MARVIN E. MELSON PRESIDENT NATIONAL BANCSHARES CORPORATION OF TEXAS 12400 HIGHWAY 281 NORTH SAN ANTONIO, TEXAS 78216 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934

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NATIONAL BANCSHARES CORPORATION OF TEXAS
(NAME OF SUBJECT COMPANY)

NATIONAL BANCSHARES CORPORATION OF TEXAS
(NAME OF PERSON(S) FILING STATEMENT)

COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS OF SECURITIES)

632-593-505-000
(CUSIP NUMBER OF CLASS OF SECURITIES)

XXXXXX X. XXXXXX
PRESIDENT
NATIONAL BANCSHARES CORPORATION OF TEXAS
00000 XXXXXXX 000 XXXXX
XXX XXXXXXX, XXXXX 00000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)

WITH COPIES TO:

XXXXXX X. BLOCK
CADWALADER, XXXXXXXXXX & XXXX
000 XXXXXX XXXX
XXX XXXX, XXX XXXX 00000
(000) 000-0000

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ITEM 1. SUBJECT COMPANY INFORMATION.

(a) The name of the subject company is National Bancshares Corporation of
Texas, a Texas corporation (the "Company"), and the address of the principal
executive offices of the Company is 00000 Xxxxxxx 000 Xxxxx, Xxx Xxxxxxx, Xxxxx
00000. The phone number for its principal executive offices is (000) 000-0000.

(b) The title of the class of equity security to which this Statement
relates is common stock, par value $.001 per share ("common stock") of the
Company. As of May 6, 2001, 3,770,501 shares of common stock were issued and
outstanding.

ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.

(a) Name and Address of Person Filing this Statement. The name, business
address and business telephone number of the Company, which is the person filing
this Statement, are set forth in Item 1(a) above, which information is
incorporated herein by reference.

(b) Tender Offer of the Purchaser.

This Statement relates to the tender offer by NBC Acquisition Corp. (the
"Purchaser"), a Texas corporation, described in a Tender Offer Statement on
Schedule TO dated August 9, 2001 (the "Schedule TO"), to purchase all of the
outstanding common stock at a price of $24.75 per share, as may be adjusted (the
"Offer Price"), net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated August 9, 2001 (the "Offer
to Purchase"), and the related Letter of Transmittal (which, as may be amended
from time to time, together constitute the "Offer"). The Offer Price is subject
to adjustment in the event certain costs related to one parcel of real property
owned by the Company exceed $200,000. The Company has received a written
estimate that such costs should be substantially less than such amount and
currently does not expect any price adjustment.

Purchaser was formed in connection with the Offer and is wholly owned by
International Bancshares Corporation, a Texas corporation ("Parent").

The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of July 30, 2001 (the "Merger Agreement"), by and among Parent, Purchaser and
the Company. The Merger Agreement provides, among other things, for the making
of the Offer by the Purchaser and further provides that, upon the terms and
subject to the conditions contained in the Merger Agreement, the Purchaser will
merge with and into the Company (the "Merger") as soon as practicable after the
consummation of the Offer. Following consummation of the Merger, the Company
will continue as the surviving corporation. In the Merger, the common stock
issued and outstanding immediately prior to the consummation of the Merger
(other than common stock owned by any subsidiary of the Company or any
subsidiary of Parent or held in the treasury of the Company, all of which will
be cancelled, and other than common stock, where applicable, held by
shareholders who perfect dissenters' rights under Texas law) will be converted
into the right to receive the Offer Price. Upon consummation of the Merger, each
outstanding option will be converted into the right to receive the Offer Price
less the exercise price for such option.

The Offer to Purchase states that the principal executive offices of the
Purchaser is located care of International Bancshares Corporation at 0000 Xxx
Xxxxxxxx Xxx., Xxxxxx, Xxxxx 00000. The telephone number of the Purchaser at
such location is (000) 000-0000.

ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.

Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are, except as noted below, described in the Information Statement pursuant to
Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1
thereunder (the "Information Statement") that is attached as Annex C to this
Statement and is incorporated herein by reference. Except as set forth in the
response to this Item 3, Item 4 below or in Annex C attached hereto or as
incorporated by reference herein, to the knowledge of the Company, there are no
material agreements, arrangements or understandings and no actual or potential
conflicts of interest between the

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Company or its affiliates and (i) the Company's executive officers, directors or
affiliates or (ii) Parent or the Purchaser or their respective executive
officers, directors or affiliates.

In connection with the transactions contemplated by the Merger, the
following agreements were entered into: the Merger Agreement, the
Confidentiality Agreement dated March 28, 2001 between the Company and Parent
(the "Confidentiality Agreement") and shareholder agreements dated July 30, 2001
between Parent and each of Messrs. Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxxxxx, Xxxxx
Xxxxxx and Xxxxxxx X. Xxxxx (each a "Shareholder Agreement" and collectively,
the "Shareholder Agreements"). A copy of the Shareholder Agreement for each of
Messrs. Melson, Lettunich, Hacker and Xxxxx is filed as Exhibits 5, 6, 7 and 8
hereto and are incorporated herein by reference.

The Merger Agreement. The summary of the material terms of the Merger
Agreement set forth under the caption "12. Purpose of the Offer; the Merger
Agreement; Plans for the Company -- The Merger Agreement" in the Offer to
Purchase is incorporated by reference herein. The summary of the Merger
Agreement contained in the Offer to Purchase is qualified in its entirety by
reference to the Merger Agreement, a copy of which is filed as Exhibit 9 hereto
and is incorporated herein by reference.

Confidentiality Agreement. The following summary is qualified in its
entirety by reference to the complete text of the Confidentiality Agreement
which is filed as Exhibit 10 hereto and incorporated herein by reference.

As a condition to the Company furnishing Parent and Parent furnishing the
Company with certain information in connection with the Offer and the Merger,
the Company and Parent (each, a "Party") have agreed, among other things, that
they will keep such information (the "Evaluation Material") confidential. Each
Party or its agents receiving Evaluation Material is a "Recipient" and each
party furnishing such Evaluation Material to a Recipient is a "Disclosing
Party". The directors, officers, and employees of a Party, and representatives
of a Party's advisors, or individuals acting in similar capacities on a Party's
behalf, collectively, are "Representatives".

The term "Evaluation Material" does not include information which (i)
becomes generally available to the public other than as a result of a disclosure
by Recipient or its Representatives, (ii) was available on a nonconfidential
basis prior to its disclosure to Recipient, or (iii) becomes available to
Recipient on a nonconfidential basis from a source other than the Disclosing
Party or its Representatives, provided that such source is not bound by a
confidentiality agreement with the Disclosing Party or its Representatives.

The Company and Parent have agreed that, except as may be required by law,
without the written prior consent of the Disclosing Party, a Recipient will not,
and will direct its Representatives not to, disclose to any person either the
fact that discussions or negotiations are taking place concerning a possible
transaction or the status thereof.

The Company and Parent have also agreed that neither Party shall initiate,
solicit, enter into or engage in, any discussions, correspondence, negotiations,
agreements or understandings or otherwise have any contact with any of the
other's officers or employees or those of the other's subsidiaries in connection
with such transaction. Furthermore Parent has agreed that for eighteen months
from the date of the Confidentiality Agreement (March 28, 2001), Parent and
Parent's affiliates shall not solicit the employment of any of the Company's
employees or any employees of affiliates or subsidiaries, except by means of
general advertisements in the media or any referrals made by a placement agency.

Shareholder Agreements. Shareholder Agreements have been entered into
between Parent and each of Messrs. Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxxxxx, Xxxxx
Xxxxxx and Xxxxxxx X. Xxxxx. Xx. Xxxxxx is CEO and President of the Company and
Messrs. Melson, Lettunich, Hacker and Xxxxx are members of the Board of
Directors. In addition, Xx. Xxxxxx is the largest shareholder of the Company.
Under the Shareholder Agreements each of Messrs. Melson, Lettunich, Hacker and
Xxxxx agreed (severally and not jointly), among other things, to (i) tender
shares owned by them to Purchaser pursuant to the Offer and (ii) vote all shares
owned by them in favor of the Merger Agreement and Merger. These shareholders
have agreed to tender their shares because they believe that the Offer is in the
best interest of the Company and in their own economic best interest.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.

(a) Solicitation/Recommendation

The Board of Directors has approved the Merger Agreement and the
transactions contemplated thereby and determined that each of the Offer and the
Merger is fair to, and in the best interests of, the shareholders of the
Company. Four of the Company's six Directors, Xxxxxx X. Xxxxxx, Xxxx X.
Xxxxxxxxx, Xxxxxxx X. Xxxxx and Xxxxx Xxxxxx, voted in favor of the foregoing
action by the Board of Directors. Messrs. Xxx X. Xxxxxx and H. Xxxx Xxxxxxxxxxx
voted in opposition.

ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT ALL HOLDERS OF COMMON
STOCK ACCEPT THE OFFER AND TENDER THEIR COMMON STOCK PURSUANT TO THE OFFER.

(b) Background of the Transaction

In July 2000, the Board of Directors recognized that, in view of general
market conditions and changes occurring in the market for banks, it would be
appropriate to explore strategic alternatives, including possibilities involving
a sale or merger of the Company, remaining independent and growing the business
internally or the purchase of, or business combinations with, other banks. At
that time, the Company's common stock was generally trading between $13.00 and
$14.00 per share. The average daily trading volume for the Company's common
stock (excluding the shares purchased by the Company pursuant to the Company's
repurchase program) was approximately 692 in 1999 and 2,115 in 2000.

The Board of Directors then determined to retain an investment banking firm
to prepare an in-depth study of the Company which would enable the Board of
Directors to effectively evaluate the available strategic alternatives. Four
separate investment banking firms were interviewed by the Board of Directors and
made preliminary presentations to the Board of Directors regarding the strategic
alternatives available to the Company and the credentials of such investment
banks to assist the Company in its efforts.

In October 2000, the Board of Directors retained Xxxxx, Xxxxxxxx & Xxxxx,
Inc. ("KBW") as its investment banker to advise the Board of Directors as to
strategic alternatives and to assist in negotiating, structuring and evaluating
a potential business transaction if the Company decided to proceed with such a
transaction. The Board of Directors determined to explore whether there was any
significant financial interest in an acquisition of the Company. KBW was
instructed to prepare an offering book relating to the sale of the Company for
distribution to potential buyers. Mr. H. Xxxx Xxxxxxxxxxx was the sole member of
the Board of Directors opposed to this decision. Over the next several months,
KBW, along with the Company, prepared and distributed the offering material to a
number of potential buyers.

At a meeting of the Board of Directors on February 2, 2001, representatives
of KBW reported that KBW had contacted seventeen financial institutions to
determine whether they would have an interest in acquiring the Company. Nine of
those financial institutions declined to review the written offering material.
Eight financial institutions signed confidentiality agreements and received the
written offering material. Two bank holding companies, one a large Texas
regional bank ("Bidder A") and the other a large national banking institution
("Bidder B"), ultimately submitted written indications of interest. Bidder A
submitted an indication of interest of $85.6 million in Bidder A stock for the
purchase of stock or assets of the Company, which would be equivalent to $21.86
per share for all the outstanding shares and options. Bidder B preliminarily
offered $75 million in cash for the purchase of the stock of five of the
Company's operating subsidiaries which would be equivalent to approximately
$19.29 per share of the Company's common stock. Both of these proposals were
non-binding and were subject to due diligence. The Board of Directors discussed
each of the proposals extensively and again discussed the alternative of
remaining independent.

Shortly after distribution of the offering material in January 2001, the
price of the Company's common stock began to rise from its previous twelve-month
high of $14.75 to a high of $19.95 in March 2001 on significantly higher volume.

At the February 2(nd) Board of Directors meeting, representatives of KBW
summarized the marketing process they had undertaken and reviewed the
indications of interest they had received from the contacts they had with other
potential buyers. In particular, KBW noted (a) the number of potential bidders
contacted and
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the limited interest in the Company, (b) the price indication from Bidder A
compared favorably with a nationwide survey of regional bank transactions, (c)
that KBW expected the bidders to increase the value of their initial indications
of interest, and (d) that there would be material risks in delaying a sale
because of (i) disappearing buyers and possibly the loss of the opportunity to
receive a premium for sale of control, (ii) the risks in implementing an
independent growth strategy, (iii) limited liquidity for shareholders, and (iv)
limited return on investment potential for shareholders in the short and long
term. KBW recommended that the Company pursue negotiations with Bidder A in
order to increase the consideration offered.

Representatives of KBW spoke on a number of occasions over the next several
weeks with representatives of Bidder A. At a meeting of the Board of Directors
on March 4, 2001, representatives of KBW provided an update of their efforts to
negotiate a higher bid price from both Bidder A and Bidder B. The KBW
representatives reported that since the last meeting of the Board of Directors
on February 2, 2001, Bidder B had dropped out of the bidding and that Bidder A
had increased its proposal to $90.0 million ($22.92 per share), of which 75%
would be in cash and 25% would be in stock of Bidder A. The representatives of
KBW noted again that this compared favorably with regional bank transactions
announced since January 1, 2000, and presented KBW's financial analysis
supporting this conclusion. The Board of Directors decided to continue
negotiations with Bidder A in an effort to further increase the price.

At a meeting of the Board of Directors on March 12, 2001, representatives
of KBW reported that based on a meeting with officers of Bidder A, Bidder A was
now prepared to pay an aggregate of $92.825 million or $23.60 per share in cash
in a merger transaction. The offer remained subject to satisfactory completion
of Bidder A's due diligence and numerous other conditions.

The Board of Directors voted in favor of a motion (a) to accept the Bidder
A's proposal and (b) to recommend the transaction to its shareholders, all
subject to Bidder A's completion of its due diligence and the Company's counsel
being able to conclude a satisfactory definitive acquisition agreement. Messrs.
Xxxxxxxxxxx and Xxxxxx voted in opposition to the motion.

In mid-March, Xx. Xxxxxx, CEO and President of the Company, was contacted
by an executive of Parent to inquire as to the Company's interest in a business
combination. Xx. Xxxxxx referred him to KBW. A representative of Parent then
contacted KBW and indicated that Parent would be interested in receiving
information about the Company for purposes of considering a business
combination. On March 28, 2001 Parent entered into a Confidentiality Agreement
and was subsequently provided the offering material.

On April 3, 2001, the Company received a non-binding letter of interest
from Parent containing two alternate proposals. Both proposals were structured
as asset purchases whereby Parent would acquire certain assets and assume
certain liabilities of the Company. Under the first proposal, the Company would
receive approximately $47 million in cash for certain bank assets other than
those related to the San Xxxxxxx xxxxxx and the Company would continue to
operate the San Xxxxxxx xxxxxx and would retain the use of the Company's net
operating loss carry forward ("NOL") to shelter future earnings. The alternative
proposal involved a transaction whereby Parent would acquire certain assets and
assume certain of the liabilities of the Company. Under the second proposal, the
Company would receive $47 million from Parent and would retain assets with a net
book value of approximately $50 million, but no continuing operations. Neither
of the proposals were of interest to the Company since the Company would be left
with substantial additional assets to dispose of and liabilities to be
satisfied. Consequently, the ultimate value to be received by the Company's
shareholders was uncertain. On a conference call with management of the Company,
KBW was directed to explore the possibility of increasing the price offered by
Parent in the second proposal and restructuring the transaction as a tender
offer or merger. Over the next several days, representatives of the Company and
Parent communicated with each other regarding such possibilities.

On April 4, 2001, Xx. Xxxxxx X. Xxxxxx, Chief Executive Officer and
President of the Company and other representatives of the Company met with Xx.
Xxxxxx X. Xxxxx, Chairman and Chief Executive Officer of Parent and other
representatives of Parent, in San Antonio, Texas and discussed the terms of a
possible transaction. Thereafter, KBW had various discussions with Parent's
financial advisor relating to the valuation of the Company.

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On April 6, 2001, the Company received a supplement to Parent's non-binding
letter of interest dated April 3, 2001. The letter proposed a third alternative
transaction whereby Parent would purchase the Company's common stock for a price
between $102 million and $105 million.

At a meeting held on April 16, 2001, the Board of Directors discussed the
proposals the Company had received from Parent. The Board of Directors decided
to continue to pursue the possibility of a transaction with Parent and formed a
Committee of the Board of Directors, consisting of Messrs. Blankenship,
Lettunich, Xxxxx and Xxxxxx (the "Committee") to analyze the Company's strategic
options, including whether to support a sale of the Company and to make an
appropriate recommendation to the Board of Directors on the merits of remaining
independent.

On April 18, 2001, the Company received a letter from Parent in which
Parent indicated that it would pay a purchase price in cash in an amount equal
to $102 million in addition to permitting up to $2 million of transaction costs.

At a meeting of the Board of Directors held on April 19, 2001, the
Committee reported that it had concluded that there was no reasonable basis for
believing that the present value of the Company remaining independent would
equal or exceed the present value of the proposal received from Parent. A
majority of the Committee concluded that it was in the best interests of the
Company's shareholders to pursue a transaction in which the Company would be
sold if an appropriate price and agreement could be negotiated. Thereafter, the
Board of Directors directed KBW to approach both Parent and Bidder A in an
attempt to once again increase the offered price.

At a Board of Directors meeting held on April 25, 2001, a KBW
representative informed the Board of Directors that he had requested that each
of Parent and Bidder A present their best and final offers to the Company on or
before April 25, 2001. Shortly thereafter, Bidder A formally withdrew from the
process. Parent submitted a revised written proposal in which it increased its
indication of interest to $104.25 million which was subject to further due
diligence, limitations on severance payments and deal expenses and adjustments
for changes in the Company's investment portfolio. (The investment portfolio is
comprised primarily of bonds issued by the United States or agencies of the
United States.)

Although the Board of Directors believed that a number of the conditions in
the proposal were impractical and not typical for a transaction of this nature,
the Board of Directors determined (i) to continue negotiations for a cash
transaction with Parent, (ii) to authorize KBW to further negotiate the economic
terms of such a proposal with Parent, (iii) to authorize the Company to provide
additional due diligence material to Parent, and (iv) to authorize the Company's
officers and outside counsel to finalize an appropriate definitive agreement and
present such an agreement to the Board of Directors. Messrs. Melson, Lettunich,
Hacker and Xxxxx voted in favor and Messrs. Xxxxxx and Xxxxxxxxxxx voted in
opposition.

Although Messrs. Xxxxxx and Xxxxxxxxxxx were not in favor of the
transaction with Parent, the Board of Directors voted unanimously that if a
definitive agreement were agreed to with Parent, it would be appropriate to
present such a transaction to the Company's shareholders.

Representatives of KBW and Cadwalader, Xxxxxxxxxx & Xxxx ("Cadwalader"),
special counsel for the Company, had numerous conferences with financial and
legal representatives of Parent over the next several weeks to discuss
financial, contractual and due diligence issues.

During the second half of May 2001, a representative of Sandler X'Xxxxx &
Partners, L.P., Parent's financial advisor ("Sandler") contacted a
representative of KBW and informed him that Parent had concluded its preliminary
due diligence review of the Company and that Parent desired to meet with
representatives of the Company to discuss the results thereof. On May 23, 2001,
Xxxxxx X. Xxxxx, Chairman and Chief Executive Officer of Parent, Xxx Xxxxxx,
Chairman of the Company, Xxxxx Xxxxxx, a director of the Company, Xxxx Xxxxxxx
of Sandler and Xxxxx XxXxxxx of KBW met in San Antonio, Texas. Xx. Xxxxx
reviewed in detail the results of Parent's due diligence review of the Company
and indicated that, based on such results, Parent was no longer willing to pay
the $104.25 million purchase price set forth in Parent's letter dated April 25,
2001. Xx. Xxxxx noted that Parent would be willing to consider a purchase price
of $92 million. After further discussions between the representatives of Sandler
and KBW regarding the appropriate
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valuation for the Company's shares, Sandler represented to KBW that Parent would
be willing to pay $24.50 per share (an aggregate of $96.5 million). The meeting
concluded with no agreement having been reached.

Over the next several weeks, the Company and Parent, and their respective
financial advisers and counsel, continued to negotiate the terms of the Merger
Agreement and Offer.

On June 19, 2001, the Company received a letter from Parent supplementing
its previous communications with the Company. The letter advised the Company
that Parent had determined, after substantial due diligence, that it would be
willing to pay approximately $96.5 million (approximately $24.50 per share) for
all shares of the Company on a fully diluted basis, subject to adjustment (i)
upward to the extent the unrecognized gain on the Company's investment portfolio
exceeded $10 million or (ii) downward to the extent the unrecognized gain on the
Company's investment portfolio was less than $8 million.

From June through July of 2001, the Company and Parent, and their
respective financial advisers and counsel, continued to negotiate the terms of
the Merger Agreement and Offer. After extensive negotiations, two alternative
proposals were submitted by Parent. The first provided for a payment of $24.50
per share for the common stock, which price would be adjusted upward to the
extent that the unrealized profit in the Company's investment portfolio exceeded
$10 million for any 15 consecutive trading day period or on the final
determination date, the date that is 11 days prior to the closing of the Offer.
The alternative proposal was for $24.75 per share (an aggregate of $97.5
million) in cash without any adjustment for the value of the Company's
investment portfolio. Both offers would be adjusted dollar for dollar to the
extent that the cost of environmental remediation on one parcel of property
owned by the Company exceeded $200,000.

At a special meeting of the Board of Directors held on July 30, 2001, KBW
and counsel reviewed the two alternative proposals. After extensive discussions
and considerations of the proposals and receipt of the opinion of KBW that both
proposals would be fair, from a financial point of view, to the Company's
shareholders, Messrs. Melson, Lettunich, Hacker and Xxxxx voted in favor of a
proposal to authorize the Company to accept the offer by Parent under which
$24.75 per share would be paid to the shareholders of the Company. Messrs.
Xxxxxx and Xxxxxxxxxxx voted in opposition to the proposal.

The majority of the Board of Directors voted in favor of the proposal
because, after lengthy discussions and after repeated consultation with KBW and
counsel, they believed that the transaction would be fair to and in the best
interests of the Company's shareholders. The majority of the Board of Directors
considered the risks to the Company of remaining independent and determined that
it was unlikely that the Company's common stock would trade above the Offer
Price in the reasonably foreseeable future. In addition, the majority of the
Board of Directors believed that the Offer Price represented a significant
premium, in light of historical prices, to the Company's common stock, and that
the Company was unlikely to receive a superior offer from another potential
buyer. A detailed analysis of the majority of the Board of Directors' reasons
for approving the transaction is set forth below.

Messrs. Xxxxxx and Xxxxxxxxxxx advised the Board of Directors that they
voted against the approval of the Merger Agreement because they thought it was
the wrong time to sell from a corporate and banking industry point of view and
also because they felt that the benefit of the Company's earnings, which would
be sheltered from income taxes by the Company's NOLs, over the next several
years would exceed the benefit of the deal price. In addition, Messrs. Xxxxxx
and Xxxxxxxxxxx stated their belief that the downside risk of remaining
independent would be minimal and that there was substantial upside potential for
the Company. Xx. Xxxxxx suggested that the Company consider the alternative of
making a self-tender for 1,000,000 shares of the Company's outstanding common
stock at $25 per share. The majority of the Board of Directors was not persuaded
by the arguments of the minority. A summary of the views of Messrs. Xxxxxx and
Xxxxxxxxxxx is set forth in more detail below.

The Merger Agreement was approved by the majority of the Board of Directors
and was executed on July 30, 2001. The transaction was publicly announced on
July 31, 2001.

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- View of the Majority of the Board of Directors.

The majority of the Board of Directors believes that the Offer and Merger
are fair and reasonable and in the best interests of the Company and its
shareholders and recommend that the shareholders tender their shares in the
Offer or vote in favor of the Merger.

In reaching its conclusions and recommendations described above, the
majority of the Company's Board of Directors took into account numerous factors,
including but not limited to the following:

(i) Its analysis and the analysis of KBW of the core historic earnings of
the Company, unaffected by extraordinary items, and the cost, time
and risk of internally growing the business. Given the Company's slow
growth market areas and anticipated increased competition, the
majority of the Board of Directors concluded, after advice of KBW,
that the Company's common stock was not likely to trade at market
prices in excess of the Offer Price in the reasonably foreseeable
future;

(ii) The Offer Price is substantially higher than the current market price
for the common stock and substantially higher than the price at which
the common stock has generally traded for the last 9 years after
emerging from reorganization. The average closing price of the
Company's common stock for the three-month period ended December 31,
2000, before the market price could have been affected by acquisition
rumors, was $13.27. The Offer Price represents an 86.5% premium to
such unaffected price;

(iii) The Company's core business is in slow growth areas with low
margins, and competition for deposits and loans is increasing. In
order to generate increased revenues and earnings, the Company will
need to expand into larger, higher growth markets and could incur
additional risks with no assurance of success;

(iv) Texas regional banks have experienced substantial acquisition
interest over the last several years and KBW has advised the Board of
Directors that this activity has resulted in bank acquisition prices
in the Company's geographic area being higher than in other
geographic regions. KBW has also advised the Board of Directors that
they believe the number of viable buyers for the Company will be
substantially reduced due to the rapid pace of consolidation in the
banking industry over the next several years. Furthermore, as noted
by KBW, there were only a few interested potential buyers of the
Company and a number of other potential buyers did not have any
interest in the Company due to (a) the slow growth markets in which
the Company operates, (b) the broad geographical dispersion of the
Company's bank branches, which creates difficulties in realizing
efficiencies of scale for marketing and operational costs, and (c)
their view that the Company is, primarily, a "border" bank;

(v) The Company will have difficulty growing via acquisitions in
attractive markets due to (a) intense competition for quality banks
from larger in-state and out-of-state competitors, (b) the limited
size, capital and resources of the Company and (c) the fact that the
Company's common stock is not an attractive currency for acquisitions
because of its low trading volumes;

(vi) Internal growth in attractive market areas requires substantial
capital and marketing expenditures and a several year delay in
realizing a return on any such expenditures is likely. The execution
risk of such a strategy is high and the Company currently has no
long-term strategic plan for such expansion. In addition, the
expenses incurred in connection with an internal growth strategy
will, in the short-run, reduce profitability and the value of the
Company's NOLs, which expire in substantial part in 2004;

(vii) The opinion of KBW, dated July 30, 2001, to the effect that, as of
the date of the opinion, the consideration to be received by holders
of common stock pursuant to the Offer and the Merger is fair from a
financial point of view to such shareholders. The full text of KBW's
written opinion, which sets forth the procedures followed, the
factors considered and the assumptions made by

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KBW, is attached hereto and filed as Annex A hereto and incorporated
herein by reference. SHAREHOLDERS ARE URGED TO READ THE OPINION OF
KBW CAREFULLY AND IN ITS ENTIRETY;

(viii) If the Company were to remain independent, substantial changes would
need to be made at the senior management level, including the
recruiting of a new CEO and/or COO and there would be substantial
risk that the Company could not execute a successful growth strategy
as an independent company;

(ix) The Merger Agreement permits the Company to consider any unsolicited
superior proposals prior to consummation of the Offer by furnishing
information to, and participating in discussions or negotiations
with, any third party making an Acquisition Proposal (as that term is
defined in the Merger Agreement) and, subject to the payment of a $3
million breakup fee, the shareholders will be entitled to receive the
benefits of a Superior Proposal (as that term is defined in the
Merger Agreement);

(x) The fact that the shareholders who do not believe that $24.75 is a
fair price for their shares in connection with the Merger will be
entitled to exercise dissenters' rights and demand payment of the fair
value of their shares pursuant to Section 5.11 through 5.13 of the
Texas Business Corporation Act (the "TBCA"); and

(xi) The representation of Parent that it has, or will have, sufficient
cash or access to cash to satisfy all of its obligations under the
Merger Agreement and the fact that the Offer is not subject to a
financing condition.

The Board of Directors also considered the alternative proposal suggested
by Xx. Xxx Xxxxxx at the July 30, 2001 Board of Directors meeting, and at
previous meetings of the Board of Directors, that the Company make a self-tender
for 1,000,000 shares of the Company's outstanding common stock at $25 per share.
Although a self-tender would provide some immediate liquidity for shareholders
desiring to sell their common stock, the majority of the Board of Directors were
concerned that the self-tender would (a) reduce the market liquidity for the
balance of the outstanding shares, (b) result in increased concentration in
ownership, which may make a future acquisition of the Company more difficult,
(c) make internal expansions more difficult because of the reduction in capital,
(d) be subject to substantial regulatory hurdles as the capital of the Company's
subsidiary banks would be substantially reduced and (e) reduce the Company's
profitability due to the reduction in its capital base. Consequently, a majority
of the Board of Directors was not in favor of such an alternative.

The Board of Directors was also aware of the reasons expressed by two
directors as to why they were not in favor of the Offer and the Merger, which
reasons were extensively discussed at several meetings of the Board of Directors
prior to the July 30, 2001 meeting.

The Board of Directors did not assign relative weights to the foregoing
factors or determine that any factor was of particular importance. Rather, the
Board of Directors reached its position and recommendations based on the
totality of the information presented to it. In addition, individual members of
the Board of Directors may have given different weight to different factors.

The Board of Directors recognized that, while the consummation of the Offer
gives the shareholders the opportunity to realize a premium over the prices at
which the common stock was traded prior to the public announcement of the Merger
and Offer, such transactions would eliminate the opportunity for shareholders to
participate in the future growth and profits of the Company. Nevertheless, the
majority of the Board of Directors concluded that a sale at this time was in the
best interests of the shareholders.

- Dissenting View of the Minority of the Board of Directors.

As noted, two of the Company's directors voted against the proposed
transaction. Their reasons for voting against the proposal, and the Board of
Directors' view with respect to such reasons, are summarized below:

(i) In general, the directors opposed to the transaction did not offer a
specific long-term strategic alternative for the Company, but were
critical of the timing of the proposed transaction. On July 31,

9
10

2001, Xx. Xxxxxx indicated that he believed this was the "wrong time
from a corporate and banking industry" perspective. No indication of
why this was a bad time from a "corporate and banking industry
perspective" was provided. However, Xx. Xxxxxx subsequently indicated
that he believes that acquisition prices "peaked" in 1998.

- The majority of the Board of Directors believes that the number of
bank acquisition transactions that have occurred in the last several
years is evidence that this is an appropriate time to consider a sale
of the Company. Acquisition prices have generally been higher in the
last several years than during any other sustained period since 1992,
when the Company emerged from a Chapter 11 reorganization proceeding,
and the Board of Directors believes that such favorable conditions
present a timely opportunity for shareholders to realize an
advantageous price from a sale of the Company.

(ii) The directors opposed to the transaction believe that the Offer Price
does not reflect a significant enough premium over the historic
trading price of the Company's common stock. They believe book value
per share is an important factor in the market price of the Company's
common stock. Shareholders should review the financial statements in
the Company's annual and quarterly reports as to the improvement in
the Company's earnings performance and book value. Information
regarding the availability of such reports is set forth in Section 8
of the Offer to Purchase. In addition, a copy of the Company's press
release relating to the financial results of the Company for the
period ending June 30, 2001 is attached as Annex B to this Statement.

- The majority of the Board of Directors is of the view that the Offer
Price is substantially higher than the price the Company's common
stock will trade at if unaffected by the proposed transaction. The
Offer Price is approximately 86.5% above the average closing price of
the Company's common stock for the three-month period ended December
31, 2000, prior to the distribution of material to potential bidders
and the influence of acquisition rumors. Not giving effect to
extraordinary gains and losses, the Company's growth in earnings has
averaged approximately 6.6% for the three years ended December 31,
2000. Furthermore, the price of the Company's common stock may have
been historically effected by the Company's repurchase program,
pursuant to which the Company purchased 463,675 shares in 1999 and
418,333 shares in 2000, approximately 55.5% of the total trading
volume for the Company's common stock over such two year period.
Section 6 of the Offer to Purchase contains a summary of the historic
trading prices for the Company's common stock on a quarter by quarter
basis since the beginning of 1999. Shareholders should review such
information along with the Company's financial information and the
press release attached as Annex B to this Statement.

(iii) The directors opposed to the Offer believe that the Company's earning
stream, sheltered from income taxes by the Company's approximately
$70 million NOL, provides a significantly higher after-tax earning
stream than alternative investments for the Company's shareholders;
and that, because of restrictions on the use of the NOL after an
acquisition, the Purchaser is not valuing the NOL at a price that is
equivalent to what it is worth to the Company if the Company remains
independent.

- The majority of the Board of Directors believes that the Company's NOL
was already factored into the Company's market price before
announcement of the Offer and the market price of the stock was
substantially below the Offer Price. As the NOL is used in future
years, the market price of the common stock could be adversely
affected as the Company's earnings are no longer sheltered.

(iv) The directors opposed to the Offer believe that the Company can
continue to grow at a pre-tax rate in excess of its historic growth
rate. They urge you to review the Company's historic financial
statements and the press release attached as Annex B to this
Statement.

- As set forth above, the majority of the Board of Directors noted that
historically the Company's core earnings, unaffected by extraordinary
gains or losses, has grown at approximately 6.6% per

10
11

year on a compounded basis for the fiscal years 1997 through 2000. The
majority of the Board of Directors also believes that competition will
increase in its key markets, making growth more difficult and having a
potential negative impact on profitability.

(v) One of the opposing directors suggested an alternative transaction
involving a reduction in the capitalization of the Company through a
self-tender for 1,000,000 shares of the outstanding shares of common
stock at $25 per share. He believes the self-tender would create some
liquidity for some of the shares of the Company's shareholders and,
depending on the price and size of the repurchase offer, may result
in increased earnings per share in the future.

- As indicated above, the majority of the Board of Directors believes
such a self-tender will, among other things, (a) reduce the liquidity
for other shares of common stock owned by the shareholders, (b) result
in increased concentration in ownership, which may make a future
acquisition of the Company more difficult, (c) hurt the Company's
long-term growth opportunities if it remains independent and (d) not
result in an aggregate increase in total shareholder value. In
addition, as noted, the Board of Directors is concerned that such a
self-tender would face substantial regulatory hurdles arising from the
reduction in capital of the Company's subsidiary banks. Further, a
self-tender offer for 1,000,000 shares of the Company's outstanding
common stock, at $25 per share, would reduce the book value of the
remaining shares of the Company's common stock by approximately $2.73
per share.

The foregoing summary of the views of the two directors that voted against
the Offer and the Merger does not represent the views or opinions of the
Company, the majority of the Board of Directors or KBW.

(d) Intent to Tender

To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, each executive officer and
director of the Company, with the exception of Messrs. Xxxxxx and Xxxxxxxxxxx,
currently intends to tender all shares of common stock over which he or she has
sole dispositive power to the Purchaser. Messrs. Xxxxxx and Xxxxxxxxxxx have
indicated that they will tender their shares of common stock to Purchaser only
after two-thirds of the outstanding shares of common stock have been tendered
pursuant to the Offer.

ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.

The Company has retained KBW as its financial advisor in connection with
the Offer and the Merger (or any other transaction or transactions which may
consist of (i) the possible sale or business combination of the Company with
another corporation or other business entity, which transaction (a
"Transaction") might take the form of a merger of the Company with, or a sale of
all or a substantial portion of its assets or more than 20% of its equity
securities to a buyer, or (ii) any other transaction involving the sale or
disposition, other than in the ordinary course of business, of any significant
banking assets, subsidiaries or divisions of the Company).

Pursuant to the Engagement Letter between KBW and the Company dated October
19, 2000 (the "Engagement Letter"), the Company has agreed to pay KBW as
follows: (i) a cash fee of $25,000 which became due upon the execution of the
Engagement Letter, (ii) an advisory fee, payable upon the closing of the Offer
or Merger equal to 1.25% of the market value of the aggregate consideration
offered in exchange for the outstanding shares of common stock or all or
substantially of the assets or shares representing more than 20% of the equity
securities of the Company, or in connection with the sale or disposition, other
than in the ordinary course of business, of any significant banking assets,
subsidiaries or divisions of the Company.

The Company has also agreed in the Engagement Letter to reimburse KBW for
all reasonable out-of-pocket expenses, regardless of whether any Transaction is
consummated, including, without limitation, fees and reasonable expenses of
counsel arising out of KBW's engagement. The Company has further agreed to
indemnify KBW and certain related persons against certain liabilities relating
to or arising out of its engagement.

Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or agreed to compensate any person to make
solicitations or recommendations to shareholders of the Company concerning the
Offer or the Merger.

11
12

ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.

There have been no transactions in the common stock effected during the
past 60 days by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company.

ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.

Except as set forth in this Statement, the Company is not engaged in any
negotiations in response to the Offer which relates to or would result in (i) a
tender offer for or other acquisition of the Company's securities by the
Company, any subsidiary of the Company or any other person; (ii) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (iii) a purchase, sale
or transfer of a material amount of assets of the Company or any subsidiary of
the Company; or (iv) any material change in the present dividend rate or policy,
or indebtedness or capitalization of the Company.

Except as set forth above, there are no transactions, resolutions of the
Board of Directors, agreements in principle or signed contracts in response to
the Offer that relate to one or more of the events referred to in the preceding
paragraph.

ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.

(a) Dissenters' Rights

No dissenters' rights are available to holders of common stock in
connection with the Offer. However, if the Merger is consummated, holders of
common stock may have certain rights under Sections 5.11 through 5.13 and/or
5.16 of the TBCA to dissent and demand payment in cash for the fair value of
their common stock. Such rights, if the statutory procedures are complied with,
could lead to a judicial determination of the fair value (excluding any element
of value arising from expectation or accomplishment of the Merger) required to
be paid in cash to such dissenting holders for their common stock. Any such
judicial determination of the fair value of the Company's common stock could be
based upon considerations other than, or in addition to, the Offer Price,
including asset values of the Company and the investment value of the common
stock. The value so determined could be more or less than the Offer Price.

If any holder of common stock who demands payment under Sections 5.11
through 5.13 and/or 5.16 of the TBCA fails to perfect, or effectively withdraws
or loses his or her right to demand payment of the fair value, as provided in
the TBCA, the common stock of such holder will be converted into the right to
receive the Offer Price in accordance with the Merger Agreement. A shareholder
may withdraw his or her demand for payment at any time before payment for his or
her shares or before any petition has been filed pursuant to Section 5.12 or
5.16 of the TBCA by delivery to Parent of a written withdrawal of his or her
demand for payment.

Failure to follow the steps required by Sections 5.11 through 5.13 and/or
5.16, as applicable, of the TBCA for perfecting dissenters' rights may result in
the loss of such rights.

(b) Directors Designations by Parent

The Information Statement attached hereto as Annex C is being furnished to
the Company's shareholders in connection with the possible designation by
Parent, pursuant to the Merger Agreement, of certain persons to be appointed by
the Company's Board of Directors other than at a meeting of the Company's
shareholders, and such information is incorporated herein by reference.

Under the Bank Holding Company Act of 1956, as amended, certain acquisition
transactions may not be consummated unless certain approvals and notices are
obtained. The acquisition of the common stock by the Purchaser pursuant to the
Offer is subject to such requirements. Parent and the Company intend to make the
appropriate filings promptly.

12
13

ITEM 9. EXHIBITS.

EXHIBIT
NO.
-------

Exhibit 1 Offer to Purchase dated August 9, 2001*
Exhibit 2 Letter of Transmittal dated August 9, 2001*
Exhibit 3 The Information Statement of the Company dated as of August
9, 2001 (included as Annex C to the Statement)*
Exhibit 4 Letter to Shareholders of the Company dated August 9, 2001*
Exhibit 5 Shareholder Agreement dated July 30, 2001, between Parent
and Xxxxxx X. Xxxxxx
Exhibit 6 Shareholder Agreement dated July 30, 2001, between Parent
and Xxxx X. Xxxxxxxxx
Exhibit 7 Shareholder Agreement dated July 30, 2001, between Parent
and Xxxxx Xxxxxx
Exhibit 8 Shareholder Agreement dated July 30, 2001, between Parent
and Xxxxxxx X. Xxxxx
Exhibit 9 Agreement and Plan of Merger dated as of July 30, 2001,
among Parent, the Purchaser and the Company (incorporated by
reference to Exhibit (d)(1) to the Schedule TO of Purchaser
filed August 9, 2001)
Exhibit 10 Confidentiality Agreement between Parent and the Company
dated March 28, 2001
Exhibit 11 Opinion of Xxxxx, Xxxxxxxx & Xxxxx, Inc. dated July 30, 2001
(included as Annex A to the Statement)*
Exhibit 12 Joint Press Release issued by Parent and the Company dated
July 31, 2001
Exhibit 13 Summary Advertisement published in the Wall Street Journal
dated August 9, 2001
Exhibit 14 Press Release dated August 8, 2001 (included as Annex B to
the Statement)*

---------------
* Included with Schedule 14D-9 mailed to shareholders.

13
14

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.

NATIONAL BANCSHARES CORPORATION OF
TEXAS

By: /s/ Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: President and Chief
Executive Officer

Dated: August 9, 2001

14
15

INDEX TO EXHIBITS

EXHIBIT
NO.
-------

---------------
* Included with Schedule 14D-9 mailed to shareholders.
16
ANNEX A

July 30, 2001

National Bancshares Corporation of Texas
00000 Xxxxxxx 000 Xxxxx
Xxx Xxxxxxx, XX 00000

Members of the Board:

We understand that National Bancshares Corporation of Texas ("NBT")
intends to enter into an agreement with International Bancshares Corporation
("IBOC") pursuant to which IBOC will purchase all of the issued and outstanding
shares of NBT common stock for $24.75 per share in cash (the "Consideration") by
means of a tender offer and subsequent merger of the Company with a subsidiary
of IBOC (the "Sub") after which NBT will continue as the surviving corporation
(the "Proposed Transaction"). The terms and conditions of the Proposed
Transaction are more fully set forth in the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of July 30, 2001 by and among NBT, IBOC and NBC
Acquisition Corporation. The reader is urged to carefully read all of the terms
of the Merger Agreement.

You have requested our opinion as investment bankers as to the fairness
from a financial point of view to the shareholders of NBT of the Consideration
to be paid to the shareholders of NBT in connection with the Proposed
Transaction.

The Merger is expected to be considered and voted upon by the
shareholders of NBT at a special shareholders' meeting to be held as soon as
practicable following consummation of the tender offer.

Xxxxx, Xxxxxxxx & Xxxxx, Inc. ("KBW"), as part of its investment
banking business, is continually engaged in the valuation of bank holding
companies and banks, thrift holding companies and thrifts and their securities
in connection with mergers and acquisitions, underwritings, private placements,
competitive bidding processes, market making as a NASD market maker, and
valuations for various other purposes. As specialists in the securities of
banking companies we have experience in, and knowledge of, the valuation of
banking enterprises. In the ordinary course of our business as a broker-dealer,
we may, from time to time, trade the securities of NBT and IBOC for our

A-1
17
own account, and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities. To the extent we have any
such positions as of the date of this opinion it has been disclosed to NBT. KBW
has served as financial advisor to NBT in the negotiation of the Merger
Agreement and in rendering this fairness opinion and will receive a fee from NBT
for those services.

In arriving at our opinion, we have reviewed, analyzed and relied upon
material bearing upon the financial and operating condition of NBT and the
Merger, including among other things, the following:

i. The Merger Agreement;

ii. Certain historical information concerning NBT;

iii. Certain historical financial and other information concerning NBT
for the three years ended December 31, 2000 and certain interim
quarterly reports, including NBT's Annual Report to Stockholders and
Annual Report on Forms 10-K, and certain interim quarterly reports
on Form 10-Q for 2000 and 2001;

iv. The historical market prices and trading activity for the shares of
NBT;

v. Discussions with senior management of NBT with respect to their past
and current financial performance, financial condition and future
prospects;

vi. Certain internal financial data, projections and other information
of NBT, including financial projections prepared by management;

vii. Certain publicly available information of other financial
institutions that we deemed comparable or otherwise relevant to our
inquiry, and compared NBT and IBOC from a financial point of view
with certain of these institutions;

viii. A comparison of the consideration to be paid by IBOC pursuant to the
Merger Agreement with the consideration paid by acquirors in other
acquisitions of financial institutions that we deemed comparable or
otherwise relevant to our inquiry;

ix. Such other financial studies, analyses and investigations and
reviewed such other information as we deemed appropriate to enable
us to render our opinion.

In conducting our review and arriving at our opinion, we have relied
upon the accuracy and completeness of all of the financial and other information
provided to us or publicly available and we have not assumed any responsibility
for independently verifying the accuracy or completeness of any such
information. We have relied upon the management of NBT as to the reasonableness
and achievability of the financial and operating forecasts and projections (and
the assumptions and bases therefor) provided to

A-2
18
us, and we have assumed that such forecasts and projections reflect the best
currently available estimates and judgments of such management and that such
forecasts and projections will be realized in the amounts and in the time
periods currently estimated by such management. We have considered the views of
two directors that did not vote in favor of the Proposed Transaction. We are not
experts in the independent verification of the adequacy of allowances for loan
and lease losses and we have assumed that the current and projected aggregate
reserve for loan and lease losses for NBT is adequate to cover such losses. We
did not make or obtain any independent evaluations or appraisals of any assets
or liabilities of NBT or any of its subsidiaries nor did we verify any of NBT's
books or records or review any individual loan or credit files.

We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following: (i)
the historical financial position and results of operations of NBT; (ii) the
assets and liabilities of NBT; and (iii) the nature and terms of certain other
merger transactions involving banks and bank holding companies. We have also
taken into account our assessment of general economic, market and financial
conditions and our experience in other transactions, as well as our experience
in securities valuation and knowledge of the banking industry generally. Our
opinion is necessarily based upon conditions as they exist and can be evaluated
on the date hereof and the information made available to us through the date
hereof. Our opinion is also based on the assumption that NBT would not have the
right to terminate the Merger Agreement pursuant to Section 6.10(d) thereof
(assuming all notices were timely given).

Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration to be offered to NBT's shareholders in the
Proposed Transaction is fair from a financial point of view.

This opinion is for the use and benefit of the Board of Directors of
the Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any shareholder of the Company as to
whether to accept the Consideration to be offered to the shareholders in
connection with the Proposed Transaction.

Very truly yours,

Xxxxx, Xxxxxxxx & Xxxxx, Inc.

A-3
19

ANNEX B

NATIONAL BANCSHARES CORPORATION OF TEXAS REPORTS
2ND QUARTER RESULTS

August 8, 2001

National Bancshares Corporation of Texas (ASE:NBT), headquartered in San
Antonio, Texas reports for the quarter ended June 30, 2001 earnings of
$1,706,000 or $0.44 per diluted share, as compared to $1,363,000 or $0.33 per
diluted share, in the quarter ending June 30, 2000, an increase of 25%.

This year's second quarter reflected non-recurring net gains on the sale of
securities and other real estate of $288,000, net of tax, compared to net gains
on the sale of securities of $343,000, net of tax, in the quarter ended June 30,
2000. With the exclusion of the non-recurring gains, net income for the second
quarter of 2001 was $1,418,000, or $0.37 per diluted share, compared to the
second quarter of 2000 which was $1,020,000, or $0.25 per diluted share, for an
increase of 39%. Earnings per share, adjusted for such non-recurring gains grew
48% reflecting fewer common shares outstanding for the quarter ended June 30,
2001 as compared with the quarter ended June 30, 2000, as a result of the share
repurchase program.

For the six months ended June 30, 2001, National Bancshares had net income
of $2,765,000, or $0.72 per diluted share, an increase of 20% compared to the
six months ended June 30, 2000 earnings of $2,302,000 or $0.56 per diluted
share. The six months ended June 30, 2001 and 2000 included net gains on the
sale of securities and other real estate of $291,000 and $354,000, net of tax,
respectively. With the exclusion of the net gains, net income for the six months
ended June 30, 2001 was $2,474,000, or $0.64 per diluted share compared to
$1,948,000 or $0.47 per diluted share for the six months ended June 30, 2000, an
increase of 27%.

At June 30, 2001 total assets were $595 million up from $569 million at
June 30, 2000, an increase of 4.6%. Total loans at June 30, 2001 were $283
million up from $246 million at June 30, 2000, an increase of 15%.

Book value per share of common stock was $17.43 at June 30, 2001 versus
$12.78 per share a year ago, which variance is in part due to (i) the reduced
number of shares outstanding at June 30, 2001 compared to the prior year, and
(ii) a net after tax increase in the value of the Company's bond portfolio, due
to a very favorable interest rate environment.

Since June 30, 2000, the Company's repurchase program has resulted in the
buyback of 272,871 shares. This reduction in outstanding common shares is
responsible for $1.18 of the increase in per share book value for the period
ended June 30, 2001 compared to June 30, 2000.

As a result of the favorable interest rate environment, the increase in the
unrealized gain/loss in the Company's bond portfolio of approximately $8,866,000
from June 30, 2000 to June 30, 2001 (an unrealized loss of $1,895,000 as of June
30, 2000 and an unrealized gain of $6,971,000 as of June 30, 2001) resulted in
$2.31 of the increase in the per share book value for such period.

National Bancshares has bank locations in San Antonio, Rockdale, Laredo,
Eagle Pass, Luling, Giddings, Marble Falls, Xxxxxx and San Marcos, Texas and a
loan production office in Dallas, Texas.

Contact Xxxxxx X. Xxxxxx, President and Chief Executive Officer, at (210)
403-4200 for further information.

X-0
00

XXXXXXXX XXXXXXXXXX CORPORATION OF TEXAS AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

ASSETS

JUNE 30, DECEMBER 31,
2001 2000
-------- ------------

Cash and due from banks..................................... $ 16,588 $ 24,218
Interest-bearing accounts................................... 2,259 2,659
Federal funds sold.......................................... 40,500 18,335
Investment securities available for sale.................... 220,561 255,136
Investment securities held to maturity...................... 2,048 2,044
Loans, net of discounts..................................... 282,869 256,482
Allowance for possible loan losses.......................... (3,604) (3,429)
-------- --------
Net loans................................................. 279,265 253,053
Bank premises and equipment, net............................ 19,109 19,435
Goodwill.................................................... 7,863 8,051
Other assets................................................ 7,114 8,354
-------- --------
Total Assets...................................... $595,307 $591,285
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits -- non-interest bearing................... $ 82,469 $ 83,126
Interest-bearing transaction accounts (NOW)............... 84,231 92,157
Savings and money market accounts......................... 115,751 117,741
Certificates and time deposits under $100,000............. 142,308 136,789
Certificates and time deposits $100,000 and over.......... 99,614 95,093
-------- --------
Total Deposits.................................... 524,373 524,906
-------- --------
Accrued interest payable and other liabilities.............. 3,721 2,564
Other borrowings............................................ -- 2,328
Long term notes payable..................................... 1,487 2,904
-------- --------
Total Liabilities................................. 529,581 532,702
Stockholders' Equity:
Common Stock, $.001 par value, 100,000,000 shares
authorized, 4,751,974 issued and 3,770,641 outstanding
at June 30, 2001 and 4,751,834 issued and 3,775,501
outstanding at December 31, 2000....................... 5 5
Additional paid-in capital................................ 35,192 33,832
Retained earnings......................................... 39,250 36,485
Accumulated other comprehensive income, net of tax........ 6,971 3,884
Treasury Stock, at cost (981,333 shares in 2001, 976,333
shares in 2000)........................................ (15,692) (15,623)
-------- --------
Total Stockholders' Equity........................ 65,726 58,583
-------- --------
Total Liabilities and Stockholders' Equity........ $595,307 $591,285
======== ========
BOOK VALUE PER COMMON SHARE................................. $ 17.43 $ 15.52

B-2
21

NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
---------- ---------- ---------- ----------

INTEREST INCOME:
Interest and fees on loans.............. $ 6,110 $ 5,619 $ 12,080 $ 11,287
Interest on investment securities....... 3,938 3,469 7,869 6,861
Interest on federal funds sold.......... 164 651 407 1,004
Interest on deposits in banks........... 35 49 81 82
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME........... 10,247 9,788 20,437 19,234
INTEREST EXPENSE:
Interest on deposits.................... 4,459 4,443 9,368 8,696
Interest on debt........................ 43 136 139 258
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE.......... 4,502 4,579 9,507 8,954
NET INTEREST INCOME....................... 5,745 5,209 10,930 10,280
Less: Provision for possible loan
losses............................... 170 138 290 328
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES.................... 5,575 5,071 10,640 9,952
NON-INTEREST INCOME:
Service charges and fees................ 1,300 1,149 2,507 2,160
Net realized gains (losses) on
securities........................... 415 520 419 526
Net gains on sales of other real estate
and assets........................... 22 - 22 11
Miscellaneous income.................... 79 58 142 128
---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME....... 1,816 1,727 3,090 2,825
NON-INTEREST EXPENSE:
Salaries and employee benefits.......... 2,539 2,452 5,173 4,872
Occupancy and equipment expenses........ 832 864 1,655 1,693
Goodwill amortization................... 94 94 188 188
Other expenses.......................... 1,295 1,251 2,469 2,406
---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE...... 4,760 4,661 9,485 9,159
INCOME BEFORE FEDERAL INCOME TAXES........ 2,631 2,137 4,245 3,618
Federal income tax expense................ 925 774 1,480 1,316
---------- ---------- ---------- ----------
NET INCOME................................ $ 1,706 $ 1,363 $ 2,765 $ 2,302
========== ========== ========== ==========
BASIC EARNINGS PER SHARE.................. $ 0.45 $ 0.33 $ 0.73 $ 0.56
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE................ $ 0.44 $ 0.33 $ 0.72 $ 0.55
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
USED IN BASIC EARNINGS PER SHARE........ 3,770,538 4,109,916 3,770,780 4,129,679

B-3
00

XXXXX X

XXXXXXXX XXXXXXXXXX XXXXXXXXXXX XX XXXXX
00000 XXXXXXX 000 XXXXX
XXX XXXXXXX, XXXXX 00000
(000) 000-0000

INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER

NO VOTE OR OTHER ACTION OF THE SECURITY HOLDERS IS REQUIRED
IN CONNECTION WITH THIS INFORMATION STATEMENT.

This Information Statement is being mailed on or about August 9, 2001 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to holders of the common stock, par value $.001 per share, of
National Bancshares Corporation of Texas (the "Company"), a Texas corporation
(the "Common Stock"). As of May 6, 2001, 3,770,501 shares of Common Stock were
issued and outstanding. Each share of Common Stock is entitled to one vote.

The Schedule 14D-9 relates to the tender offer by a Texas corporation, NBC
Acquisition Corp. (the "Purchaser"), disclosed in a Tender Offer Statement on
Schedule TO dated August 9, 2001, to purchase all of the outstanding Common
Stock at a price of $24.75, as may be adjusted, net to the seller in cash, upon
the terms and subject to the conditions set forth in the Offer to Purchase dated
August 9, 2001 and the related Letter of Transmittal (which, as may be amended
from time to time, together constitute the "Offer"). Purchaser was formed in
connection with the Offer and is wholly owned by International Bancshares
Corporation, a Texas corporation (the "Parent"). You are receiving this
Information Statement in connection with the possible designation by Purchaser
of persons to serve in a majority of the seats on the Board of Directors of the
Company (the "Board").

This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. Please read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used and not otherwise
designated herein have the meaning set forth in the Schedule 14D-9.

Parent provided the information in this Information Statement concerning
Parent and Purchaser, and the Company assumes no responsibility for the
accuracy, completeness or fairness of this information.

BACKGROUND INFORMATION

On July 30, 2001, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Parent and Purchaser. The Merger Agreement
provides, among other things, for the making of the Offer by the Purchaser and
further provides that, upon the terms and subject to the conditions contained in
the Merger Agreement, the Purchaser will merge with and into the Company (the
"Merger," and together with the Offer, the "Transaction") as soon as practicable
after the consummation of the Offer. Following consummation of the Merger (the
"Effective Time"), the Company will continue as the surviving corporation. In
the Merger, each share of Common Stock issued and outstanding immediately prior
to the Effective Time (other than Common Stock owned by the Company or any
subsidiary of the Company, all of which will be cancelled, and other than Common
Stock, where applicable, held by shareholders who perfect dissenters' rights
under Texas law) will be converted into the rights to receive $24.75 in cash, as
may be adjusted, upon the terms and subject to the conditions set forth in the
Merger Agreement. As a result of the Merger, the Company will become a wholly
owned subsidiary of Parent.

C-1
23

RIGHT TO DESIGNATE DIRECTORS

The Merger Agreement provides that promptly upon acceptance of payment of,
and payment for, at least 50.1% of the outstanding shares of Common Stock by
Purchaser pursuant to the Offer, and until the Effective Time, Purchaser shall
be entitled to designate such number of directors on the Board of Directors of
the Company as will give Purchaser, subject to compliance with Section 14(f) of
the Exchange Act, a majority of such directors (the "Designees"), and the
Company shall, at such time, cause the Designees to be so elected by its
existing Board of Directors.

INFORMATION WITH RESPECT TO DESIGNEES

The following table contains information with respect to the Designees
(including age as of the date hereof, business address, current principal
occupation or employment and five-year employment history). The business address
of each Designee is International Bancshares Corporation, 0000 Xxx Xxxxxxxx
Xxx., Xxxxxx, Xxxxx 00000, and its telephone number is (000) 000-0000.

PRINCIPAL OCCUPATION(S)
NAME OF DESIGNEE AGE DURING PAST FIVE YEARS
---------------- --- -----------------------

Xxxxxx X. Xxxxx...................... 59 Chairman of the Board of Directors and President of
Parent; Chief Executive Officer and Director of
International Bank of Commerce ("IBC").
Xxxxxxxx X. Xxxxx.................... 30 General Counsel of IBC (September 2000 to present);
Attorney with Xxx & Xxxxx Incorporated (August, 1996 to
September, 2000).
Xxxxxx X. Xxxxxxxx................... 40 Executive Vice President and Cashier of IBC (1995 to
present).
Xxxxxx X. Xxxxxx..................... 44 President of IBC-San Antonio since 1991.

Parent has informed the Company that, to its knowledge, none of the
Designees beneficially owns any equity securities, or rights to acquire any
equity securities of the Company, has a familiar relationship with any director
or executive officer of the Company or has been involved in any transactions
with the Company or any of its directors, executive officers or affiliates that
are required to be disclosed pursuant to the rules promulgated pursuant to the
Exchange Act. Parent has informed the Company that each of the individuals
listed above has consented to serve as a director, if so designated.

BOARD OF DIRECTORS AND COMMITTEES

BOARD STRUCTURE.

There are currently six members of the Board of Directors. The number of
directors may be fixed from time to time by action of the shareholders or the
directors, or, if the number is not fixed, the number shall be two. The number
of directors may be increased or decreased by action of the shareholders or
directors. The members of the Board of Directors may fill any vacancy existing
on the Board of Directors.

The Board of Directors of the Company met 12 times during 2000. During the
fiscal year ended December 31, 2000, no director attended fewer than 75 percent
of the aggregate of (i) the total number of meetings of the Board of Directors
held during the period for which he has been a director, and (ii) the total
number of meetings held by all committees on the Board of Directors on which he
has served.

C-2
24

DIRECTORS.

The following table shows information with respect to the current directors
of the Company as of August 7, 2001. Each director is a citizen of the United
States. Unless otherwise noted, the business address of each director is c/o
National Bancshares Corporation of Texas, 00000 Xxxxxxx 000 Xxxxx, Xxx Xxxxxxx,
Xxxxx 00000.

DIRECTOR OF THE
PRINCIPAL OCCUPATION(S) COMPANY
NAME OF DIRECTOR AGE DURING PAST FIVE YEARS SINCE
---------------- --- ----------------------- ---------------

Xxx X. Xxxxxx........................ 46 Xx. Xxxxxx has been the Chairman of the 1992
Board and CEO of NBI, Inc., a publicly
traded holding company, since 1993. Xx.
Xxxxxx has been a member of the Board of
Directors of Sightsound Technologies,
Inc. since 1996. In May 1995, Xx. Xxxxxx
became President of Equibond, Inc., an
investment firm and a registered broker
dealer based in Santa Monica,
California.
Xxxxxx X. Xxxxxx..................... 66 Xx. Xxxxxx has been a Director, Chief 1992
Executive Officer, President, and
Secretary of the Company since May 1992.
He was Chairman of the Board of
NBC-Laredo and a Director of NBC-Eagle
Pass and NBC-Rockdale since May 1992;
President of NBC-Laredo from August 1993
to March 1998; and Director of
NBC-Luling since September 1996.
H. Xxxx Xxxxxxxxxxx.................. 60 Xx. Xxxxxxxxxxx has been Chairman of 1992
Greater Southwest Bancshares, Inc., and
its subsidiary, Bank of the West,
Irving, Texas, since 1986 (neither of
which entities are affiliated with the
Company).
Xxxx X. Xxxxxxxxx.................... 72 Xx. Xxxxxxxxx has been Chairman of the 0000
Xxxxx xx XXX-Xxxxx Xxxx since January
1997. Xx. Xxxxxxxxx was Chairman of the
Board, President and CEO of NBC-Eagle
Pass from 1989 to January 1997.
Xxxxxxx X. Xxxxx..................... 66 Xx. Xxxxx has been the principal of the 1995
Xxxxxxx X. Xxxxx Company, a bank
consulting firm since July, 1994. Xx.
Xxxxx is also Chairman of the Board of
Texline State Bank in Texline, Texas
(which is not affiliated with the
Company).
Xxxxx Xxxxxx......................... 45 Xx. Xxxxxx is a private investor and is 2000
also associated with X. Xxxxxx, a
registered broker-dealer. Xx. Xxxxxx was
associated with Equibond, Inc. from June
1996 to May 2001.

C-3
25

COMMITTEES OF THE BOARD.

The Board has appointed two standing committees, elected from its own
members. Current membership of each committee is as follows:

AUDIT COMMITTEE COMPENSATION COMMITTEE
--------------- ----------------------

Xx. Xxxxxxxxxxx Xx. Xxxxxx
Xx. Xxxxxx Xx. Xxxxxxxxxxx
Xx. Xxxxx Xx. Xxxxx

In addition to the Audit Committee and Compensation Committee, the Board of
Directors acts as the Company's Nominating Committee.

Audit Committee:

- Met 3 times in 2000;

- Recommends the selection of independent accountants;

- Reviews and recommends approval of annual audited financial statements;

- Reviews significant changes in accounting policies and procedures;

- Monitors the internal audit reports for the Company and each of its
subsidiaries;

- Reviews the adequacy of internal controls and record-keeping systems;

- Reviews compliance with applicable regulations and policies (including
environmental regulations and policies on xxxxxxx xxxxxxx); and

- Monitors litigation, fraud and conflict of interests and their potential
impact on the Company's financial results.

Compensation Committee:

- Met 1 time in 2000;

- Reviews the compensation of officers and other management personnel and
makes recommendations regarding such compensation; and

- Administers the employee benefits plans of the Company, including the
Company's 1995 Stock Plan (the "1995 Plan").

REPORT OF THE AUDIT COMMITTEE.

The members of the Audit Committee have been appointed by the Board of
Directors. The Audit Committee is governed by a charter (a copy of which is
attached to this Information Statement as Appendix A) which has been approved
and adopted by the Board of Directors and which will be reviewed and reassessed
annually by the Audit Committee. The Audit Committee is comprised of three
non-employee independent directors.

The Audit Committee Report does not constitute soliciting material and
shall not be deemed filed or incorporated by reference into any other Company
filing under the Securities Act of 1933, as amended, or the Exchange Act, except
to the extent the Company specifically incorporates this Audit Committee Report
by reference therein.

The Audit Committee assists the Board of Directors in fulfilling its
oversight responsibilities by (i) monitoring the internal audit reports for the
Company and each of its subsidiaries; (ii) reviewing the adequacy of internal
controls and record-keeping systems; (iii) reviewing compliance with applicable
regulations and policies, including environmental regulations and policies on
xxxxxxx xxxxxxx; (iv) monitoring

C-4
26

litigation, fraud and conflict of interest and their potential impact on the
Company's financial results; and (v) reviewing the Company's auditing,
accounting and financial reporting processes generally.

Management is responsible for the preparation and integrity of the
Company's financial statements. The Audit Committee did not review or discuss
the Company's audited financial statements for the year ended December 31, 2000.

The Audit Committee has not received from nor discussed with the external
auditors their written disclosure and letter regarding their independence from
the Company as required by Independence Standards Board Standard No. 1. The
Audit Committee has not discussed with the external auditors the matters
required to be discussed by Statement on Auditing Standards No. 61.

The Audit Committee did not make any recommendation to the Board of
Directors regarding the audited financial statements for the year ended December
31, 2000. Rather, the entire Board of Directors, including the members of the
Audit Committee, reviewed the audited financial statements to be included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.

H. Xxxx Xxxxxxxxxxx
Xxxxx Xxxxxx
Xxxxxxx X. Xxxxx

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The subsidiary bank of the Company (the "Subsidiary Bank"), from time to
time, has entered into transactions with some of the executive officers and
directors of the Company. Such transactions were made in the ordinary course of
business on substantially the same terms and conditions, including interest
rates and collateral, as those prevailing at the same time for comparable
transactions with other customers, and did not, in the opinion of management,
involve more than normal credit risk or present other unfavorable features. The
Subsidiary Bank expects to continue to enter into such transactions in the
ordinary course of business on similar terms with the Company's executive
officers and directors.

OTHER TRANSACTIONS.

During 2000, the Company utilized a stock brokerage firm, Equibond, Inc.,
which is 100 percent owned by Xx. Xxxxxx, to execute certain transactions on its
behalf. Net revenues earned by the brokerage firm related to investment
transactions by the Company in 2000 totaled $3,812 on purchase and sale
transactions. The Company uses an unrelated company to act as custodian and
clearing firm for its investment assets.

DIRECTOR COMPENSATION

Each outside director receives $1,500 for attending in person each regular
meeting of the Board of Directors of the Company and is eligible to participate
in certain of the Company's stock option plans. If a regular Board of Directors
meeting is held by conference call the outside director receives $750 for
participating in the meeting. The Company also pays a fee of $500 per outside
director for participation in any meetings of a committee to which he has been
appointed if the committee meeting is scheduled on a different day than the
board meeting.

C-5
27

EXECUTIVE OFFICERS OF THE COMPANY

The following table shows information with respect to the current executive
officers who are not also directors of the Company as of August 7, 2001. Each of
the executive officers is a citizen of the United States.

NAME AGE OFFICE OFFICE HELD SINCE
---- --- ------ -----------------

Xxxx X. Xxxxxxx...................... 37 Chief Financial Officer 1995
Xxxxxx X. Xxxxx...................... 42 Senior Vice President, General Counsel 1997

SIGNIFICANT EMPLOYEES OF THE COMPANY

The following table shows information with respect to eight significant
employees who are not directors or executive officers but who make or are
expected to make significant contributions to the business of the Company.

NAME AGE POSITION POSITION HELD SINCE
---- --- -------- -------------------

Xxxxx X. Xxxxxx...................... 57 Chairman of the Board and President of 1986
NBC -- Rockdale
Xxxxx X. Xxxxxxxx.................... 38 President and CEO of NBC -- Laredo 1998
Xxxxxxx X. Xxxxx..................... 55 President of NBC -- Luling 1988
R. Xxxxxx Xxxx....................... 49 President of NBC -- Eagle Pass 1997
Xxxxxx X. Xxxxx...................... 48 Executive Vice President, Chief 1998
Operations Officer, Information Services
Coordinator of NBC -- Laredo
Xxxxxx XxXxxxxx...................... 61 Executive Vice President of NBC -- Eagle 1998
Pass and President of NBC -- San Antonio
Xxxxxx X. Xxxxx...................... 54 Executive Vice President, Cashier, 1994
Secretary of NBC -- Eagle Pass
Xxxxxx Xxxxxxx, Xx................... 48 Senior Vice President and Information 1997
Services, Manager of NBC
Holdings -- Texas, Inc.

C-6
28

SECURITY OWNERSHIP OF NAMED EXECUTIVE OFFICERS,
DIRECTORS AND PRINCIPAL SHAREHOLDERS

The following table sets forth information as of August 7, 2001, as to
shares of Common Stock beneficially owned by (i) each director of the Company,
(ii) the directors and executive officers of the Company as a group, and (iii)
each person known by the Company to be the beneficial owner of more than five
percent of the outstanding shares of Common Stock. The term "beneficial
ownership" includes shares held both directly and indirectly (such as through a
trust), shares which a director or officer may vote or transfer (even if these
powers are shared), options that are exercisable currently or within 60 days,
and, under some circumstances, shares held by family members. Except as
otherwise indicated and subject to applicable community property laws, each
person has sole investment and voting power with respect to the shares shown.
Ownership information is based upon information furnished by the respective
individuals or entities, as the case may be.

DIRECTORS, OFFICERS AND SHARES BENEFICIALLY % OF TOTAL SHARES
5% SHAREHOLDERS(1) OWNED OUTSTANDING
----------------------- ------------------- -----------------

Xxx X. Xxxxxx(2)............................ 225,925 5.64%
Xxxxxx X. Xxxxxx(3)......................... 147,031 3.67%
Xxxx X. Xxxxxxxxx(3)........................ 74,236 1.85%
H. Xxxx Xxxxxxxxxxx(4)...................... 57,162 1.43%
Xxxxxxx X. Xxxxx(4)......................... 45,600 1.14%
Xxxxx Xxxxxx(5)............................. 305,400 7.62%
All Directors and Executive Officers as a
group (8 persons)(6)...................... 888,754 22.06%

---------------
(1) The business address of the directors and officers of the Company is the
Company's business address. The mailing address of Hakatak Enterprises, Inc.
is X.X. Xxx 0000, Xxxxxxx Xxxxxxxxx, XX 00000.

(2) The number of shares beneficially owned by Xx. Xxxxxx includes 157,125
shares of Common Stock owned of record; 22,400 shares of Common Stock owned
by his wife and children; 35,600 shares in Prophecy Partners, a Delaware
limited partnership (an investment partnership managed by an entity
controlled by Xx. Xxxxxx); and 10,800 shares of Common Stock options which
are exercisable within 60 days of August 7, 2001.

(3) The number of shares beneficially owned by Messrs. Xxxxxx and Xxxxxxxxx
includes 10,400 and 12,400 shares of Common Stock reserved for issuance
under stock options which are exercisable by each of them within 60 days of
August 7, 2001.

(4) The number of shares beneficially owned by Messrs. Xxxxxxxxxxx and Xxxxx
includes 40,600 shares of Common Stock reserved for issuance under stock
options which are exercisable by each of them within 60 days of August 7,
2001.

(5) Hakatak Enterprises, Inc., Nominee, holds its shares as nominees for HP
Partners, a California limited partnership, Xxxxx Xxxxxx, an individual, and
Tamir and Xxxx Xxxxxx as joint tenants. Of the shares held by Hakatak
Enterprises, Inc., Nominee, 270,000 are for HP Partners, 15,000 are for
Xxxxx Xxxxxx and 15,000 are for Tamir and Xxxx Xxxxxx. In addition, Xx.
Xxxxxx holds 5,400 shares of Common Stock through a Xxxxx Holdings Profit
Sharing Plan.

(6) The number of shares of Common Stock beneficially owned by the directors and
officers as a group includes 139,800 shares of Common Stock reserved for
issuance under stock options which are exercisable within 60 days of August
7, 2001. See footnotes (2),(3) and (4) above.

PRINCIPAL STOCKHOLDERS.

As of August 7, 2001, the Company does not know of anyone who is a
beneficial owner of more than 5% of the Company's Common Stock who is not a
director or executive officer of the Company listed above.

C-7
29

EXECUTIVE COMPENSATION

BOARD COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION.

The Compensation Committee of the Board of Directors (the "Committee") is
committed to maintaining compensation programs for the Company's executive
officers which further the Company's mission. The Committee adheres to the
following compensation policies which are intended to facilitate the achievement
of the Company's business strategies:

- Compensation levels for each element of pay should be targeted at rates
that are reflective of the median levels of current market practices
prevalent in comparable banking organizations. Offering market-comparable
pay allows the Company to attract and maintain a stable, successful
management team.

- The Company's compensation packages should strengthen the relationship
between pay and performance with variable, at-risk compensation that is
dependent upon the level of success in meeting specified Company and
individual performance goals.

- Ownership of the Company's Common Stock by executives should be
encouraged to further align executives' interests with those of
shareholders and the Company and to promote a continuing focus on
building profitability and shareholder value.

- Sustained superior performance by individual executives over a period of
years, including actions to increase revenues, reduce expenses, enhance
service and product quality, improve market share and thereby enhancing
shareholder value, should be rewarded.

In evaluating compensation, the Company is aware of the limitations on
deductibility of compensation paid to highly compensated persons as imposed by
the Internal Revenue Code section 162(m). While the Company does not at this
time have any executive officer within the range of compensation for which
limitations are imposed by that provision, the Compensation Committee's policy
is to review the impact of section 162(m), and the requirements imposed on
performance-based compensation described in the section, in the context of any
qualifying compensation that may be proposed to be paid in the future.

To preserve objectivity in the achievement of its goals, the Committee is
comprised of two independent, non-employee directors and one director, Xx.
Xxxxxx, who is employed by the Company. It is the Committee's overall goal to
develop compensation policies that are consistent with and linked to strategic
business objectives and Company values. The Committee approves the design of,
assesses the effectiveness of, and administers compensation programs in support
of compensation policies. The Committee also reviews all salary arrangements and
other remuneration for all executive officers of the Company and the Subsidiary
Bank. The various components of the compensation programs for executive officers
are discussed below.

Base Salary. Base salary levels for executives are largely determined
through comparison with banking organizations of a size similar to the
Company's. Surveys are utilized to establish base salaries that are within the
range of those persons with similar years of experience and holding positions of
comparable responsibility at other banking organizations of a size and
complexity similar to the Company. Following the determination of market-based
pay, each officer's individual performance, achievements, and contributions to
the growth of the Company are evaluated subjectively in determining the
individual's base salary. The Compensation Committee reviews the base salary of
all executive officers on an annual basis.

Incentive Bonus Plan. In March 1995, the Board of Directors of the Company
adopted a Performance Compensation Plan (the "Plan") for its employees and the
employees of its subsidiary banks. The Plan is administered by the Committee.
The amount of money available for distribution in the Plan is dependent upon the
attainment of performance objectives which the Committee believes are important
for achieving long-term shareholder value. The Presidents of the subsidiary
banks, in consultation with one or more principal officers of the respective
bank, determines the amount which will be awarded from the Plan to the employees
of the bank. The amount of the bonus available for the Presidents of the
subsidiary banks is determined by the Compensation Committee. The Plan rewards
all employees based on the attainment of certain performance

C-8
30

goals of the Company and its subsidiaries. The officers of the Company are
eligible to participate at the same level as all employees in relationship to
their respective base salaries. The performance goals effective for 2000
included specific goals for profits, asset quality and operational productivity.
All awards under the Plan are contingent on the Company and its subsidiaries
attaining certain basic financial objectives such as return on assets.

Stock Options. On May 26, 1995, the shareholders of the Company adopted
the 1995 Stock Plan (the "1995 Plan"). It is the Company's philosophy that
awarding stock options to executive officers of the Company and the Subsidiary
Bank, based upon their respective positions and contributions to the Company's
overall success will help attract and retain high quality, result-oriented
professionals committed to creating long-term shareholder value. Additionally,
because options are subject to forfeiture if the employee leaves the Company
prior to their becoming exercisable, options provide an incentive to remain with
the Company long-term. Options granted in 2000 become exercisable in one-fifth
increments beginning one year from the date of the grant. The option price for
shares is the fair market value of the shares on the date of the grant. The
Named Executives who have received options under the 1995 Plan are Xxx X. Xxxxxx
who has received 42,000 options, Xxxxxx X. Xxxxxx who has received 42,000
options, Xxxx X. Xxxxxxxxx who has received 42,000 options, Xxxxxx X. Xxxxx who
has received 23,500 options.

2000 Compensation of the President and Chief Executive Officer

Xx. Xxxxxx serves as the President and Chief Executive Officer of the
Company. Xx. Xxxxxx'x 2000 base salary is governed by his employment agreement
entered into by the Company and Xx. Xxxxxx in 1999, as described below. His
salary is comparable to a survey of peer group institutions. Xx. Xxxxxx
participates in the incentive bonus plan at the Company level. In 2000 he earned
an incentive bonus of $30,000, which is approximately 17 percent of his base
salary, which is lower than the average in the survey of the peer group. The
incentive bonus was based on attaining certain performance goals. Xx. Xxxxxx has
the right to purchase 16,000 shares of the Company's Common Stock. He is vested
in 7,200 of these shares as of December 31, 2000. Xx. Xxxxxx received 4,000
option grants in 2000 with an exercise price of $13.5625, the market value on
the date of the grant.

Conclusion

The Committee believes these executive compensation policies and programs
serve the interests of shareholders and the Company effectively and that the
various pay vehicles offered are appropriately balanced to provide increased
motivation for executives to contribute to the Company's overall future
successes, thereby enhancing the value of the Company for the shareholders'
benefit.

Xxx X. Xxxxxx, Chairman
H. Xxxx Xxxxxxxxxxx
Xxxxxxx X. Xxxxx

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.

Xx. Xxxxxx, who is a member of the Compensation Committee of the Board of
the Directors of the Company, was, during 2000, an employee of the Company.
During 2000, no executive officer of the Company (i) served as a member of the
compensation committee of another entity, one of whose executive officers served
on the Compensation Committee of the Company, (ii) served as a director of
another entity, one of whose executive officers served on the Compensation
Committee of the Company, or (iii) was a member of the compensation committee of
another entity, one of whose executive officers served as a director of the
Company.

C-9
31

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.

The following table sets forth summary compensation information with
respect to the Company's Chairman and Chief Executive Officer, and the most
highly compensated executive officers of the Company who earned over $100,000 in
annual salary and bonus (the "Named Executives"), for the years ended December
31, 2000, 1999 and 1998:

SUMMARY COMPENSATION TABLE

LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION NUMBER OF
NAME AND ----------------------------- SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION FISCAL SALARY BONUS OPTIONS GRANTED COMPENSATION(1)
------------------ ------ -------- ------- --------------------- ---------------

Xxx X. Xxxxxx................... 2000 $ 80,000 $18,000 10,000 --
Chairman 1999 $ 71,667 $18,000 -- --
1998 $ 60,000 $18,000 -- --
Xxxxxx X. Xxxxxx................ 2000 $175,000 $30,000 4,000 $6,800
President, CEO and Director 1999 $173,625 $30,000 -- $6,400
1998 $164,000 $30,000 -- $4,000
Xxxx X. Xxxxxxxxx............... 2000 $ 40,000 -- 9,000 $1,600
Director and Chairman 1999 $ 40,000 -- -- $ 400
(NBC Bank N.A.) 1998 $110,000 $26,000 -- $3,675
Xxxxxx X. Xxxxx................. 2000 $112,042 $18,000 3,500 $5,202
Senior Vice President & 1999 $ 75,000 $ 7,500 -- $3,300
General Counsel 1998 $ 75,000 $ 7,500 -- $2,060

---------------
(1) All other compensation reflects payments by the Company to the Company's
401(k) Plan on behalf of the Named Executives.

The following table sets forth the options granted to the Named Executives
in fiscal year 2000 under the Company's 1995 Plan. No stock appreciation rights
have been granted by the Company to any of the Named Executives.

OPTION GRANTS IN 2000

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
NUMBER OF % OF TOTAL OPTIONS EXERCISE OPTION TERM
SECURITIES UNDERLYING GRANTED TO EMPLOYEES PRICE EXPIRATION ----------------------
NAME OPTIONS GRANTED IN FISCAL YEAR(1) ($/SHARE) DATE 5% 10%
---- --------------------- -------------------- --------- ---------- --------- ----------

Xxx X. Xxxxxx........ 10,000 15.2% $13.5625 4/17/07 $55,213 $128,670
Xxxxxx X. Xxxxxx..... 4,000 6.1% $13.5625 4/17/07 $22,085 $ 51,468
Xxxx X. Xxxxxxxxx.... 9,000 13.6% $13.5625 4/17/07 $49,692 $115,803
Xxxxxx X. Xxxxx...... 3,500 5.3% $13.5625 4/17/07 $19,325 $ 45,034

---------------
(1) Based on 66,000 options granted to all employees in 2000.

C-10
32

OPTION EXERCISES AND VALUATION.

The table below reports exercises of stock options by the Named Executives
during fiscal year 2000 and the value of their unexercised stock options as of
December 31, 2000. The stock options were granted pursuant to the Company's 1994
and 1995 Plans.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED IN
UNDERLYING UNEXERCISED THE MONEY OPTIONS AT
SHARES OPTIONS AT 12/31/00 12/31/00(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------

Xxx X. Xxxxxx............... 21,000 $157,500 6,600 14,400 $ 1,650 $1,100
Xxxxxx X. Xxxxxx............ 26,000 $182,813 7,200 8,800 $ 1,800 $1,200
Xxxx X. Xxxxxxxxx........... 21,000 $141,750 9,200 11,800 $40,150 $ 700
Xxxxxx X. Xxxxx............. 20,000 3,500 $ 5,000

---------------
(1) The value of options is based on the difference between the closing sales
price of $13.50 per share of Common Stock on December 31, 2000 and the
exercise price of the option.

DEFERRED COMPENSATION.

No deferred compensation has been awarded to the Named Executives.

EMPLOYMENT AGREEMENTS AND SEVERANCE

The Company has entered into employment agreements with Xxx X. Xxxxxx,
Xxxxxx X. Xxxxxx and Xxxxxx X. Xxxxx. Xx. Xxxxxx'x agreement, effective as of
June 1, 1999, provides that he shall serve, at the pleasure and direction of the
Company's Board of Directors, as the Chairman of the Board of the Company. Upon
the expiration of the initial three year term, the agreement shall be
automatically renewed for successive periods of one year each, unless, not later
than 30 days prior to the end of the initial term or any renewal term, either
party has given notice that it does not wish to extend the agreement. During the
term of employment, the agreement provides for an annual base salary of $80,000.
Xx. Xxxxxx is also eligible to participate in any other compensation, tax
benefit or other benefit plan of the Company, and is entitled to reimbursement
of all reasonable and customary expenses incurred in performing services
thereunder in accordance with the Company's policies and procedures. Xx.
Xxxxxx'x employment agreement also provides that in the event the Company
terminates or elects not to renew the agreement other than for cause (or if the
Company breaches the agreement), Xx. Xxxxxx will receive the greater of the
amount of salary he would have otherwise received for the partial term remaining
or six month's salary at the rate then in effect for such period, payable in a
lump sum within 30 days of termination. The agreement obligates the Company to
indemnify and hold harmless Xx. Xxxxxx to the fullest extent authorized or
permitted by Texas law, and to the fullest extent so permitted, to require the
Company to advance expenses on behalf of Xx. Xxxxxx as incurred.

On February 26, 1999, Xx. Xxxxxx entered into an employment agreement with
the Company. The term of the agreement is for two years, with a provision for
automatic renewal for continuing one year terms unless either the Company or Xx.
Xxxxxx gives prior notice of their intention not to continue with the agreement.
Pursuant to the agreement, Xx. Xxxxxx is to receive an annual base salary of
$175,000 to be paid by the Company. Xx. Xxxxxx is also eligible to participate
in any other compensation, tax benefit or other benefit plan of the Company. Xx.
Xxxxxx is, in addition, entitled to the use of a Company automobile or to
reimbursement for auto rental expenses related to his employment if no Company
automobile is available. If Xx. Xxxxxx is unable to perform his duties under the
agreement as a result of incapacity due to physical or mental illness, Xx.
Xxxxxx is entitled to receive and not in lieu of any disability benefits, the
full salary he would have otherwise received under the agreement for the partial
term remaining in the then current term of the agreement plus, as a lump sum, an
additional amount equal to the greater of (i) the amount of salary Xx. Xxxxxx
would have otherwise received for the partial term remaining in the then current
term, or (ii) six

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months' salary at the rate in effect for such period (the "Additional Amount").
If Xx. Xxxxxx'x employment is terminated by death, the Company shall pay to Xx.
Xxxxxx'x legal representative or beneficiary, the full salary he would have
received under the agreement for the partial term remaining in the current term
of the agreement plus the Additional Amount. If Xx. Xxxxxx'x employment is
terminated for cause, Xx. Xxxxxx shall receive all amounts due to him through
thirty days after notice of termination has been given. The agreement obligates
the Company to indemnify and hold harmless Xx. Xxxxxx to the fullest extent
authorized or permitted by Texas law, and to the fullest extent so permitted, to
require the Company to advance expenses on behalf of Xx. Xxxxxx as incurred. On
February 26, 2001, the Company chose not to renew Xx. Xxxxxx'x contract, and as
a result, Xx. Xxxxxx was paid $87,500 in March 2001 pursuant to the contract.
Xx. Xxxxxx continues to serve in his previous capacity on an at will basis.

On April 7, 2000, Xx. Xxxxx entered into an employment agreement with the
Company to serve as General Counsel of the Company. The term of the agreement is
for one year, with a provision for automatic renewal for one year terms unless
either the Company or Xx. Xxxxx gives prior notice, not later than 90 days prior
to the initial term or renewal term, of their intention not to continue with the
agreement. Pursuant to the agreement, Xx. Xxxxx is to receive an annual base
salary of $90,000 to be paid by the Company. The contract also provided that the
vesting of previously granted stock options in the amount of 20,000 granted on
June 25, 1997, would be accelerated so that the options would be fully vested at
the execution of the contract. Xx. Xxxxx is also eligible to participate in any
other compensation, tax benefit or other benefit plan of the Company and is
entitled to reimbursement of all reasonable and customary expenses incurred in
performing services thereunder in accordance with the Company's policies and
procedures. Xx. Xxxxx' employment agreement also provides that in the event the
Company terminates or elects not to renew the agreement other than for cause (if
the Company breaches the agreement) or if there is a change in control, Xx.
Xxxxx will receive the greater of, the amount of salary for which he would have
otherwise received for the partial term remaining, six month's salary at the
rate then in effect for such period, or any severance payable under the then
current policy of the Company, payable in a lump sum within 30 days of
termination. The agreement obligates the Company to indemnify and hold harmless
Xx. Xxxxx to the fullest extent authorized or permitted by Texas law, and to the
fullest extent so permitted, to require the Company to advance expenses on
behalf of Xx. Xxxxx as incurred. Xx. Xxxxx entered into a dual employment
agreement on April 17, 2000 with NBC Financial, Inc., a broker-dealer subsidiary
of the Company to serve as President of the subsidiary. The terms of the
agreement are identical to his other employment contract with the Company with
the exception of the salary which is $35,000 annually and paid by the
subsidiary.

PENSION AND PROFIT SHARING PLANS

During 1993, the Company adopted a defined contribution profit sharing plan
(the "401(k) Plan") for the benefit of substantially all employees. The 401(k)
Plan includes a 401(k) retirement plan feature. Employees are allowed to make
contributions to the 401(k) Plan. Each subsidiary bank's contribution to the
401(k) Plan is determined annually by that bank's Board of Directors. Profit
sharing expense for the years ended December 31, 2000 and 1999, totaled $227,660
and $189,391, respectively. The Named Executives who received contributions to
the 401(k) in 2000 and 1999 were: Xxxx X. Xxxxxxxxx, who received $1,600 in 2000
and $400 in 1999; Xxxxxx X. Xxxxxx, who received $6,800 in 2000 and $6,400 in
1999; and Xxxxxx X. Xxxxx, who received $5,202 in 2000 and $3,300 in 1999.

C-12
34

PERFORMANCE GRAPH

Below is a performance graph comparing the cumulative total shareholder
return on National Bancshares Corporation of Texas Common Stock with the
cumulative total return of companies on the Standard & Poor's 500 Stock Index
and American Stock Exchange Bank Index.

--------------------------------------------------------------------------------------
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
--------------------------------------------------------------------------------------

National Bancshares
Corp. 100.00 117.07 185.37 162.20 145.12 137.71
S&P 500 100.00 122.86 163.86 210.64 254.97 231.74
SNL AMEX Bank Index 100.00 129.29 220.68 229.52 211.28 199.87

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's executive officers
and directors and greater-than-10% shareholders to file reports of their
beneficial ownership of Common Stock, and to provide the Company with copies of
all reports they file. The rules of the SEC require the Company to disclose in
this Information Statement any late filings of these reports. Based on the
Company's review of copies of such reports received by the Company and written
representations of its directors and executive officers, the Company believes
that during the year ended December 31, 2000, all filing requirements pursuant
to Section 16(a) of the Exchange Act were satisfied except for an inadvertent
late filing of a Form 3 by Xxxxx Xxxxxx.

C-13
35

APPENDIX A

AUDIT COMMITTEE CHARTER
NATIONAL BANCSHARES CORPORATION OF TEXAS

PURPOSE

It is the policy of National Bancshares Corporation of Texas (the Company)
to establish and support a committee of the Board of Directors of the Company to
have oversight over all issues related to audit activities of the Company,
either internal or external. This committee will be known as the Audit Committee
(the Committee) and is charged with the primary responsibility to assist the
Board of Directors (the Board) in fulfilling its oversight responsibilities by
reviewing the financial information provided to shareholder and others, and the
system of internal controls.

MEMBERSHIP

The Committee shall be governed by Section 121 of the American Stock
Exchange Company Guide. The number of Committee members shall be three. The
Committee membership will comprise directors of the Company; a majority of whom
meet the definition of "independent directors" as defined in the aforementioned
section. At least one member of the Committee shall have past employment
experience in finance, accounting or other comparable experience that results in
the individual's financial sophistication.

THE COMPANY IS AWARE THAT THE AFOREMENTIONED SECTION OF THE AMERICAN STOCK
EXCHANGE COMPANY GUIDE HAS BEEN AMENDED PURSUANT TO APPROVAL BY THE SECURITIES
AND EXCHANGE COMMISSION REQUIRING ALL MEMBERS OF THE COMMITTEE TO MEET THE
DEFINITION OF "INDEPENDENT" EFFECTIVE JUNE 14, 2001. THE COMPANY INTENDS TO HAVE
AUDIT COMMITTEE MEMBERSHIP IN COMPLIANCE WITH THE AMENDMENT BY THAT DATE.

The Committee will meet at least four times each year or more frequently if
circumstances make that preferable. A Committee member should not vote on a
matter in which he or she in not independent. The Committee may ask members of
management or others to attend the meeting and is authorized to receive all
pertinent information from management.

RESPONSIBILITIES

The Committee represents the board of directors of the Company, and,
ultimately the shareholders of the Company who have the requisite authority to
select, evaluate and otherwise control the company's relationship with the
independent accountant.This relationship includes responsibility for ensuring
the outside auditors submission of a formal written statement delineating all
relationships between the outside auditor and the Company consistent with the
requirement of Independence Standards Board, Standard 1. This responsibility
includes actively engaging in a dialogue with the auditors regarding any
disclosed relationships or services that may affect the objectivity and
independence of the outside auditor, and taking appropriate action to oversee
the independence of the outside auditor.

The committee will oversee the internal audit function of the Company. This
oversight will include defining the responsibilities of the Internal Audit
Department and acting as the direct communication conduit between the internal
auditor and the Board. These responsibilities and those of the internal auditor
are detailed in the Internal Audit Charter that is established by the Board and
is part of the internal audit department's operating policy.

Responsibility for engaging independent accountants and appointing the internal
auditor

1. The Committee will select the independent accountant for the Company
audits. The Committees selection is subject to approval by the full
Board. The Committee will also review and set any fees paid to the
independent accountant and review and approve dismissal of the
independent accountant.

2. The Committee will review and have veto power over the appointment,
replacement, reassignment or dismissal of the internal auditor.

A-1
36
AUDIT COMMITTEE CHARTER
NATIONAL BANCSHARES CORPORATION OF TEXAS -- (CONTINUED)

3. The Committee will confirm and assure the independence of the internal
auditor and independent accountant, including a review of management
consulting services provided by the independent accountant and fees paid
for them.

4. The Committee will ensure that the internal auditor and the independent
accountant coordinate the internal and external audits. The purpose of
which is to assure completeness of coverage, reduce redundancy, and use
audit resources effectively.

Responsibilities for reviewing internal audits, the annual independent audit,
and the review of quarterly and annual financial statements

1. The Committee will ascertain that the independent accountant will be
available to the Board at least annually and that it will provide the
Committee with a timely analysis of significant financial reporting
issues.

2. The Committee will review the following with the independent accountant
and internal auditor:

a. The adequacy of the Company's internal controls, including
computerized information system controls and security.

b. Any significant finding and recommendations made by the independent
accountant or internal auditor, together with management responses to
them.

3. After the annual audit is completed, the Committee will review the
following with management and the independent accountant:

a. The company's annual financial statements, related footnotes, and
audit report by the independent accountant.

b. Any serious difficulties or disputes with management encountered
during the audit.

c. Anything about audit procedures or findings that GAAS requires the
auditors to disclose with the Committee.

4. The Committee will consider and review with management and the internal
auditor:

a. Any significant findings during the year management's response to
them.

b. Any difficulties the internal auditor encountered while conducting
audits including any restrictions on the scope of the audit or access
to information.

c. Any changes to the planned scope of the internal audit plan that the
Committee thinks advisable.

d. The internal audit department staffing.

e. The internal audit charter.

Periodic Responsibilities

1. Review and update the charter as necessary.

2. Review legal and regulatory matters that have a material effect on the
Company's financial statements, compliance policies and reports from
regulators.

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37
AUDIT COMMITTEE CHARTER
NATIONAL BANCSHARES CORPORATION OF TEXAS -- (CONTINUED)

REPORTING

The Committee is required to produce a report annually, which will be
included in the proxy statement. The report must state whether the Committee:

1. Reviewed and discussed the audited financial statements with management.

2. Discussed matters required by SAS 61 with the outside auditors.

3. Received the written disclosures from the independent accountants
required by ISB Standard No. 1.

4. Recommended to the board of directors the inclusion of the audited
financial statements in the Company's annual report form 10-K.

The Committee will also report to the Board at least annually, the status
of the internal audit plan of the Company, including any individual audit
findings that the Committee deems significant to require the full Board's
attention.

APPROVED:

------------------------------------------------------ Date:
Chairman of the Board of Directors
National Bancshares Corporation of Texas

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MARVIN E. MELSON PRESIDENT NATIONAL BANCSHARES CORPORATION OF TEXAS 12400 HIGHWAY 281 NORTH SAN ANTONIO, TEXAS 78216 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)

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