States.

                                                  /s/ Ernst & Young LLP

Dallas, Texas
March 5, 2002

                                       42
<Page>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Directors
Independent Bankshares, Inc.:

In our opinion, the consolidated statements of income and comprehensive
income, of shareholder's equity and of cash flows of Independent Bankshares,
Inc. present fairly, in all material respects, the results of its operations
and cash flows for the year in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Fort Worth, Texas
January 28, 2000

                                       43
<Page>

                          INDEPENDENT BANKSHARES, INC.
          A WHOLLY OWNED SUBSIDIARY OF STATE NATIONAL BANCSHARES, INC.
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000

<Table>
<Caption>
                                     ASSETS
                                                                             2001            2000
                                                                        -------------    -------------
<S>                                                                     <C>              <C>
ASSETS:
Cash and Cash Equivalents:
  Cash and Due from Banks                                               $  33,212,000    $  43,813,000
  Interest-earning Time Deposits                                            2,850,000          502,000
  Federal Funds Sold                                                       10,528,000       39,270,000
                                                                        -------------    -------------
    Total Cash and Cash Equivalents                                        46,590,000       83,585,000
                                                                        -------------    -------------
Securities (Note 4):
  Available-for-sale                                                      216,112,000      163,677,000
  Held-to-maturity                                                                  0       13,517,000
                                                                        -------------    -------------
    Total Securities                                                      216,112,000      177,194,000
                                                                        -------------    -------------
Loans (Note 5):
  Total Loans                                                             304,270,000      367,059,000
  Less:
    Unearned Income on Installment Loans                                       24,000          126,000
    Allowance for Possible Loan Losses                                      6,525,000        8,379,000
                                                                        -------------    -------------
      Net Loans                                                           297,721,000      358,554,000
                                                                        -------------    -------------
Intangible Assets (Note 6)                                                 43,719,000       49,176,000
Premises and Equipment (Note 7)                                            15,380,000       15,855,000
Accrued Interest Receivable                                                 5,321,000        8,015,000
Other Real Estate and Other Repossessed Assets                                691,000          576,000
Other Assets                                                               11,849,000        2,315,000
                                                                        -------------    -------------
         Total Assets                                                   $ 637,383,000    $ 695,270,000
                                                                        =============    =============

                      LIABILITIES AND STOCKHOLDER'S EQUITY

LIABILITIES:
Deposits (Note 8):
  Noninterest-bearing Demand Deposits                                   $ 112,044,000    $ 100,795,000
  Interest-bearing Demand Deposits                                        180,021,000      188,952,000
  Interest-bearing Time Deposits                                          251,965,000      303,858,000
                                                                        -------------    -------------
    Total Deposits                                                        544,030,000      593,605,000

Fed Funds Purchased and Securities Sold Under
  Agreement To Repurchase                                                     151,000                0
Accrued Interest Payable                                                    1,462,000        2,488,000
Other Liabilities                                                           5,441,000        6,289,000
                                                                        -------------    -------------
       Total Liabilities                                                  551,084,000      602,382,000
                                                                        -------------    -------------
Guaranteed Preferred Beneficial Interests in the Company's
  Subordinated Debentures (Note 10)                                        10,918,000       10,904,000

Commitments and Contingent Liabilities (Notes 15 and 17)

STOCKHOLDER'S EQUITY (Notes 11 and 18):
Common Stock--Par Value $0.25; 30,000,000 Shares Authorized;
  2,273,647 Shares Issued at December 31, 2001 and 2000                       568,000          568,000
Additional Paid-in Capital                                                 80,071,000       80,181,000
Retained Earnings (Deficit)                                                (8,280,000)        (383,000)
Unrealized Gain (Loss) on Available-for-sale Securities, net (Note 4)       3,022,000        1,618,000
                                                                        -------------    -------------
    Total Stockholder's Equity                                             75,381,000       81,984,000
                                                                        -------------    -------------
       Total Liabilities and Stockholder's Equity                       $ 637,383,000    $ 695,270,000
                                                                        =============    =============
</Table>

                             See accompanying notes.

                                       44
<Page>

                          INDEPENDENT BANKSHARES, INC.
          A WHOLLY OWNED SUBSIDIARY OF STATE NATIONAL BANCSHARES, INC.
  CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE
     YEAR ENDED DECEMBER 31, 2001, THE PERIOD FROM AUGUST 12, 2000, THROUGH
  DECEMBER 31, 2000, THE PERIOD FROM JANUARY 1, 2000, THROUGH AUGUST 11, 2000,
                      AND THE YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>
                                                                                                  PREDECESSOR
                                                                                         -----------------------------
                                                         YEAR ENDED   AUGUST 12, 2000,   JANUARY 1, 2000    YEAR ENDED
                                                        DECEMBER 31,      THROUGH            THROUGH      DECEMBER 31,
                                                            2001      DECEMBER 31, 2000  AUGUST 11, 2000      1999
                                                        ------------  -----------------  ---------------  -----------
<S>                                                     <C>             <C>             <C>               <C>
Interest Income:
   Interest and Fees on Loans (Note 5)                  $ 27,292,000    $ 14,105,000    $   10,746,000    $ 17,027,000
   Interest on Securities                                 11,435,000       4,583,000         3,705,000       5,847,000
   Interest on Deposits in Other Banks                        28,000          12,000                 0               0
   Interest on Federal Funds Sold                          2,428,000       1,024,000           822,000       1,332,000
                                                        ------------    ------------    --------------    ------------
     Total Interest Income                                41,183,000      19,724,000        15,273,000      24,206,000
                                                        ------------    ------------    --------------    ------------
Interest Expense:
   Interest on Deposits                                   19,167,000       9,245,000         6,355,000       9,898,000
   Interest on Federal funds Purchased and Securities
     Sold Under Agreement to Repurchase                        4,000           7,000                 0               0
                                                        ------------    ------------    --------------    ------------
     Total Interest Expense                               19,171,000       9,252,000         6,355,000       9,898,000
                                                        ------------    ------------    --------------    ------------
       Net Interest Income                                22,012,000      10,472,000         8,918,000      14,308,000
   Provision for Loan Losses (Note 5)                     10,765,000         618,000         1,660,000         445,000
                                                        ------------    ------------    --------------    ------------
         Net Interest Income After Provision for Loan
           Losses                                         11,247,000       9,854,000         7,258,000      13,863,000
                                                        ------------    ------------    --------------    ------------
Noninterest Income:
   Service Charges                                         3,506,000       1,606,000         1,621,000       2,842,000
   Trust Fees                                                492,000         118,000           140,000         208,000
   Net  realized gain (loss) on sale of  securities            1,000          36,000                 0               0
   Other Income                                            1,407,000         129,000           142,000         217,000
                                                        ------------    ------------    --------------    ------------
     Total Noninterest Income                              5,406,000       1,889,000         1,903,000       3,267,000
                                                        ------------    ------------    --------------    ------------
Noninterest Expenses:
   Salaries and Employee Benefits                         10,681,000       4,422,000         3,869,000       6,046,000
   Amortization of Intangible Assets                       4,367,000       1,685,000           413,000         673,000
   Merger-related Expense                                     51,000               0         1,970,000               0
   Net Occupancy Expense                                   1,848,000         520,000           717,000         944,000
   Equipment Expense                                       1,878,000         631,000           809,000       1,103,000
   Professional Fees                                         888,000         765,000           416,000         436,000
   Distributions on Guaranteed Preferred Beneficial
     Interests in the Company's Subordinated
     Debentures (Note 10)                                  1,119,000         434,000           678,000       1,105,000
   Stationery, Printing and Supplies Expense                 627,000         252,000           360,000         574,000
   Communication                                             925,000         467,000           197,000         489,000
   Data Processing Expense                                   654,000         411,000            94,000         335,000
   Advertising and Business Development Expense              540,000         451,000           124,000         137,000
   Net Costs (Revenues) Applicable to Other Real
     Estate and Other Repossessed Assets                      95,000         (23,000)           29,000          91,000
   Other Expenses                                          3,382,000         996,000         1,294,000       1,571,000
                                                        ------------    ------------    --------------    ------------
       Total Noninterest Expenses                         27,055,000      11,011,000        10,970,000      13,504,000
                                                        ------------    ------------    --------------    ------------
           Income (Loss) Before Federal Income Taxes     (10,402,000)        732,000        (1,809,000)      3,626,000
   Federal Income Tax Expense (Benefit)  (Note 9)         (3,205,000)        497,000            99,000       1,174,000
                                                        ------------    ------------    --------------    ------------
           Net Income (Loss)                              (7,197,000)        235,000        (1,908,000)      2,452,000
Other Comprehensive Income, Net of Tax:
   Unrealized Holding Gains (Losses) on
     Available-for-sale Securities Arising During the
       Period                                              1,405,000       1,654,000           150,000        (504,000)
   Reclassification adjustment for gains included in
     net income                                               (1,000)        (36,000)                0               0
                                                        ------------    ------------    --------------    ------------
           Comprehensive Income (Loss)                  $ (5,793,000)   $  1,853,000    $   (1,758,000)   $  1,948,000
                                                        ============    ============    ==============    ============
   Preferred Stock Dividends                                                            $            0    $     20,000
                                                                                        ==============    ============
   Net Income (Loss) Available to Common Stockholders                                   $   (1,908,000)   $  2,432,000
                                                                                        ==============    ============
   Basic Earnings (Loss) Per Common Share Available
     to Common Stockholders (Note 12)                                                   $        (0.84)   $       1.12
                                                                                        ==============    ============
   Diluted Earnings (Loss) Per Common Share Available
     to Common Stockholders (Note 12)                                                   $        (0.84)   $       1.08
                                                                                        ==============    ============
</Table>

                             See accompanying notes.

                                       45
<Page>

                          INDEPENDENT BANKSHARES, INC.
          A WHOLLY OWNED SUBSIDIARY OF STATE NATIONAL BANCSHARES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
     FOR THE YEAR ENDED DECEMBER 31, 2001, THE PERIOD FROM AUGUST 12, 2000,
      THROUGH DECEMBER 31, 2000, THE PERIOD FROM JANUARY 1, 2000, THROUGH
             AUGUST 11, 2000, AND THE YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>
                                                  SERIES C PREFERRED STOCK          COMMON STOCK         ADDITIONAL
                                                 --------------------------     ---------------------     PAID-IN
                                                   SHARES         AMOUNT         SHARES       AMOUNT      CAPITAL
                                                 -----------    -----------     ---------    --------   -----------
<S>                                                   <C>       <C>             <C>         <C>        <C>
Balances--January 1, 1999                              5,006    $    51,000     2,217,296   $ 554,000  $ 15,933,000
   Net Income
   Adjustment to Unrealized Loss on
     Available-for-sale Securities, Net of
     Tax of $260,000 (Note 4)
   Cash Dividends ($0.20 Per Share)
   Principal Payments on Loan to ESOP for
     Stock Purchase - Earned Stock
   Conversion of Series C Preferred Stock             (5,066)       (51,000)      116,351      29,000        22,000
   Purchase of Treasury Stock
                                                 -----------    -----------     ---------    --------   -----------
Balances--December 31, 1999                                0              0     2,333,647     583,000    15,955,000
   Net Loss, January 1 to August 11
   Adjustment to Unrealized Loss on
     Available-for-sale Securities, Net of
     Tax of $77,000 (Note 4)
   Cash Dividends ($0.12 Per Share)
   Principal Payments on Loan to ESOP for
     Stock Purchase - Earned Stock
                                                 -----------    -----------     ---------    --------   -----------
Balances--August 11, 2000 (Predecessor)                    0              0     2,333,647     583,000    15,955,000
   Purchase Accounting Adjustments (Note 2)                                                              30,258,000
   Retirement of Treasury Stock                                                   (60,000)    (15,000)     (654,000)
   Merger of UB&T effective August 11, 2000                                                              16,622,000
   Merger of Lubbock effective August 11, 2000                                                           18,000,000
   Purchase Price Adjustment
   Net Loss, August 12 to December 31
   Adjustment to Unrealized Gain on
     Available-for-sale Securities, Net of
     Tax of $1,347,000 (Note 4)
   Cash Dividends
                                                 -----------    -----------     ---------    --------   -----------
Balances--December 31, 2000                                0              0     2,273,647     568,000    80,181,000
   Net Loss
   UB&T Purchase Price Adjustment                                                                          (110,000)
   Adjustment to Unrealized Gain on
     Available-for-sale Securities, Net of
     Tax of $723,000 (Note 4)
   Cash Dividends
                                                 -----------    -----------     ---------    --------   -----------
Balances--December 31, 2001                                0    $         0     2,273,647    $568,000   $80,071,000
                                                 ===========    ===========     =========    ========   ===========

<Caption>
                                                                      UNREALIZED
                                                                 GAIN (LOSS)                              UNEARNED EMPLOYEE STOCK
                                                  RETAINED      ON AVAILABLE        TREASURY STOCK         OWNERSHIP PLAN STOCK
                                                  EARNINGS        FOR-SALE      ----------------------   -----------------------
                                                  (DEFICIT)      SECURITIES       SHARES      AMOUNT       SHARES       AMOUNT
                                                 -----------    -----------     ---------  -----------   ----------  -----------
<S>                                              <C>            <C>               <C>      <C>              <C>      <C>
Balances--January 1, 1999                        $ 7,975,000    $   161,000             0  $         0      (14,839  $  (169,000)
   Net Income                                      2,452,000
   Adjustment to Unrealized Loss on
     Available-for-sale Securities, Net of
     Tax of $260,000 (Note 4)                                      (504,000)
   Cash Dividends ($0.20 Per Share)                 (455,000)
   Principal Payments on Loan to ESOP for
     Stock Purchase - Earned Stock                                                                            2,369       27,000
   Conversion of Series C Preferred Stock
   Purchase of Treasury Stock                                                     (60,000)    (669,000)
                                                 -----------    -----------     ---------  -----------   ----------  -----------
Balances--December 31, 1999                        9,972,000       (343,000)      (60,000)    (669,000)     (12,470)    (142,000)
   Net Loss, January 1 to August 11               (1,908,000)
   Adjustment to Unrealized Loss on
     Available-for-sale Securities, Net of
     Tax of $77,000 (Note 4)                                        150,000
   Cash Dividends ($0.12 Per Share)                 (273,000)
   Principal Payments on Loan to ESOP for
     Stock Purchase - Earned Stock                                                                           12,470      142,000
                                                 -----------    -----------     ---------  -----------   ----------  -----------
Balances--August 11, 2000 (Predecessor)            7,791,000       (193,000)      (60,000)    (669,000)           0            0
   Purchase Accounting Adjustments (Note 2)       (7,791,000)       193,000
   Retirement of Treasury Stock                                                    60,000      669,000
   Merger of UB&T effective August 11, 2000          483,000       (376,000)
   Merger of Lubbock effective August 11, 2000     1,026,000       (621,000)
   Purchase Price Adjustment                         (76,000)
   Net Loss, August 12 to December 31                235,000
   Adjustment to Unrealized Gain on
     Available-for-sale Securities, Net of
     Tax of $1,347,000 (Note 4)                                   2,615,000
   Cash Dividends                                 (2,051,000)
                                                 -----------    -----------     ---------  -----------   ----------  -----------
Balances--December 31, 2000                         (383,000)     1,618,000             0            0            0            0
   Net Loss
   UB&T Purchase Price Adjustment                 (7,197,000)
   Adjustment to Unrealized Gain on
     Available-for-sale Securities, Net of
     Tax of $723,000 (Note 4)                                     1,404,000
   Cash Dividends                                   (700,000)
                                                 -----------    -----------     ---------  -----------   ----------  -----------
Balances--December 31, 2001                      $(8,280,000)   $ 3,022,000             0  $         0            0            0
                                                 ===========    ===========     =========  ===========   ==========  ===========
</Table>

                             See accompanying notes.

                                       46
<Page>

                          INDEPENDENT BANKSHARES, INC.
          A WHOLLY OWNED SUBSIDIARY OF STATE NATIONAL BANCSHARES, INC.
   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2001,
         THE PERIOD FROM AUGUST 12, 2000, THROUGH DECEMBER 31, 2000, THE
          PERIOD FROM JANUARY 1, 2000, THROUGH AUGUST 11, 2000, AND THE
                          YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>
                                                                                                     PREDECESSOR
                                                                                             ----------------------------
                                                             YEAR ENDED    AUGUST 12, 2000, JANUARY 1, 2000   YEAR ENDED
                                                            DECEMBER 31,        THROUGH        THROUGH        DECEMBER 31,
                                                                1999      DECEMBER 31, 2000 AUGUST 11, 2000      1999
                                                            -------------  ---------------- ---------------  ------------
<S>                                                         <C>              <C>             <C>             <C>
Cash Flows from Operating Activities:
     Net Income (Loss)                                      $  (7,197,000)   $    235,000    $ (1,908,000)   $  2,452,000
Adjustments to Reconcile Net Income (Loss) to Net Cash
   Provided by Operating Activities:
     Deferred Federal Income Tax Expense (Benefit)                 88,000         103,000        (817,000)        260,000
     Depreciation and Amortization                              5,668,000       2,286,000         864,000       1,424,000
     Provision for Loan Losses                                 10,765,000         618,000       1,660,000         445,000
     Gain on Sales of Securities                                   (1,000)        (36,000)              0               0
     Gain on Sales of Premises and Equipment                      (24,000)        (40,000)              0          (1,000)
     Writedown of Premises and Equipment                          129,000               0               0               0
     Gains on Sales of Other Real Estate and Other
       Repossessed Assets                                         (29,000)              0               0          (1,000)
     Writedown of Other Real Estate and Other
       Repossessed Assets                                         124,000           2,000           4,000           6,000
     Decrease (Increase) in Accrued Interest Receivable         2,694,000      (1,013,000)          6,000        (284,000)
     Decrease in Other Assets                                     466,000       1,050,000       1,180,000         224,000
     Increase (Decrease) in Accrued Interest Payable           (1,026,000)        187,000          99,000         (89,000)
     Increase (Decrease) in Other Liabilities                  (1,451,000)     (1,396,000)      1,227,000          88,000
                                                            -------------    ------------    ------------    ------------
         Net Cash Provided by Operating Activities             10,206,000       1,996,000       2,315,000       4,524,000
                                                            -------------    ------------    ------------    ------------

Cash Flows from Investing Activities:
     Proceeds from Maturities of Available-for-sale
       Securities                                              70,034,000       8,599,000      12,200,000       6,768,000
     Proceeds from Maturities of Held-to-maturity
       Securities                                                       0       3,977,000       4,724,000      34,031,000
     Proceeds from Sales of Available-for-sale Securities      59,919,000      39,692,000       3,000,000               0
     Purchases of Available-for-sale Securities              (166,507,000)    (41,145,000)     (4,891,000)    (25,663,000)
     Purchases of Held-to-maturity Securities                           0               0      (5,836,000)    (29,918,000)
     Purchase of Bank Owned Life Insurance                    (10,000,000)              0               0               0
     Net Decrease (Increase) in Loans                          48,719,000       3,184,000       3,167,000      (3,027,000)
     Proceeds from Sales of Premises and Equipment                310,000          99,000               0           1,000
     Additions to Premises and Equipment                       (1,656,000)     (1,387,000)        (82,000)       (273,000)
     Proceeds from Sales of Other Real Estate and Other
       Repossessed Assets                                       1,104,000         104,000         356,000       1,210,000
     Net Cash and Cash Equivalents Received  in
       Merger/Acquisition                                               0       9,344,000               0               0
                                                            -------------    ------------    ------------    ------------
         Net Cash Provided by (Used in) Investing
           Activities                                           1,923,000      22,467,000      12,638,000     (16,871,000)
                                                            -------------    ------------    ------------    ------------

Cash Flows from Financing Activities:
     Net Decrease in Deposits                                 (49,575,000)     (2,504,000)     (6,962,000)    (12,505,000)
     Increase in Federal Funds Purchased and Securities
       Sold Under Agreement to Repurchase                         151,000               0               0               0
     Repayment of Notes Payable                                         0               0               0          (1,000)
     Advances from State National                               1,000,000               0               0               0
     Payment of Cash Dividends                                   (700,000)     (2,051,000)       (273,000)       (455,000)
     Purchase of Treasury Stock                                         0               0               0        (669,000)
                                                            -------------    ------------    ------------    ------------
         Net Cash Used in Financing Activities                (49,124,000)     (4,555,000)     (7,235,000)    (13,630,000)
                                                            -------------    ------------    ------------    ------------
Net Increase (Decrease) in Cash and Cash Equivalents          (36,995,000)     19,908,000       7,718,000     (25,977,000)
Cash and Cash Equivalents at Beginning of Period               83,585,000      63,677,000      38,760,000      64,737,000
                                                            -------------    ------------    ------------    ------------
Cash and Cash Equivalents at End of Period                  $  46,590,000    $ 83,585,000    $ 46,478,000    $ 38,760,000
                                                            =============    ============    ============    ============
</Table>

                             See accompanying notes.

                                       47
<Page>

                          INDEPENDENT BANKSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

     Independent Bankshares, Inc., a Texas corporation (the "Company") is a bank
holding company headquartered in Lubbock, Texas. The Company is an indirect
wholly owned subsidiary of State National Bancshares, Inc., Lubbock, Texas
("State National"). At December 31, 2001, the Company owned all of the common
securities of Independent Capital Trust ("Independent Capital") and indirectly
owned through a Delaware subsidiary, Independent Financial Corp. ("Independent
Financial"), 100% of the stock of State National Bank of West Texas, Lubbock,
Texas (the "Bank"). At December 31, 2001, the Bank operated full-service banking
locations in the Texas cities of Abilene (five locations), Azle (two locations),
Bangs, Big Spring, Lubbock (three locations), Odessa (two locations), Plainview,
San Angelo, Stamford, Trent and Winters.

     The Company's primary activities are to assist the Bank in the management
and coordination of its financial resources. The Bank operates under the
day-to-day management of its own officers and board of directors and formulates
its own policies with respect to banking matters.

     The principal services provided by the Bank are as follows:

     Commercial Services. The Bank provides a full range of banking services for
its commercial customers. Commercial lending activities include short-term and
medium-term loans, revolving credit arrangements, inventory and accounts
receivable financing, equipment financing and interim and permanent real estate
lending. Other services include cash management programs and federal tax
depository and night depository services.

     Consumer Services. The Bank also provides a wide range of consumer banking
services, including checking, savings and money market accounts, savings
programs and installment and personal loans. The Bank makes automobile and other
installment loans directly to customers, as well as indirectly through
automobile dealers. The Bank makes home improvement, home equity and real estate
loans and provides safe deposit services. As a result of sharing arrangements
with the Pulse automated teller machine system network, the Bank provides
24-hour routine banking services through automated teller machines ("ATMs"). The
Pulse network provides ATM accessibility throughout the United States. The Bank
also offers investment services and banking by phone or personal computer.

     Trust Services. The Bank provides trust and agency services to individuals,
partnerships and corporations from its offices in Abilene, Lubbock and Odessa.
The trust division also provides investment management, administration and
advisory services for agency and trust accounts, and acts as trustee for pension
and profit sharing plans.

     Investment Services. The Bank provides investment services, including
purchases and sales of various investments, and management of such investments,
for its customers.

PRINCIPLES OF CONSOLIDATION

     The Consolidated Financial Statements include the accounts of the Company,
Independent Capital, Independent Financial and the Bank. All significant
intercompany accounts and transactions have been eliminated upon consolidation.

STATEMENTS OF CASH FLOWS

     For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, interest earning time deposits and federal
funds sold. Generally, federal funds are purchased and sold for one-day periods.

                                       48
<Page>

SECURITIES

     Management determines the appropriate classification of securities at
the time of purchase. If the securities are purchased with the positive
intent and the ability to hold the securities until maturity, they are
classified as held-to-maturity and carried at historical cost, adjusted for
amortization of premiums and accretion of fees and discounts using a method
that approximates the interest method. Securities to be held for indefinite
periods of time are classified as available-for-sale and carried at fair
value. Unrealized gains and losses, net of taxes, related to securities
available-for-sale are recorded as a separate component of stockholder's
equity. The Company had no securities classified as held-to-maturity or
trading as of December 31, 2001. The cost of securities sold is based on the
specific identification method. The Company currently owns no derivative
financial instruments subject to FAS 133 Accounting for Derivative
Instruments and Hedging Activities and does not engage in hedging activities.

LOANS

     Loans are stated at the principal amount outstanding. Interest on the
various types of commercial, real estate and other loans is accrued daily based
on the principal balances outstanding. Income on installment loans is recognized
using this method or other methods under which income approximates the effective
interest method.

     The recognition of income on a loan is discontinued, and previously accrued
interest is reversed, when interest or principal payments become ninety (90)
days past due unless, in the opinion of management, the outstanding interest
remains collectible. Interest is subsequently recognized only as received until
the loan is returned to accrual status.

     A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect all amounts due
(both principal and interest) according to the terms of the loan agreement.
Reserves on impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or the fair
value of the underlying collateral.

ALLOWANCE FOR LOAN LOSSES

     The allowance for loan losses (the "allowance") is reduced by charge-offs
and increased by recoveries of loans previously charged off and the loan loss
provision necessary to bring the allowance to an amount determined by management
to be adequate. Management's periodic evaluation of the adequacy of the
allowance is based on past loan loss experience, known inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to repay,
the estimated value of any underlying collateral and current economic
conditions. The allowance is comprised of three elements which include: (1)
allowances established on specific loans, (2) allowances based on loss
experience and trends in pools of loans with similar characteristics, and (3)
unallocated allowances based on general economic conditions and other internal
and external risk factors in the Company's individual markets. The total
allowance includes activity related to allowances calculated in accordance with
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan" (FAS 114") and activity related to other allowances
determined in accordance with Statement of Financial Accounting Standards
"Accounting for Contingencies" ("FAS 5").

PREMISES AND EQUIPMENT

     Premises and equipment are stated at cost less accumulated depreciation.
Depreciation for financial reporting purposes is computed primarily on the
straight-line method over the estimated useful lives of five (5) to forty (40)
years. When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the results of operations for the period.

INTANGIBLE ASSETS

     A core deposit intangible resulting from the acquisition of the Company is
being amortized on an accelerated method over a ten (10) year period. Goodwill
resulting from the acquisition of the Company is being amortized on the
straight-line method over a twenty (20) year period.

     All intangible assets are evaluated periodically to determine
recoverability of their carrying value when economic conditions indicate
impairment may exist. These conditions would include an ongoing negative
performance history and a forecast of anticipated performance that is
significantly below management's initial expectation for the acquired entity.
Impairment would be determined based upon the estimated discounted cash flows of
the entity acquired over the remaining amortization period, compared to the

                                       49
<Page>

remaining intangible balance. As of December 31, 2001, management believes
that no impairment of intangible assets had occurred as determined by
Financial Accounting Standards Board ("the FASB") Statement of Financial
Accounting Standards No. 121 , "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121").

FEDERAL INCOME TAXES

     The Company uses the liability method of accounting for deferred income
taxes as required by the Financial Accounting Standards Board (the "FASB")
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). Deferred income taxes reflect the net effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.

OTHER REAL ESTATE AND OTHER REPOSSESSED ASSETS

     Other real estate and other repossessed assets consist principally of real
estate properties and automobiles acquired by the Company through foreclosure.
Such assets are carried at the lower of cost (generally the outstanding loan
balance) or estimated fair value, net of estimated costs of disposal, if any. If
the estimated fair value of the collateral securing the loan is less than the
amount outstanding on the loan at the time the assets are acquired, the
difference is charged against the allowance for possible loan losses. Subsequent
declines in estimated fair value, if any are charged to noninterest expense.

ADVERTISING COSTS

     Advertising costs are expensed as incurred. The total amounts charged to
advertising expense for the years ended December 31, 2001, 2000 and 1999 were
approximately $540,000, $575,000 and $137,000, respectively.

PENDING ADOPTION OF ACCOUNTING STANDARDS

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS. Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. Statement 141 also included guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. Statement 142 prohibits the
amortization of goodwill and intangible assets with indefinite useful lives.
Statement 142 requires that these assets be reviewed for impairment at least
annually. Intangible assets with finite lives will continue to be amortized over
their estimated useful lives. Additionally, Statement 142 requires that goodwill
included in the carrying value of equity method investments no longer be
amortized.

     The Company will apply Statement 142 beginning in the first quarter of
2002. Application of the nonamortization provisions of Statement 142 is expected
to result in an increase in net income before cumulative effect of a change in
accounting principle of $1,730,000 pretax in 2002. The company will test
goodwill for impairment using the two-step process prescribed in Statement 142.
The first step is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. The Company expects to perform
the first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002 in the first quarter of 2002. Based on
steps the Company has taken to prepare for the adoption of Statement 142, it is
likely between $10,000,000 and $15,000,000 of the goodwill related to
Independent Bankshares, Inc. will be impaired using the impairment test required
by Statement 142. The Company currently evaluates goodwill for impairment by the
standards set forth in Statement of Financial Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, which does not result in an indicated impairment. An impairment
that is required to be recognized when adopting Statement 142 will be reflected
as the cumulative effect of a change in accounting principle in the first
quarter of 2002. The Company has not yet determined the exact amount of the
potential impairment loss.

                                       50
<Page>

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NOTE 2: ACQUISITION OF THE COMPANY

     On March 1, 2000, the Company entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with State National for a cash
acquisition of the Company by State National (the "Acquisition"). The Company
and State National consummated the Merger at the close of business August 11,
2000. Pursuant to the terms of the Merger Agreement, each share of common stock
of the Company was exchanged for $20.0165 in cash. Upon conclusion of the
Acquisition, State National became the sole shareholder of the Company, owning
all 2,273,647 outstanding shares of the Company's common stock. In connection
with the Acquisition, State National agreed to assume and guarantee the
outstanding Trust Preferred Securities issued by Independent Capital, a Delaware
business trust controlled by the Company.

     State National accounted for its acquisition of the Company as a purchase
business combination and purchase accounting adjustments, including goodwill,
have been pushed down and reflected in the consolidated financial statements of
the Company subsequent to August 11, 2000. The consolidated financial statements
of the Company for the periods ended before August 12, 2000 (predecessor), were
prepared using the Company's historical basis of accounting. The comparability
of operating results for these periods and the periods encompassing push down
accounting is affected by the purchase accounting adjustments, including the
amortization of goodwill (straight-line method) and core deposit intangibles
(accelerated method) over a period of 20 and 10 years, respectively.

     The purchase price, including costs incurred by State National directly
associated with the Acquisition, were preliminarily allocated to net assets
acquired. Final allocation has been obtained and the purchase allocations
finalized at December 31, 2000. The following table summarizes the changes made
to the accounts of the Company as of August 11, 2000, as a result of applying
push down accounting:

<Table>
<Caption>
                                                       Balance at   Push Down
                                                        Date of     Accounting    Adjusted
                                                      Acquisition  Adjustments    Balance
                                                      -----------  -----------   ---------
                                                                 (In thousands)
          <S>                                          <C>          <C>         <C>
          Investment securities                        $  99,906    $ (1,494)   $  98,412
          Loans, net of unearned income                  183,082      (1,169)     181,913
          Allowance for possible loan losses              (3,343)     (3,028)      (6,371)
          Goodwill and core deposit intangibles            9,746      30,099       39,845
          Premises and equipment                           9,446        (492)       8,954
          Other assets                                     1,659        (126)       1,533
                                                       ---------    --------    ---------
          Total assets                                 $ 350,735    $ 23,790    $ 374,525
                                                       =========    ========    =========

          Other liabilities                            $   1,760    $  3,233    $   4,993
          Trust Preferred Securities                      13,000      (2,103)      10,897
          Stockholder's equity                            23,465      22,660       46,125
                                                       ---------    --------    ---------
          Total liabilities and stockholder's equity   $ 350,735    $ 23,790    $ 374,525
                                                       =========    ========    =========
</Table>

NOTE 3: BANK MERGERS

     On October 24, 2000, State National contributed to the Company its
ownership of United Bank & Trust, Abilene, Texas ("UB&T"). UB&T was merged with
and into First State Bank, National Association, Abilene, Texas ("First State"),
a subsidiary of the Company at that time. At the time of the merger, the name of
the resulting bank was changed to State National Bank of West Texas, Abilene,
Texas (the "Abilene Bank").

     The merger was accounted for similar to a pooling of interests. As a result
of the merger, the balance sheet and results of operations of UB&T have been
included in the Company's consolidated financial statements since August 12,
2000, the date of the acquisition of the Company by State National (the
"Acquisition"). At August 12, 2000, UB&T had total assets of $112,806,000,

                                       51
<Page>

loans, net of allowance for possible loan losses, of $70,230,000, total
deposits of $93,946,000 and total stockholder's equity of $16,729,000.

     On February 28, 2001, State National contributed to the Company, its
ownership interest in State National Bank of West Texas, Lubbock, Texas (the
"Lubbock Bank"). The Abilene Bank was merged with and into the Lubbock Bank. The
Lubbock Bank continued as the surviving entity in the merger (the "Bank").

     The merger was accounted for similar to a pooling of interests. As a result
of the merger, the balance sheet and results of operations of the Lubbock Bank
have been included in the Company's consolidated financial statements since
August 11, 2000, the date of the acquisition of the Company by State National
(the "Acquisition"). At August 11, 2000, the Lubbock Bank had total assets of
$210,409,000, loans, net of allowance for possible loan losses, of $121,130,000,
total deposits of $190,828,000 and total stockholder's equity of $18,405,000.

     Collectively, the UB&T Merger and the Lubbock Bank Merger are referred to
as the Bank Mergers.

NOTE 4: SECURITIES

     The amortized cost and estimated fair value of available-for-sale
securities at December 31, 2001 and 2000, were as follows:

<Table>
<Caption>
                                                                            2001
                                                  --------------------------------------------------------
                                                                    Gross        Gross
                                                                  Unrealized   Unrealized   Estimated Fair
                                                  Amortized Cost    Gains        Losses         Value
                                                  --------------  ----------   ----------   --------------
<S>                                                <C>            <C>          <C>          <C>
U.S. Treasury securities and obligations of U.S.
   Government agencies and corporations            $132,363,000   $3,900,000   $(238,000)   $136,025,000
Mortgage-backed securities and collateralized
   mortgage obligations                              68,943,000      954,000    (162,000)     69,735,000
Obligations of states and political subdivisions      6,985,000      124,000           0       7,109,000
Other securities                                      3,243,000            0           0       3,243,000
                                                   ------------   ----------   ---------    ------------

     Total available-for-sale securities           $211,534,000   $4,978,000   $(400,000)   $216,112,000
                                                   ============   ==========   =========    ============

<Caption>
                                                                            2001
                                                  --------------------------------------------------------
                                                                     Gross       Gross
                                                                  Unrealized   Unrealized   Estimated Fair
                                                  Amortized Cost     Gains        Losses         Value
                                                  --------------  ----------   ----------   --------------
<S>                                                <C>            <C>          <C>          <C>
U.S. Treasury securities and obligations of U.S.
   Government agencies and corporations            $121,769,000   $2,226,000   $(141,000)   $123,854,000
Mortgage-backed securities and collateralized
   mortgage obligations                              28,040,000      435,000    (114,000)     28,361,000
Obligations of states and political subdivisions      8,291,000       55,000     (12,000)      8,334,000
Other securities                                      3,128,000            0           0       3,128,000
                                                   ------------   ----------   ---------    ------------

     Total available-for-sale securities           $161,228,000   $2,716,000   $(267,000)   $163,677,000
                                                   ============   ==========   =========    ============
</Table>

                                       52

<Page>

     There were no held-to maturity securities at December 31, 2001, as they
were reclassified to available for sale in 2001 in conjunction with the adoption
of Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). The amortized cost
and estimated fair value of held-to maturity securities at December 31, 2000,
were as follows:

<Table>
<Caption>
                                                                            2001
                                                  --------------------------------------------------------
                                                                     Gross       Gross
                                                                  Unrealized   Unrealized   Estimated Fair
                                                  Amortized Cost    Gains        Losses         Value
                                                  --------------  ----------   ----------   --------------
<S>                                                <C>           <C>           <C>           <C>
U.S. Treasury securities and obligations of U.S.
   Government agencies and corporations            $ 5,184,000   $    1,000    $       0     $ 5,185,000
Mortgage-backed securities and collateralized
   mortgage obligations                              8,333,000        8,000      (31,000)      8,310,000
                                                   -----------   ----------    ---------     -----------

     Total held-to-maturity securities             $13,517,000   $    9,000    $ (31,000)    $13,495,000
                                                   ===========   ==========    =========     ===========
</Table>

     The amortized cost and estimated fair value of securities at December 31,
2001, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.

<Table>
<Caption>
                                                                    Amortized      Estimated Fair
                 Available-for-sale Securities                         Cost              Value
                 -----------------------------                     ------------    --------------
                 <S>                                               <C>             <C>
                 Due in one year or less                           $ 22,497,000    $   22,893,000
                 Due after one year through five years              102,877,000       105,554,000
                 Due after five years through ten years              13,854,000        14,559,000
                 Due after ten years                                  3,363,000         3,371,000
                                                                   ------------    --------------
                                                                    142,591,000       146,377,000
                 Mortgage-backed securities and collateralized
                    mortgage obligations                             68,943,000        69,735,000
                                                                   ------------    --------------

                    Total available-for-sale securities            $211,534,000      $216,112,000
                                                                   ============      ============
</Table>

     At December 31, 2001, securities with an amortized cost and estimated fair
value of $45,996,000 and $47,785,000, respectively, were pledged as collateral
for public and trust fund deposits and for other purposes required or permitted
by law. At December 31, 2000, the amortized cost and estimated fair value of
pledged securities were $76,154,000 and $77,130,000, respectively.

     During 2001, the Company sold available-for-sale securities with an
aggregate book value of $59,919,000 and a gross realized gain of approximately
$1,000. Available-for-sale securities aggregating $3,000,000 were sold
immediately prior to maturity during the first six months of 2000.
Available-for-sale securities aggregating $39,692,000 were sold immediately
after the Acquisition and a similar amount of available-for-sale securities were
then purchased to reposition the Company's securities portfolio.

                                       53
<Page>

NOTE 5: LOANS

     The composition of loans at December 31, 2001 and 2000, was as follows:

<Table>
<Caption>
                                                                  2001               2000
                                                               ------------      -------------
                 <S>                                           <C>               <C>
                 Real estate loans                             $135,544,000      $ 127,510,000
                 Commercial loans                                98,129,000        127,205,000
                 Loans to individuals                            37,873,000         53,308,000
                 Agriculture and other loans                     32,724,000         59,036,000
                                                               ------------      -------------
                    Total loans                                 304,270,000        367,059,000
                 Less unearned income                                24,000            126,000
                                                               ------------      -------------
                    Total loans, net of unearned income        $304,246,000       $366,933,000
                                                               ============       ============
</Table>

     Included in the Loan balance at December 31, 2001 is a purchase discount
with a remaining balance of $753,000 related to the acquisition of the Company
by State National. The original balance of the discount was $1,169,000 and was
calculated at a effective purchase yield of 10.00%. The discount is being
accreted into income over the life of the related loans. The estimated remaining
life of the loans on which the discount was calculated is five years.

     Nonperforming assets at December 31, 2001 and 2000, were as follows:

<Table>
<Caption>
                                                       2001          2000
                                                     ----------   ----------
<S>                                                  <C>          <C>
Nonaccrual loans                                     $5,581,000   $3,337,000
Accruing loans past due over ninety days                223,000    2,572,000
Restructured loans                                       29,000      119,000
Other real estate and other repossessed assets          691,000      576,000
                                                     ----------   ----------

  Total nonperforming assets                         $6,524,000   $6,604,000
                                                     ==========   ==========
</Table>

     At December 31, 2001, loans identified as being impaired consisted of loans
placed on nonaccrual status. At December 31, 2000, loans identified as being
impaired consisted of loans placed on nonaccrual status as well as additional
loans related to five borrowing relationships which were still on accrual status
but were considered by successor management to be impaired under FAS 114. See
below for discussion of the five borrowing relationships. The entire balance in
the allowance for loan loss is available to absorb loan losses on the entire
portfolio.

     At December 31, 2001, and 2000, the recorded investment in loans that are
considered to be impaired under FAS 114 was approximately $5,581,000 and
$10,941,000, respectively. Included in these amounts at December 31, 2001 and
2000, was approximately $4,710,000 and $7,491,000, respectively, of impaired
loans for which the related specific reserve for loan losses was approximately
$1,190,000 and $4,516,000, respectively. Impaired loans of $871,000 and
$3,450,000 at December 31, 2001 and 2000, respectively, did not have a specific
reserve for loan losses.

     The amount of interest income that would have been recorded on nonaccrual
loans for the year ended December 31, 2001, the period from August 12, 2000, to
December 31, 2000, the period from January 1, 2000, to August 11, 2000, and for
the year ended December 31, 1999, based on the loans' original terms was
$582,000, $100,000, $12,000 and $23,000, respectively. A total of $1,000, $0,
$16,000 and $2,000 in interest on nonaccrual loans was actually collected and
recorded as income during the year ended December 31, 2001, the period from
August 12, 2000, to December 31, 2000, the period from January 1, 2000, to
August 11, 2000, and for the year ended December 31, 1999, respectively.

     A summary of the activity in the allowance for loan losses for the year
ended December 31, 2001, the period from August 12, 2000, to December 31,
2000, the period from January 1, 2000, to August 11, 2000, and for the year
ended December 31, 1999, is as follows:

<Table>
<Caption>
                                                       Year ended    August 12, 2000,   January 1, 2000      Year ended
                                                       December 31,   to December 31,     to August 11,       December 31,
                                                          2001             2000               2000              1999
                                                       -----------       ----------        ----------        ----------
       <S>                                             <C>               <C>               <C>               <C>
       Balance at beginning of period                  $ 8,379,000       $6,371,000        $1,833,000        $1,842,000
           Provision for loan losses                    10,765,000          618,000         1,660,000           445,000
           Loans charged off                           (13,694,000)      (1,796,000)         (230,000)         (697,000)
           Recoveries of loans charged off               1,075,000           39,000            80,000           243,000
           Purchase accounting adjustment                        0                0         3,028,000                 0
           Mergers                                               0        3,147,000                 0                 0
                                                       -----------       ----------        ----------        ----------

              Balance at end of period                 $ 6,525,000       $8,379,000        $6,371,000        $1,833,000
                                                       ===========       ==========        ==========        ==========
</Table>

     The increase in the allowance of $3,028,000 related to the purchase
accounting adjustment is due primarily to five borrowing relationships with whom
predecessor management had intended to continue to work and extend or renew the
loan as necessary. Predecessor management believed that the net carrying amount,
after considering specific reserves, was adequate to reflect the estimated
carrying amount of the loans. Successor management has determined that they will
no longer maintain a relationship with these borrowers, has informed the
borrowers that the borrowers will have to pay off their respective loans with
the Company and, if necessary, liquidate the collateral supporting the loans
within no later than one year of the Acquisition date. The Company offered a
reduction in principal to one borrower to provide an incentive for the borrower

                                       54
<Page>

to move its loan relationship. As these loans are collateral dependant, the
estimated losses on these loans are primarily due to estimated collateral
liquidation value shortfalls. Overall, successor management has determined
that the intended method of ultimate recovery on loans from these five
borrowing relationships is demonstrably different from the plans that served
as the basis for predecessor management estimation of recovery on such loans.
This portion of the allowance will only be used for these specific
relationships. As these loans are collected, any excess allowance would have
been adjusted against goodwill. As of December 31, 2001, the bank has exited
substantially all of these relationships. For those loans exited, there was
no excess allowance remaining at the date of exit.

NOTE 6: INTANGIBLE ASSETS

     The following is a summary of intangible assets at December 31, 2001 and
2000:

<Table>
<Caption>
                                                       2001             2000
                                                    -----------      -----------
       <S>                                          <C>              <C>
       Goodwill                                     $34,591,000      $35,879,000
       Core deposit intangible                       17,163,000       16,961,000
                                                    -----------      -----------
                                                     51,754,000       52,840,000
       Less accumulated amortization                  8,035,000        3,664,000
                                                    -----------      -----------

         Net intangible assets                      $43,719,000      $49,176,000
                                                    ===========      ===========
</Table>

NOTE 7: PREMISES AND EQUIPMENT

     The following is a summary of premises and equipment at December 31, 2001
and 2000:

<Table>
<Caption>
                                                       2001             2000
                                                   ------------      ------------
       <S>                                         <C>               <C>
       Land                                        $  3,444,000      $  3,262,000
       Buildings and improvements                    14,163,000        14,185,000
       Furniture and equipment                        4,098,000         4,136,000
                                                   ------------      ------------
                                                     21,705,000        21,583,000
       Less accumulated depreciation                  6,325,000         5,728,000
                                                   ------------      ------------

         Net premises and equipment                 $15,380,000     $  15,855,000
                                                    ===========     =============
</Table>

     Depreciation expense for the year ended December 31, 2001, 2000 and 1999
was $1,534,000, $991,000 and $751,000, respectively.

                                       55
<Page>

NOTE 8: DEPOSITS

     At December 31, 2001, the scheduled maturities of interest-bearing time
deposits was as follows:

<Table>
<Caption>
                                                            Interest-bearing
                                                             Time Deposits
                                                            ----------------
              <S>                                            <C>
              2002                                           $224,626,000
              2003                                             18,133,000
              2004                                              4,702,000
              2005                                              3,321,000
              2006                                              1,164,000
              Thereafter                                           19,000
                                                             ------------
                Total interest-bearing time deposits         $251,965,000
                                                             ============
</Table>

     At December 31, 2001 and 2000, interest-bearing time deposits of $100,000
or more were $88,648,000 and $108,240,000, respectively.

NOTE 9: FEDERAL INCOME TAXES

     Significant components of the Company's deferred tax assets and liabilities
at December 31, 2001 and 2000, were as follows:

<Table>
<Caption>
                                                                           2001            2000
                                                                        -----------      ----------
           <S>                                                          <C>              <C>
           Deferred tax assets:
              Allowance for possible loan losses                        $ 2,141,000      $2,714,000
              Investment securities                                         210,000         350,000
              Retirement plan                                                     0         279,000
              Net operating loss carryforwards                              152,000         160,000
              Employee retention agreements                                  41,000          72,000
              Other real estate and other repossessed assets                 17,000          17,000
              Other                                                         626,000         711,000
                                                                        -----------      ----------
                Total gross deferred tax assets                           3,187,000       4,303,000
                Less valuation allowance for deferred tax assets                  0         (40,000)
                                                                        -----------      ----------
                  Net deferred tax assets                                 3,187,000       4,263,000
                                                                        -----------      ----------
           Deferred tax liabilities:
              Core deposit intangible                                    (3,327,000)     (5,131,000)
              Net unrealized gain on available-for-sale securities       (1,557,000)       (833,000)
              Discount on Trust Preferred Securities                       (708,000)       (713,000)
              Depreciation and amortization                                (117,000)       (249,000)
              Other, net                                                    (63,000)       (125,000)
                                                                        -----------      ----------
                Total gross deferred tax liabilities                     (5,772,000)     (7,051,000)
                                                                        -----------      ----------

                  Net deferred tax liability                            $(2,585,000)    $(2,788,000)
                                                                        ===========     ===========
</Table>

     Deferred income taxes reflect the net effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company records a
valuation allowance on deferred tax assets if it is more likely than not that
some portion or all of a deferred tax asset will not be realized. The valuation
allowance was $0 and $40,000 at December 31, 2001 and 2000, respectively.
Management believes that it is more likely than not that the Company will
generate sufficient future taxable income to realize the net deferred tax asset.

                                       56
<Page>

     At December 31, 2001, the Company had available net operating loss
carryforwards of approximately $447,000 acquired as part of prior acquisitions.
These net operating loss carryforwards, if not used, expire between 2003 and
2010.

     The comprehensive provisions for federal income taxes for the year ended
December 31, 2001, the periods from August 12, 2000, through December 31, 2000,
from January 1, 2000, through August 11, 2000, and for the year ended December
31, 1999, were as follows:

<Table>
<Caption>
                                               Year Ended        August 12, 2000    January 1, 2000      Year Ended
                                            December 31, 2001        through           through          December 31,
                                                  2001          December 31, 2000   August 11, 2000         1999
                                            ----------------    -----------------   ---------------     -------------
<S>                                          <C>                   <C>                <C>                 <C>
Current tax provision (benefit)              $   (3,293,000)       $  394,000         $   916,000         $   914,000
Deferred tax provision (benefit)                     88,000           103,000            (817,000)            260,000
                                             --------------        ----------         -----------         -----------
  Provision (benefit) for tax expense
    charged to results of operations             (3,205,000)          497,000              99,000           1,174,000
Tax provision (benefit) on adjustment to
  unrealized gain/loss on
  available-for-sale securities                     723,000           833,000              77,000            (260,000)
                                             --------------          --------         -----------         -----------
    Comprehensive provision for federal
       income taxes                          $   (2,482,000)       $1,330,000         $   176,000         $   914,000
                                             ==============        ==========         ===========         ===========
</Table>

     The following is a reconciliation of the difference between income tax
expense as reported and the amount of expense (benefit) computed by applying the
statutory income tax rate to income (loss) before income taxes:

<Table>
<Caption>
                                               Year Ended        August 12, 2000    January 1, 2000      Year Ended
                                            December 31, 2001        through           through          December 31,
                                                  2001          December 31, 2000   August 11, 2000         1999
                                            ----------------    -----------------   ---------------     -------------
<S>                                         <C>                     <C>            <C>                 <C>
Income (loss) before income taxes           $   (10,402,000)        $ 732,000       $  (1,809,000)     $    3,626,000
Statutory rate                                           34%               34%                 34%                 34%
                                            ---------------          --------       --------------      -------------
  Income tax expense (benefit) at
    statutory rate                               (3,537,000)          249,000            (615,000)          1,233,000
Amortization of goodwill                            616,000           224,000             130,000             212,000
Tax-exempt income                                  (276,000)          (40,000)           (113,000)           (187,000)
Nondeductible acquisition expenses                        0                 0             717,000              24,000
Other                                                (8,000)           64,000             (20,000)           (108,000)
                                            ---------------         ---------       --------------      -------------
   Income tax expense (benefit) as
     reported                               $    (3,205,000)        $ 497,000       $      99,000       $   1,174,000
                                            ===============         =========       =============       =============
</Table>

NOTE 10:  GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE COMPANY'S
          SUBORDINATED DEBENTURES

     Independent Capital sold 1,300,000 shares of Trust Preferred Securities at
$10.00 per preferred security in an underwritten offering in 1998. The proceeds
from the sale of the Trust Preferred Securities were used by Independent Capital
to purchase an equivalent amount of Subordinated Debentures of the Company. The
Trust Preferred Securities carry a distribution rate of 8.5%, have a stated
maturity of September 22, 2028, and are guaranteed by State National. The
securities are redeemable at par after September 22, 2003.

     Distributions on the Trust Preferred Securities are payable quarterly on
March 31, June 30, September 30 and December 31. Distributions paid to holders
of the Trust Preferred Securities during both the years ended December 31, 2001
and 2000, totaled $1,105,000.

     Included in the balance of Trust Preferred Securities at December 31, 2001
is a discount with a remaining balance of $2,082,000 related to the acquisition
of the Company by State National. The original balance of the discount was
$2,103,000 and was calculated at an effective purchase yield of 10.26%. The
discount is being amortized into expense over the life of the instrument. The
estimated remaining life of the instrument on which the discount was calculated
is twenty-seven years.

                                       57
<Page>

NOTE 11: STOCKHOLDERS' EQUITY

     At December 31, 2001, 100% of the shares of the Bank are pledged in a debt
agreement between State National and a third party which has an outstanding
balance of $7,000,000 at December 31, 2001.

NOTE 12: EARNINGS PER SHARE

     Basic earnings per common share is computed by dividing net income
available to common stockholders by the weighted average number of common shares
and share equivalents outstanding during the period. The remainder of the Series
C Preferred Stock was converted to Common Stock during the fourth quarter of
1999. Because the Company's outstanding Series C Preferred Stock was cumulative,
the dividends allocable to such preferred stock reduced income available to
common stockholders in the basic earnings per share calculations. In computing
diluted earnings per common share for the year ended December 31, 1999, the
conversion of the Series C Preferred Stock was assumed, as the effect was
dilutive. The following table presents information necessary to calculate
earnings per share for the period from January 1, 2000, to August 11, 2000, and
for the year ended December 31, 1999:

<Table>
<Caption>
                                                                 Period from January   Year Ended
                                                                     1, 2000 to        December 31,
                                                                   August 11, 2000        1999
                                                                 -------------------   -----------
        BASIC EARNINGS (LOSS) PER COMMON SHARE                               (In Thousands)
        <S>                                                           <C>                 <C>
        Net income (loss)                                             $(1,908)            $2,452
        Preferred stock dividends                                           0                (20)
                                                                      -------             ------

        Net income (loss) available to common stockholders            $(1,908)            $2,432
                                                                      =======             ======

        Weighted average shares outstanding                             2,262              2,178
                                                                      =======             ======

        <Caption>
                                                                 Period from January   Year Ended
                                                                     1, 2000 to        December 31,
                                                                   August 11, 2000        1999
                                                                 -------------------   -----------
        DILUTED EARNING (LOSS) PER COMMON SHARE                              (In Thousands)
        <S>                                                           <C>                 <C>
        Net income (loss)                                             $(1,908)            $2,452
                                                                      =======             ======
        Weighted average shares outstanding                             2,262              2,178
        Conversion of Series C Preferred Stock                              0                 97
                                                                      -------             ------

        Adjusted weighted average shares outstanding                    2,262              2,275
                                                                      =======             ======
</Table>

NOTE 13: BENEFIT PLANS

     The Company's ESOP/401(k) Plan covered most of its officers and employees.
Contributions made to the ESOP/401(k) Plan by the Company were $214,000 and
$141,000 for the period from January 1 to August 11, 2000, and for the year
ended December 31, 1999, respectively. These contributions were used to make
distributions to employees who left the Company's employment in the respective
years and to purchase Common Stock of the Company. No contributions were made by
the Company to match contributions made by plan participants in the 401(k)
portion of the ESOP/401(k) Plan during the year ended December 31, 1999;
however, the Company's board of directors voted to match 25% of up to a maximum
of the first 4% of each employees' salary which was deferred and contributed to
the 401(k) portion of the ESOP/401(k) Plan beginning January 1, 2000. The amount
of all such contributions was at the discretion of the Company's board of
directors. Contributions were invested in various equity, debt and money market
investments, including Common Stock of the Company. The ESOP/401(k) Plan was
terminated at the date of the Acquisition and was liquidated subsequent to the
Acquisition.

     Subsequent to the Acquisition, most of the Company's officers and employees
became eligible to participate in State National's 401(k) profit sharing plan.
Beginning August 12, 2000, the Company matched 100% of the first 3%, and

                                       58
<Page>

50% of the next 2%, of each employee's salary which was deferred and contributed
to such plan. The Company contributed $217,000 and $80,000 to the plan for the
year ended December 31, 2001and for the period from August 12 to December 31,
2000, respectively.

NOTE 14: RELATED PARTY TRANSACTIONS

     In the ordinary course of business, the Company and the Bank have loans,
deposits and other transactions with their respective directors and businesses
with which such persons are associated. It is the Company's policy that all such
transactions are entered into on substantially the same terms as those
prevailing at the time for comparable transactions with unrelated third parties.
The balances of loans to all such persons were $298,000, $40,000 and $4,113,000
at December 31, 2001, 2000 and 1999, respectively. Additions and reductions on
such loans were $294,000 and $36,000, respectively, for the year ended December
31, 2001.

NOTE 15: COMMITMENTS AND CONTINGENT LIABILITIES

     The Company is involved in various litigation proceedings incidental to the
ordinary course of business. In the opinion of management, the ultimate
liability, if any, resulting from such other litigation would not be material in
relation to the Company's financial condition, results of operations and
liquidity.

     The Bank leases certain of its premises and equipment under noncancellable
operating leases. Rental expense under such operating leases was approximately
$1,050,000, $723,000 and $436,000 in 2001, 2000 and 1999, respectively.

     The minimum payments due under these leases at December 31, 2001 are as
follows:

<Table>
                          <S>                  <C>
                          2002                 $   1,024,000
                          2003                       634,000
                          2004                       245,000
                          2005                       202,000
                          Thereafter                  63,000
                                               -------------

                            Total                 $2,168,000
                                                  ==========
</Table>

                                       59
<Page>

NOTE 16: FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts and fair values of financial assets and financial
liabilities at December 31, 2001 and 2000, were as follows:

<Table>
<Caption>
                                                                   2001                        2000
                                                       ---------------------------   ---------------------------
                                                         Carrying                     Carrying
                                                          Amount        Fair Value     Amount        Fair Value
                                                       ------------     ----------   ------------   ------------
<S>                                                    <C>              <C>          <C>            <C>
FINANCIAL ASSETS
   Cash and due from banks                             $ 33,212,000     33,212,000   $ 45,415,000   $ 45,415,000
   Interest-earning Time Deposits                         2,850,000      2,850,000        500,000        500,000
   Federal funds sold                                    10,528,000     10,528,000     39,270,000     39,270,000
   Available-for-sale securities                        216,112,000    216,112,000    163,666,000    163,666,000
   Held-to-maturity securities                                    0              0     13,517,000      13,495228
   Loans, net of unearned income                        304,246,000    306,987,000    366,933,000    376,051,000
   Accrued interest receivable                            5,321,000      5,321,000      8,014,000      8,014,000

FINANCIAL LIABILITIES
   Noninterest-bearing demand deposits                 $112,044,000   $112,044,000   $100,795,000   $100,795,000
   Interest-bearing demand deposits                     180,021,000    180,021,000    188,952,000    188,952,000
   Interest-bearing time deposits                       251,965,000    255,257,000    303,224,000    302,932,000
   Fed Funds  Purchased  and  Securities  Sold Under
     Agreement to Repurchase                                151,000        151,000              0              0
   Accrued interest payable                               1,462,000      1,462,000      2,491,000      2,491,000
   Guaranteed  preferred beneficial interests in the
     Company's subordinated debentures                   10,918,000     12,350,000     10,904,000     10,569,000
</Table>

     Fair values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.

     For variable-rate loans that reprice frequently with no significant change
in credit risk, fair values are based on carrying values. The fair values of
other loans are estimated using discounted cash flow analyses, which utilize
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality.

     The fair values of noninterest and interest-bearing demand deposits are, by
definition, equal to the amount payable on demand, i.e., their carrying amount.
The fair values of interest-bearing time deposits are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates of similar maturities.

     Fair value for the guaranteed preferred beneficial interests in the
Company's subordinated debentures is based on the closing price for the Trust
Preferred Securities as quoted on the American Stock Exchange at December 31,
2001 and 2000.

     The carrying amounts for cash and due from banks, interest earning time
deposits, federal funds sold, accrued interest receivable, fed funds purchased
and securities sold under agreement to repurchase and accrued interest payable
approximate the fair values of such assets and liabilities.

     Fair values for the Company's off-balance-sheet instruments, which consist
of lending commitments and standby and commercial letters of credit, are based
on fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit standing.
Management believes that the fair value of these off-balance-sheet instruments
is not significant.

NOTE 17: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

     The Company is a party to financial instruments with off-balance-sheet risk
entered into in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby and commercial letters of credit. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
accompanying financial statements. The contractual amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.

     The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby or commercial letters of credit is represented by the contractual amount
of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet

                                       60
<Page>

instruments. The Company does require collateral or other security to support
financial instruments with credit risk. The Company had outstanding loan
commitments of approximately $49,302,000 and outstanding financial and
performance standby letters of credit of approximately $1,780,000 at December
31, 2001.

     Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Because many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the customer. Collateral held varies but
may include real estate, accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties.

     Financial and performance standby letters of credit are conditional
commitments issued by the Company to guarantee the performance of a customer to
a third party. These guarantees are primarily issued to support public and
private borrowing arrangements. The credit risk involved in issuing standby
letters of credit is essentially the same as that involved in making loans to
customers.

     In the normal course of business, the Company maintains deposits with other
financial institutions in amounts that exceed FDIC insurance coverage limits.

NOTE 18: REGULATORY MATTERS

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

     Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Tier 1 capital and total capital (Tier 1 and Tier
2) to net risk-weighted assets and of Tier 1 capital to adjusted quarterly
average assets. At December 31, 2001, the Company and the Bank met all capital
adequacy requirements to which they were subject.

     At December 31, 2001, the most recent notifications from the Federal
Deposit Insurance Corporation (the "FDIC") categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Company and the Bank must maintain minimum
Tier 1 capital to net risk-weighted assets, total capital to net risk-weighted
assets and Tier 1 capital to adjusted quarterly average assets ratios as set
forth in the tables. No other conditions or events have occurred since the most
recent notification that management believes have changed either the Company's
or the Bank's category.

                                       61
<Page>

     The minimum regulatory capital ratios for "well capitalized" bank holding
companies and the Company's actual capital amounts and ratios at December 31,
2001 and 2000, were as follows:

<Table>
<Caption>
                                                             December 31         Minimum      "Well
                                                         --------------------    Capital   Capitalized"
                                                          2001          2000     Ratios       Ratios
                                                         --------    --------   --------   ------------
                                                                     (Dollars in thousands)
<S>                                                     <C>          <C>         <C>         <C>
Tier 1 capital                                          $ 42,640     $ 45,667
Total capital                                             47,048       49,680
Net risk-weighted assets                                 350,516      316,641
Adjusted quarterly average assets                        608,689      514,958
Capital ratios:
   Tier 1 capital to net risk-weighted assets              12.16%       14.42%   4.00%        6.00%
   Total capital to net risk-weighted assets               13.42        15.69    8.00        10.00
   Tier 1 capital to adjusted quarterly average assets      7.01         8.87    4.00         5.00
</Table>

     The minimum capital ratios for "well capitalized" banks and the Bank's
actual capital ratios at December 31, 2001, were as follows:

<Table>
<Caption>
                                                         Minimum Ratios for "Well      Actual Ratios at
                                                            Capitalized" Banks        December 31, 2001
                                                         ------------------------     -----------------
<S>                                                              <C>                         <C>
Tier 1 capital to net risk-weighted assets                        6.00%                      12.41%
Total capital to net risk-weighted assets                        10.00                       13.67
Tier 1 capital to adjusted quarterly average assets               5.00                        7.15
</Table>

     At December 31, 2001, retained earnings of the Bank included $0 that was
available for payment of dividends to the Company without prior approval of
regulatory authorities.

     The Bank is required to maintain a certain average balance with the Federal
Reserve Bank. At December 31, 2001, the average balance required to be
maintained was $12,168,000.

                                       62
<Page>

NOTE 19: PARENT COMPANY FINANCIAL INFORMATION

     Condensed financial statements of the Company, parent only, are presented
below:

                          INDEPENDENT BANKSHARES, INC.
          A WHOLLY OWNED SUBSIDIARY OF STATE NATIONAL BANCSHARES, INC.
                            CONDENSED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000

<Table>
<Caption>
                                                             2001          2000
                                                         -----------   -----------
        <S>                                              <C>           <C>
        Assets:
        Cash                                             $    78,000   $    39,000
        Investment in subsidiaries                        87,919,000    93,609,000
        Other assets                                         658,000     1,089,000
                                                         -----------   -----------

           Total assets                                  $88,655,000   $94,737,000
                                                         ===========   ===========

        Liabilities:
        Accrued interest payable and other liabilities   $ 1,954,000   $ 1,447,000
                                                         -----------   -----------

           Total liabilities                               1,954,000     1,447,000

        Subordinated debentures                           11,320,000    11,306,000
        Stockholder's equity                              75,381,000    81,984,000
                                                         -----------   -----------

           Total liabilities and stockholder's equity    $88,655,000   $94,737,000
                                                         ===========   ===========
</Table>

                          INDEPENDENT BANKSHARES, INC.
          A WHOLLY OWNED SUBSIDIARY OF STATE NATIONAL BANCSHARES, INC.
                           CONDENSED INCOME STATEMENTS
 FOR THE YEAR ENDED DECEMBER 31, 2001, THE PERIOD FROM AUGUST 12, 2000, THROUGH
  DECEMBER 31, 2000, THE PERIOD FROM JANUARY 1, 2000, THROUGH AUGUST 11, 2000,
                      AND THE YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>
                                                        Year ended       August 12, 2000    January 1, 2000,    Year ended
                                                       December 31,         through,           through         December 31,
                                                          2001           December 31, 2000  August 11, 2000        1999
                                                    -----------------    -----------------  ----------------  -------------
<S>                                                  <C>                     <C>              <C>              <C>
Income:
   Dividends from subsidiaries (see Note 18)         $    734,000            $ 17,000         $ 2,917,000      $1,709,000
   Management fees from subsidiaries                            0                   0              90,000         144,000
   Interest on loan to the ESOP/401(k) Plan                     0                   0               8,000          20,000
   Interest from subsidiaries                                   0                   0               3,000           8,000
   Other income                                             3,000                   0               2,000           0,000
                                                     ------------            --------         -----------      ----------
     Total income                                         737,000              17,000           3,020,000       1,881,000
                                                     ------------            --------         -----------      ----------
Expenses:
   Interest                                             1,153,000             447,000             699,000       1,139,000
   Other expenses                                         266,000             160,000           2,433,000         629,000
                                                     ------------            --------         -----------      ----------
     Total expenses                                     1,419,000             607,000           3,132,000       1,768,000
                                                     ------------            --------         -----------      ----------
       Income (loss) before federal income taxes
         and equity in undistributed earnings of
         subsidiaries                                    (682,000)           (590,000)           (112,000)        113,000
Federal income tax benefit                               (469,000)           (205,000)           (347,000)       (762,000)
                                                     ------------            --------         -----------      ----------
           Income (loss) before equity in
              undistributed earnings of
              subsidiaries                               (213,000)           (385,000)            235,000         875,000
Equity in undistributed earnings (loss) of
   subsidiaries                                        (6,984,000)            620,000          (2,143,000)      1,577,000
                                                     ------------            --------         -----------      ----------

                Net income (loss)                    $ (7,197,000)           $235,000         $(1,908,000)     $2,452,000
                                                     ============            ========         ===========      ==========
</Table>

                                       63
<Page>

                          INDEPENDENT BANKSHARES, INC.
          A WHOLLY OWNED SUBSIDIARY OF STATE NATIONAL BANCSHARES, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
 FOR THE YEAR ENDED DECEMBER 31, 2001, THE PERIOD FROM AUGUST 12, 2000, THROUGH
  DECEMBER 31, 2000, THE PERIOD FROM JANUARY 1, 2000, THROUGH AUGUST 11, 2000,
                      AND THE YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>
                                                   Year ended         August 12, 2000,    January 1, 2000,      Year ended
                                                   December 31,           through         through August        December 31,
                                                       2001           December 31, 2000      11, 2000              1999
                                                ----------------     ------------------  -----------------   ----------------
<S>                                             <C>                  <C>                 <C>                 <C>
Cash flows from operating activities:
   Net income (loss)                            $     (7,197,000)    $        235,000    $     (1,908,000)   $      2,452,000
Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating
   activities:
     Deferred federal income tax expense                 536,000                    0                   0             260,000
     Equity in undistributed earnings of
       subsidiaries                                    6,984,000             (620,000)          2,143,000          (1,577,000)
     Decrease (increase) in other assets                  40,000             (188,000)            175,000            (303,000)
     Increase (decrease) in accrued interest
       payable and other liabilities                    (664,000)            (306,000)          1,109,000              49,000
                                                ----------------     ----------------    ----------------    ----------------
         Net cash provided by (used in)
           operating activities                         (301,000)            (879,000)          1,519,000             881,000
                                                ----------------     ----------------    ----------------    ----------------
Cash flows from investing activity:
   Proceeds from repayments of loans made to
     employee stock ownership plan                             0                    0                   0              65,000
                                                ----------------     ----------------    ----------------    ----------------
     Net cash provided by  investing activity                  0                    0                   0              65,000
                                                ----------------     ----------------    ----------------    ----------------
Cash flows from financing activities:
   Advances from State National                        1,000,000                    0                   0                   0
   Payment of cash dividends                            (700,000)            (700,000)           (273,000)           (455,000)
   Other, Net                                             40,000                    0                   0            (669,000)
                                                ----------------     ----------------    ----------------    ----------------
     Net cash provided by (used in) financing
       activities                                        340,000             (700,000)           (273,000)         (1,124,000)
                                                ----------------     ----------------    ----------------    ----------------
Net increase (decrease) in cash and cash
   equivalents                                            39,000           (1,579,000)          1,246,000            (178,000)
Cash and cash equivalents at beginning of
   period                                                 39,000            1,618,000             372,000             550,000
                                                ----------------     ----------------    ----------------    ----------------
     Cash and cash equivalents at end of
       period                                   $         78,000     $         39,000    $      1,618,000    $        372,000
                                                ================     ================    ================    ================
</Table>

                                       64
<Page>

NOTE 20: SUPPLEMENTAL CASH FLOW INFORMATION

     Supplemental cash flow information for the year ended December 31, 2001,
the period from August 12, 2000, through December 31, 2000, the period from
January 1, 2000, through August 11, 2000, and the year ended December 31, 1999,
is as follows:

<Table>
<Caption>
                                             Year ended       August 12, 2000,    January 1, 2000,       Year ended
                                            December 31,      through December    through December       December 31,
                                                2001              31, 2000            31, 2000              1999
                                           ---------------    ----------------    ----------------     ---------------
<S>                                         <C>                  <C>                    <C>              <C>
Cash paid during the period for:
   Interest                                $    20,197,000     $    10,091,000     $     6,256,000     $     9,987,000
   Federal income taxes                                  0             325,000             800,000           1,000,000
Noncash investing activities:
   Additions to other real estate and
     other repossessed assets during the
     period through foreclosures           $     1,314,000     $       385,000     $       317,000     $       857,000
</Table>

                                       65
<Page>

QUARTERLY DATA (UNAUDITED)

     The following table presents the unaudited results of operations for the
past two years by quarter. See "Note 12: Earnings Per Share" in the Company's
Consolidated Financial Statements.

<Table>
<Caption>
                                                                                2001
                                                 -------------------------------------------------------------------
                                                  First         Second         Third         Fourth
                                                 Quarter        Quarter       Quarter        Quarter        Total
                                                 -------        -------       -------        -------        -----
                                                              (In thousands, except per share amounts)
<S>                                              <C>           <C>             <C>           <C>            <C>
Interest income                                  $ 11,839      $ 10,345        $ 9,926       $ 9,073        $41,183
Interest expense                                    5,988         5,297          4,446         3,440         19,171
Net interest income                                 5,851         5,048          5,480         5,633         22,012
Provision for loan losses                           1,635         2,930          1,000         5,200         10,765
Income (loss) before federal income taxes          (1,459)       (3,165)          (734)       (5,044)       (10,402)
Net income (loss)                                  (1,077)       (2,172)          (556)       (3,392)        (7,197)
</Table>

<Table>
<Caption>
                                                                                  2001
                                                 --------------------------------------------------------------------
                                                                            July 1    August 12
                                                    First      Second      Through     Through      Fourth
                                                   Quarter     Quarter    August 11   September 30  Quarter     Total
                                                   -------     -------    ---------   ------------  ------      -----
                                                              (In thousands, except per share amounts)
<S>                                                <C>         <C>         <C>          <C>         <C>        <C>
Interest income                                    $6,150      $6,241      $2,882       $6,994      $12,730    $34,997
Interest expense                                    2,527       2,608       1,220        3,178        6,074     15,607
Net interest income                                 3,623       3,633       1,662        3,816        6,656     19,390
Provision for loan losses                             110         400       1,150          483          135      2,278
Income (loss) before federal income taxes             746         479      (3,034)         314          418     (1,079)
Net income (loss)                                     493         310      (2,711)         201           34     (1,673)

Basic earnings (loss) per common share
   available to common stockholders                $ 0.22     $  0.14      $(1.20)         N/A          N/A     $(0.84)(1)
Diluted earnings (loss) per common share
   available to common stockholders                  0.22        0.14       (1.20)         N/A          N/A      (0.84)(1)
</Table>

----------
(1)  Earnings per share and dividends per share were calculated for the period
     from January 1 through August 11, 2000, the date of the Acquisition.

     The above unaudited financial information reflects all adjustments that
are, in the opinion of management, necessary to present a fair statement of the
results of operations for the interim periods presented.

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

     Effective September 27, 2000, the Company dismissed PricewaterhouseCoopers
LLP ("PWC") as its independent accountant and engaged the firm of Ernst & Young
LLP ("EY") as the Company's independent accountant to audit the Company's
financial statements for the years ending December 31, 2001 and 2000. The
Company's Board of Directors recommended and approved the change in the
Company's certifying accountants. PWC audited the Company's financial statements
for the fiscal year ended December 31, 1999.

     The change in certifying accountants was made by the Company following the
acquisition of control of the Company by State National, effective August 11,
2000.

                                       66
<Page>

     PWC's reports with respect to the Company's financial statements for the
year ended December 31, 1999, did not contain an adverse opinion or a disclaimer
of opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles. During the year ended December 31, 1999, and from January
1, 2000, through September 27, 2000, there were no disagreements with PWC on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure which, if not resolved to the satisfaction of
PWC, would have caused it to make reference to the subject matter of the
disagreement in any of its reports on the Company's financial statements, except
as described in the following paragraph.

     As previously reported on the Company's Current Report on Form 8-K dated
October 4, 2000, in connection with the preparation and original filing of the
Company's Form 10-Q for the quarter ended March 31, 2000 ("First Quarter Form
10-Q"), the Company capitalized costs related to its then pending merger with
State National. PWC maintained that such costs should be expensed and discussed
this disagreement with the audit committee of the Company's board of directors
prior to the filing of the First Quarter Form 10-Q. In August 2000, the Company
prepared and filed an amendment to the First Quarter Form 10-Q to restate its
financial statements for the first quarter. In the restatement, costs related to
the pending merger of the Company with State National that had been capitalized
through March 31, 2000 ($209,000), were expensed. In preparing and filing its
Form 10-Q for the quarter ended June 30, 2000, the Company appropriately
expensed the merger costs incurred in the second quarter. The Company has
authorized PWC to respond fully to the inquiries of EY concerning the subject
matter of the disagreement.

                                       67
<Page>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

     The Bylaws of the Company provide that the Board of Directors consists of
not fewer than seven nor more than 30 members (exclusive of advisory directors)
and that the number of directors, within such limits, is to be determined by
resolution of the Board of Directors at any meeting. The Board of Directors has
set the Board at nine members (exclusive of advisory directors). Directors serve
for one-year terms.

     The tables below set forth for each director:

     -    the name,

     -    age and the principal occupation of each director;

     -    the directorships of public companies, if any, held by each director;
          and

     -    the year he first became a director of the Company.

<Table>
<Caption>
                              YEAR FIRST
                               BECAME A
                            DIRECTOR OF THE
       NAME AND AGE             COMPANY         PRINCIPAL OCCUPATION DURING THE LAST FIVE YEARS
--------------------------  ---------------   -----------------------------------------------------
<S>                              <C>          <C>
Tom C. Nichols (54)              2000         President, Chief Executive Officer and Director of the
                                              Company since 2001; Chief Executive Officer and Chairman
                                              of the Board of State National and the Lubbock Bank
                                              since 1996.

Don E. Cosby (47)                2000         Executive Vice President, Chief Financial Officer and
                                              Director of the Company since 2001; Executive Vice
                                              President, Chief Financial Officer and Director of State
                                              National and the Lubbock Bank since 1996

Rick J. Calhoon (48)             2000         Partner, Pruet Companies (oil and gas)

James A. Cardwell (70)           2000         Chairman and Chief Executive Officer, Petro Stopping
                                              Centers, L.P. (truck stops)

Gary J. Fletcher (55)            2000         Rancher, Salt Fork Ranch

Ronald Simpson (55)              2000         President and Director of the Bank

Ben Stribling (59)               2001         Real Estate Development and Investments
</Table>

RESIGNATION AND APPOINTMENT OF DIRECTORS AND OFFICERS

     Effective May 15, 2001, Mr. Bryan W. Stephenson, President and Chief
Executive Officer, Mr. Randal N. Crosswhite, Chief Financial Officer, and Mr.
David D. Kirk each resigned from the Company's Board of Directors as well as
from their respective positions as officers of the Company. Effective May 15,
2001, the Company appointed Mr. Tom C. Nichols, Chairman of the Board, to the
position of President and Chief Executive Officer, and

                                       68
<Page>

effective May 31, 2001 Mr. Don E. Cosby, Executive Vice President, was appointed
to the position of Chief Financial Officer and Secretary.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

     The Board of Directors conducts its business through meetings of the Board
of Directors and through its committees. In accordance with the Bylaws of the
Company, the Board of Directors has established an Audit Committee. During 2001,
the Board of Directors held four regular meetings and the Audit Committee held
four meetings. Each director attended at least 75% of the total number of
meetings of the Board of Directors and the committees on which he served.

     AUDIT COMMITTEE. The Audit Committee recommends to the Board of Directors
the appointment and discharge of the Company's independent auditors; reviews the
completed audit with the independent auditors regarding the conduct of the
audit, accounting adjustments, recommendations for improving internal controls
and any other significant findings during the audit; meets periodically with
management; monitors accounting and financial controls; and initiates and
supervises special investigations. Members of the Audit Committee during 2001
consist of Rick J. Calhoon, James A. Cardwell, Gary J. Fletcher and Ben
Stribling.

EXECUTIVE OFFICERS

     The table below sets forth at the date of this report the name, age,
current positions with the Company, principal occupation during the last five
years of each principal executive officer of the Company and the year he first
became an executive officer of the Company:

<Table>
<Caption>
                                                              EXECUTIVE OFFICER
                                   CURRENT POSITION WITH THE   OF THE COMPANY      PRINCIPAL OCCUPATION DURING LAST
         NAME AND AGE                 COMPANY OR THE BANK      COMPANY SINCE                FIVE YEARS
------------------------------   ---------------------------  -----------------     -------------------------------
<S>                              <C>                                   <C>          <C>
Tom C. Nichols (54)              President, Chief Executive            2000         Chairman of the Board and Chief
                                 Officer, and Chairman of the                       Executive Officer of State
                                 Board of the Company and                           National and the Lubbock Bank
                                 Chief Executive Officer and
                                 Chairman of the Board  of
                                 the Bank

Don E. Cosby (47)                Executive Vice President,             2000         Executive Vice President, Chief
                                 Chief Financial Officer and                        Financial Officer, and Director
                                 Director of the Company and                        of State National and the
                                 of the Bank Lubbock Bank
</Table>

TERM OF OFFICE

     Executive officers of the Company are elected by the Board of Directors at
its annual meeting and hold office until the next annual meeting of the Board of
Directors or until their respective successors are duly elected and have
qualified. The officers of the Bank are elected by the board of directors of the
Bank at its annual meeting and hold office until the next annual meeting of such
board of directors or until their respective successors are duly elected and
have qualified.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

     Officers, directors and beneficial owners of more than ten percent of the
Common Stock must file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission and AMEX pursuant to
Section 16(a). In August 2000, State National acquired 100% of the common stock
of the Company in a cash merger. Because the Company is wholly owned by State
National, none of these individuals beneficially has owned any securities of the
Company at any time since their respective appointments.

                                       69
<Page>

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     As the compensation of the Company's executive officers (including those
who are employed by the Company's direct and indirect subsidiaries) are
allocated between the Company and State National, cash compensation paid by the
Company to the executive officers did not exceed $100,000 during the fiscal year
ended December 31, 2001.

<Table>
<Caption>
                                                                                                      LONG-TERM
                                                                                                    COMPENSATION
                                                                                                       AWARDS
                                                                                    OTHER ANNUAL    -------------
                                                            ANNUAL COMPENSATION     COMPENSATION      SECURITIES
                                                           --------------------     ------------      UNDERLYING
       NAME AND PRINCIPAL POSITION          FISCAL YEAR    SALARY       BONUS ($)      ($)(1)          OPTIONS
--------------------------------------      ----------- ------------  ------------   ------------   ------------
<S>                                             <C>     <C>           <C>            <C>            <C>
Tom C. Nichols                                  2001    $     66,000  $          0   $      3,000   $          0
PRESIDENT, CHIEF EXECUTIVE OFFICER,             2000          28,000             0              0              0
CHAIRMAN OF THE BOARD AND DIRECTOR OF
THE COMPANY
</Table>

----------
(1)   Constitutes automobile allowance and other benefits.

STOCK OPTION GRANTS/EXERCISES IN FISCAL 2001

     No stock options to acquire shares of the Company's Common Stock were
granted to, or exercised by, the Chief Executive Officer or any other executive
officers of the Company during fiscal 2001. The Company has never granted stock
appreciation rights.

EMPLOYEE RETENTION AGREEMENTS

     In September 1999, the Company entered into employee retention agreements
with its key employees and selected executive officers (individually, the "Key
Employee," or collectively, the "Key Employees") to provide additional
incentives to such Key Employees to continue their employment with the Company
in the event that the Company experienced a change of control, i.e., merger,
consolidation, or sale of the assets or stock of the Company. Each employee
retention agreement provides that the Key Employee would receive a cash lump sum
payment equal to one or two times the Key Employee's annual compensation,
including bonus compensation. This amount is payable after one year from the
change in control unless such Key Employee is terminated sooner for cause or
resigns or severs his employment with the Company for any reason other than
constructive termination. In the event the Key Employee is terminated without
cause or the Key Employee is constructively terminated because the Key
Employee's compensation is diminished, his job title is changed to a position of
lesser importance, or his responsibilities are materially reduced, the retention
benefit must be paid by the Company within thirty (30) days of such termination.
In the event of the Key Employee's death or disability, the pro rated portion of
the retention benefit must be paid by the Company within thirty (30) days of
such death or disability.

                                       70
<Page>

     The Acquisition of the Company by State National constituted a change in
control of the Company and triggered the provisions of certain of these
retention agreements. Pursuant to the terms of the Key Employee retention
agreements, the following named executive officers received payment of the
specific retention benefit detailed below:

<Table>
<Caption>
                                            Aggregate     Received to
                                             Payment          Date
                                            ---------     ----------
          <S>                                <C>            <C>
          Bryan W. Stephenson                $352,000       $352,000
          Randal N. Crosswhite                210,000        210,000
          Michael D. Jarrett                  113,000        113,000
          James G. Fitzhugh                    92,000         92,000
</Table>

     To date, all payments have been made to the above-mentioned Key Employees
and the retention agreements described above have terminated. The Company has no
further obligation to any key employee pursuant to any employee retention
agreement.

DIRECTOR COMPENSATION

     During the period from January 1, 2000, through August 16, 2000, each
non-employee director and advisory director was paid $250 for each regular
directors' meeting of the Company attended and $100 for each meeting of the
Executive Committee and Audit Committee attended. No fees have been paid by the
Company to any director of the Company subsequent to the Acquisition.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF MANAGEMENT

     All of the common stock of the Company is owned indirectly by State
National. Accordingly, none of the directors or executive officers of the
Company has owned any shares of Common Stock since the Company's acquisition of
State National was completed on August 11, 2000. In addition, none of the
directors or executive officers of the Company own any derivative securities
with respect to the Company's common stock.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

     The following entity is known by the Company to own beneficially more than
five percent of the Company's Common Stock on March 5, 2002.

<Table>
<Caption>
                                                               NUMBER OF         PERCENT OF
                           NAME AND ADDRESS                    SHARES(1)          CLASS (2)
          ----------------------------------------------       ---------         ----------
          <S>                                                  <C>                  <C>
          State National Bancshares of Delaware, Inc., a       2,273,647            100%
            wholly owned subsidiary of State National
            Bancshares, Inc.
          1617 Broadway
          Lubbock, Texas 79401
</Table>

----------
(1)  Beneficial ownership as reported in the above table has been determined in
     accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
     amended.
(2)  The percentage of Common Stock indicated is based on 2,273,647 shares of
     Common Stock outstanding on March 5, 2002.

                                       71

<Page>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH MANAGEMENT

     LOAN TRANSACTIONS. The Bank had, during the period from January 1, 2001, to
March 5, 2002, and expects to have in the future, loan transactions with
directors of the Company and the Bank and their respective associates, which
includes any immediate family member or any corporation or firm of which such
person is an executive officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities or any trusts
of which such person serves as trustee or in which he or she has a substantial
beneficial interest. These loan transactions have been made in the ordinary
course of the Bank's business and have been and will continue to be on
substantially the same terms, including interest rates, collateral and
repayment, as those prevailing at the time for comparable transactions with
unaffiliated persons and did not involve more than the normal risk of
collectibility or present other unfavorable features. All loans made to
directors and nominees for director of the Company and their respective
associates are believed to be in compliance with the Financial Institutions
Regulatory and Interest Rate Control Act of 1978.

     LUBBOCK BANK. On February 28, 2001, State National-- Delaware, the owner of
all of the common stock of the Company, contributed to the Company, and the
Company in turn contributed to Independent Financial, all of the capital stock
of the Lubbock Bank. On March 9, 2001, the Abilene Bank was merged with and into
the Lubbock Bank. The Lubbock Bank continued as the surviving entity in the
merger. The result of the transaction was that the Bank was merged into the
Lubbock Bank, which became an indirect wholly owned subsidiary of the Company.
There was no merger consideration paid as, prior to the transactions, the Bank
and the Lubbock Bank were both direct or indirect subsidiaries of State
National. The merger was accounted for similar to a pooling of interests. See
"Item 1. Business--Reorganizations."

     At the time of this merger, there were parent-subsidiary relationships
among State National, State National - Delaware, the Company, Independent
Financial, the Bank and the Lubbock Bank. Further, there were common directors
and officers among the above-named entities. The common directors and officers
were Rick Calhoon (Director of State National and the Company), Jack Cardwell
(Director of State National and the Company), Don Cosby (Director of State
National, State National - Delaware, the Company, Independent Financial, the
Bank and the Lubbock Bank; Executive Vice President and Chief Financial Officer
of State National; President of State National - Delaware; Executive Vice
President of the Company; and President of Independent Financial), Randal
Crosswhite (Director of the Company and the Bank, Chief Financial Officer and
Secretary of the Company; and Executive Vice President and Chief Financial
Officer of the Bank), Gary Fletcher (Director of State National, the Company and
the Lubbock Bank), David Kirk (Director of State National, the Company, the Bank
and the Lubbock Bank), Tom Nichols (Chairman of the Board and Chief Executive
Officer of State National, the Bank and the Lubbock Bank and Chairman of the
Board of the Company), Ronald Simpson (Director of the Company and Director and
President of the Bank) and Bryan Stephenson (Director and President and Chief
Executive Officer of the Company and Director and Vice Chairman the Bank).

                                       72
<Page>

                                     PART IV

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

     (a)  Documents Filed as Part of Report.

          1.   Financial Statements

          The following Consolidated Financial Statements of the Company are
          included in PART II of this report:

<Table>
<Caption>
                                                                                             PAGE REFERENCE TO
                                                                                              ANNUAL REPORT ON
                                        ITEM                                                      FORM 10-K
           ----------------------------------------------------------------------------      -----------------
           <S>                                                                                       <C>
           Report of Ernst & Young, LLP, Independent Auditors                                        42

           Report of PricewaterhouseCoopers LLP, Independent Accountants                             43

           Consolidated Balance Sheets as of December 31, 2001 and 2000                              44

           Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for
             the year ended December 31, 2001, the period from August 12, 2000, through
             December 31, 2000, the period from January 1, 2000, through August 11,
             2000, and the year ended December 31, 1999                                              45

           Consolidated Statements of Changes in Stockholder's Equity for the year ended
             December 31, 2001, the period from August 12, 2000, through December 31,
             2000, the period from January 1, 2000, through August 11, 2000, and the
             year ended December 31, 1999                                                            46

           Consolidated Statements of Cash Flows for the year ended December 31, 2001,
             the period from August 12, 2000, through December 31, 2000, the period from
             January 1, 2000, through August 11, 2000, and the year ended December 31,
             1999                                                                                    47

           Notes to Consolidated Financial Statements                                                48

           Quarterly Data (unaudited)                                                                66
</Table>

          2.   Financial Statement Schedules

          All schedules for which provision is made in the applicable accounting
          regulations of the Securities and Exchange Commission have been
          omitted because such schedules are not required under the related
          instructions or are inapplicable or because the information required
          is included in the Company's Consolidated Financial Statements or
          notes thereto.

          3.   Exhibits

          The exhibits listed below are filed as part of or incorporated by
          reference in this report. Where such filing is made by incorporation
          by reference to a previously filed document, such document is
          identified in parenthesis. See the Index of Exhibits included with the
          exhibits filed as part of this report.

                                       73
<Page>

<Table>
<Caption>
          NO.    DESCRIPTION
          ---    -----------
          <S>    <C>
          3.1    Restated Articles of Incorporation of Independent Bankshares,
                 Inc. (Exhibit 3.1 to the Company's Annual Report on Form 10-K
                 for the year ended December 31, 2000).

          3.2    Articles of Amendment to the Articles of Incorporation of
                 Independent Bankshares, Inc. (Exhibit 3.2 to the Company's
                 Annual Report on Form 10-K for the year ended December 31,
                 2000).

          3.3    Restated Bylaws of Independent Bankshares, Inc., as amended
                 (Exhibit 3.3 to the Company's Annual Report on Form 10-K for
                 the year ended December 31, 2000).

          4.1    Specimen Stock Certificate for Common Stock of the Company
                 (Exhibit 4.1 to the Company's Registration Statement on
                 Form S-1, SEC File No. 333-16419).

          10.1   Form of Employee Retention Agreement. (Exhibit 10.1 to the
                 Company's Quarterly Report on Form 10-Q dated September 30,
                 1999).

          10.2   Master Equipment Lease Agreement, dated December 24, 1992,
                 between Independent Bankshares, Inc. and NCR Credit
                 Corporation, Amendment to Master Equipment Lease Agreement
                 dated concurrently therewith, and related form of Schedule and
                 Commencement Certificate (Exhibit 10.4 to the Company's Annual
                 Report on Form 10-K for the year ended December 31, 1999).

          10.4   Agreement and Plan of Reorganization, dated as of March 1,
                 2000, by and among State National Bancshares, Inc. and
                 Independent Bankshares, Inc. (Exhibit 2.1 to the Company's
                 Current Report on Form 8-K dated March 8, 2000).

          10.5   Agreement and Plan of Merger by and among United Bank & Trust,
                 Abilene, Texas and First State Bank, N.A., Abilene, Texas,
                 dated October 24, 2000 (Exhibit 2.1 to the Company's Current
                 Report on Form 8-K dated November 28, 2000).

          10.6   Agreement and Plan of Merger by and between State National Bank
                 of West Texas and State National Bank of West Texas, Abilene,
                 Texas, dated February 21, 2001; but effective as of March 9,
                 2001 (Exhibit 2.1 to the Company's Current Report on Form 8-K
                 dated March 23, 2001).

          21.1   Subsidiaries of Independent Bankshares, Inc. (filed herewith).

     (b)  Current Reports on form 8-K.

          None.
</Table>

                                       74
<Page>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       INDEPENDENT BANKSHARES, INC.

                                       By: /s/ Tom C. Nichols
                                           -------------------------------------
                                           Tom C. Nichols,
                                           PRESIDENT, CHIEF EXECUTIVE OFFICER,
                                           CHAIRMAN OF THE BOARD AND DIRECTOR
                                           (PRINCIPAL EXECUTIVE OFFICER)

                                       By: /s/ Don E. Cosby
                                           -------------------------------------
                                           Don E. Cosby,
                                           EXECUTIVE VICE PRESIDENT,
                                           CHIEF FINANCIAL OFFICER AND DIRECTOR
                                           (PRINCIPAL FINANCIAL OFFICER)

Date: March 5, 2002

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

<Table>
<Caption>
                       SIGNATURE                          TITLE                        DATE
        -----------------------------------       --------------------------        -------------
           <S>                                    <C>                               <C>
                  /s/ Tom C. Nichols              President, Chief Executive        March 5, 2002
           --------------------------------       Officer, Chairman of the
                        Tom C. Nichols            Board and Director

                  /s/ Don E. Cosby                Executive Vice President,         March 5, 2002
           --------------------------------       Chief Financial Officer,
                        Don E. Cosby              and Director

                  /s/ Rick J. Calhoon             Director                          March 5, 2002
           --------------------------------
                        Rick J. Calhoon

                  /s/ James A. Cardwell           Director                          March 5, 2002
           --------------------------------
                        James A. Cardwell

                  /s/ Gary J. Fletcher            Director                          March 5, 2002
           --------------------------------
                        Gary J. Fletcher

                  /s/ Ronald Simpson              Director                          March 5, 2002
           --------------------------------
                        Ronald Simpson

                  /s/ Ben Stribling               Director                          March 5, 2002
           --------------------------------
                       Ben Stribling
</Table>

                                       75