UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549
                       ______________________________
                                  FORM 10-K
   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                 ACT OF 1934
                For the Fiscal Year Ended:  December 31, 1998
                                      
                                     or
                                      
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                            EXCHANGE ACT OF 1934
              For the Transition Period from                to
                                      
                       Commission File Number: 0-10196

                        INDEPENDENT BANKSHARES, INC.
           (Exact Name of Registrant as Specified in its Charter)
                                      
            Texas                                       75-1717279
(State or Other Jurisdiction of                      (I.R.S. Employer
Incorporation or Organization)                     Identification No.)

     547 Chestnut Street
        Abilene, Texas                                    79602
(Address of Principal Executive Offices)                (Zip Code)

     Registrant's Telephone Number, Including Area Code:  (915) 677-5550
                                      
         Securities Registered Pursuant to Section 12(b) of the Act:
                                      
                                                    Name of each exchange
        Title of each class                          on which registered
_____________________________________________       ______________________
   Common Stock, $0.25 Par Value                   American Stock Exchange
8.5% Cumulative Trust Preferred Securities,        American Stock Exchange
  Guaranteed by Independent Bankshares, Inc.,
          Stated Value $10.00
                                      
      Securities Registered Pursuant to Section 12(g) of the Act: None
                       ______________________________
                                      
     Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.        Yes
[X]  No  [ ]

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

     The aggregate market value of the voting stock held by nonaffiliates
of the Registrant, based on the market value of such stock on March 18,
1999, was $18,130,000.  For purposes of this computation, all executive
officers, directors and 5% beneficial owners of the Registrant are deemed
to be affiliates.  Such determination should not be deemed an admission
that such executive officers, directors and beneficial owners are, in fact,
affiliates of the Registrant.  At March 18, 1999, 2,228,780 shares of the
Registrant's common stock, $0.25 par value per share, were outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated part or parts of this report:

(1)  Annual Report to Shareholders for the fiscal year ended December 31,
     1998, furnished to the Commission pursuant to Rule 14a-3(b) - Part II
     and Part IV.
(2)  Definitive proxy statement to be filed with the Commission pursuant to
     Regulation 14A in connection with the Annual Meeting of Shareholders
     to be held April 27, 1999 - Part III.
_____________________________________________________________________________

<PAGE>
PART I


     Other than historical and factual statements, the matters
and items discussed in this Annual Report on Form 10-K are
forward-looking statements that involve risks and uncertainties.
Actual results of Independent Bankshares, Inc. and its
subsidiaries may differ materially from the results discussed in
the forward-looking statements.  Certain factors that could
contribute to such differences are discussed with the forward-
looking statements throughout this report and are summarized in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Forward-Looking Statements - Cautionary
Language."

ITEM 1.BUSINESS

GENERAL

     Independent Bankshares, Inc., a Texas corporation (the
"Company"), is a bank holding company headquartered in Abilene,
Texas.  The Company owns all of the common securities of
Independent Capital Trust ("Independent Capital") and indirectly
owns through a Delaware subsidiary, Independent Financial Corp.
("Independent Financial"), 100% of the stock of First State Bank,
National Association, Abilene, Texas (the "First State") and Azle
State Bank, Azle, Texas ("Azle State") (collectively, the
"Banks"). At December 31, 1998, the Banks operated full-service
banking locations in the Texas cities of Abilene (3 locations),
Azle (2 locations), Lubbock, Odessa (4 locations), San Angelo,
Stamford and Winters.

     The Company's primary activities are to assist the Banks in
the management and coordination of their financial resources and
to provide capital, business development, long range planning and
public relations for the Banks.  The Banks operate under the
day-to-day management of their own officers and board of
directors and formulates their own policies with respect to
banking matters.

     At December 31, 1998, the Company had, on a consolidated
basis, total assets of $370,178,000, total deposits of
$330,804,000, total loans, net of unearned income, of
$184,560,000 and total stockholders' equity of $24,505,000.  The
Company's net income has grown from $224,000 in 1991 to
$2,188,000 in 1998. Additionally, since 1991, the Company's total
loans have grown at a 19.7% average annual rate, resulting from a
combination of internal growth and the Company's acquisition of
community banks.

     The Company's complete mailing address and telephone number
is 547 Chestnut Street, Abilene, Texas 79602, (915) 677-5550.

THE BANKS

     The Company conducts substantially all of its business
through the Banks and its various branches in Texas.  Each of the
Banks' branches is an established franchise with a significant
presence in its respective service area. The combined branches in
Abilene had the seventh largest total deposits of eleven
financial institutions that had branch(es) in Taylor County, at
June 30, 1998, the latest date for which information is
available.  The branches in Stamford and Winters were the largest
bank branches in Jones and Runnels Counties, respectively, in
terms of total deposits at June 30, 1998.  The combined branches
in Odessa had the seventh largest total deposits of nine banks
that had branch(es) in Ector County at  June 30, 1998. The branch
in San Angelo had the eighth largest total deposits of twelve
banks that had branch(es) in Tom Green County at June 30, 1998.
The branch in Lubbock had the twelfth largest total deposits of
sixteen banks that had branch(es) in Lubbock County at June 30,
1998. Azle State had the twenty-second largest total deposits of
forty-nine banks that had branch(es) in Tarrant County at June
30, 1998. The Banks operate through their branches as the
community banks that focus on long-term relationships with
customers and provide individualized, quality service.
Reflecting its community banking heritage, the Banks have a
stable deposit base from customers located within its Texas
market area.  Their recent financial performance is characterized
by consistent core earnings, an increasingly diversified loan
portfolio and strong asset quality.  The deposits of the Banks
are insured by the Federal Deposit Insurance Corporation (the
"FDIC") to the maximum extent provided by law.

     At December 31, 1998, First State had total assets of
$268,438,000, total deposits of $246,181,000, total loans, net of
unearned income, of $141,031,000, and total stockholder's equity
of $21,011,000 and Azle State had total assets of $100,584,000,
total deposits of $85,177,000, total loans, net of unearned
income, of $43,464,000, and total stockholder's equity of
$14,827,000. On March 12, 1999, Azle State was merged with and
into First State.

     The principal services provided by the Banks are as follows:

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

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

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

ACQUISITION AND BRANCH ACTIVITIES

     Azle Bancorp and Azle State Bank.  The Company completed the
acquisition of Azle Bancorp and its subsidiary bank, Azle State,
effective September 22, 1998, for an aggregate cash consideration
of $19,025,000. To obtain funding for the acquisition, the
Company sold an aggregate of 230,000 shares of Common Stock at a
price of $11.50 per share, and Independent Capital sold 1,300,000
of its 8.5% Cumulative Trust Preferred Securities (the "Trust
Preferred Securities") at $10.00 per preferred security (having a
liquidation value of $13,000,000) (together, the "1998
Offering").  The proceeds from the sale of the Trust Preferred
Securities were used by Independent Capital to purchase an
equivalent amount of Subordinated Debentures of the Company.  The
Company also borrowed $4,300,000 from a financial institution in
Fort Worth, Texas (the "Fort Worth Bank") to finance a portion of
the cost of acquiring Azle Bancorp.  The borrowings from the Fort
Worth Bank were paid off on September 30, 1998, from the proceeds
of a cash dividend paid to the Company by Azle State.  At the
date of acquisition, Azle Bancorp had total assets of
$93,158,000, total loans, net of unearned income, of $45,163,000,
total deposits of $80,955,000 and stockholders' equity of
$9,872,000.  This acquisition was accounted for using the
purchase method of accounting.  A total of $8,014,000 of
intangible assets was recorded as a result of this acquisition.
The core deposit intangible is being amortized over a period of
12 years, and the goodwill is being amortized over a period of 25
years.

     Crown Park and Western National.  On January 28, 1997, the
Company consummated the acquisition of Crown Park Bancshares,
Inc. ("Crown Park") and its wholly owned subsidiary bank, Western
National Bank, Lubbock, Texas ("Western National"), for an
aggregate cash purchase price of $7,510,000.  On the closing
date, Crown Park was merged with and into a wholly owned
subsidiary of the Company and Western National was merged with
and into the First State.  To obtain funding for the acquisition,
simultaneously with the closing, the Company consummated an
underwritten public offering of an aggregate of 395,312 shares of
its common stock at a price of $11.40 per share (the "1997
Offering").  This included 51,562 shares covered by the
underwriter's over-allotment option.  The Company borrowed
$800,000 from a financial institution in Amarillo, Texas (the
"Amarillo Bank") to finance the remaining cost of acquiring Crown
Park.  The $800,000 of borrowings was later reduced to $400,000
with the proceeds of the sale of the over-allotment shares and
the remaining principal amount of this borrowing was paid in full
by December 31, 1997.  See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."  This acquisition was accounted
for using the purchase method of accounting.  A total of
$2,486,000 of goodwill was recorded as a result of this
transaction. At the date of acquisition, Crown Park had, on a
consolidated basis, total assets of $60,420,000, total deposits
of $53,604,000, total loans, net of unearned income, of
$41,688,000, and stockholders' equity of $4,238,000.  The Company
has realized savings in the area of non-interest expenses through
consolidation of the operations of Western National into First
State.

     In addition to the immediate increase in asset size and the
potential for improved future profitability, the Azle Bancorp and
Crown Park acquisitions have allowed the Company to expand its
market area into what the Company believes are additional
desirable banking locations.  This expansion has increased the
geographic diversity of the Company's loan portfolio, and, thus,
decreased the Company's overall lending risks.

     Supermarket Branches. During the second quarter of 1997,
First State filed an application with the Office of the
Comptroller of the Currency (the "Comptroller") to establish four
additional branch banking facilities. These facilitates, two in
Abilene and two in Odessa, are to be located in large
supermarkets. First State received approval to open the branches
during the third quarter and in October 1997 opened two full-
service branch locations in large supermarkets, one in Abilene
and one in Odessa.  One additional branch in another large
supermarket in Odessa opened during the second quarter of 1998.
The fourth supermarket branch, to be located in Abilene, should
be operational in

                               -2-

<PAGE>

2000. Management of the Company believes that establishing bank
branches in supermarkets is one of the most economical ways to
increase market share of the Banks in their West and North
Central Texas market areas.

OTHER SUBSIDIARIES

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

BUSINESS OBJECTIVES AND STRATEGY

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

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

     Decentralized Decision Making.  The Company's decentralized
decision making authority, vested in the president and senior
officers of the Abilene, Azle, Lubbock and Odessa branches,
allows for rapid response time and flexibility in dealing with
customer requests and credit needs and has contributed to a 25.5%
increase in the Company's commercial and real estate loan
portfolio, excluding the acquisition of Azle State, during the
twelve-month period ended December 31, 1998.

     Credit Quality Standards.  The Company's attention to credit
quality standards has allowed it to expand its commercial loan
portfolio while maintaining superior asset quality.
Nonperforming assets were 0.3% of total assets at December 31,
1998.

     Efficient and Convenient Delivery Systems.  The Company's
efforts to maintain and expand efficient and convenient delivery
systems for its products and services have included the recent
expansion of its branch network by locating banking centers in a
leading supermarket chain in Abilene (one location) and Odessa
(two locations) and the introduction of computer and telephone
home banking.  The Company also maintains 15 ATMs throughout its
market area.

     Acquisition Activity.  The Company's strategy of
opportunistically acquiring banks in its West Texas market has
resulted in its acquisition of three banks and one branch in the
last five years. Following the acquisition of Azle Bancorp and
its subsidiary Azle State in September 1998, the Company has
locations in or near five of the major markets in West and North
Central Texas.

SUPERVISION AND REGULATION

     References in this report to applicable statutes,
regulations and policies are brief summaries thereof, do not
purport to be complete, and are qualified in their entirety by
reference to such statutes, regulations and policies.

General

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

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

                               -3-

<PAGE>

     First State, a national banking association organized under
the National Bank Act, is subject to the supervision and
regulation of the Office of the Comptroller of the Currency (the
"OCC"). Prior to its merger with and into First State on March
12, 1999, Azle State was a Texas state-chartered bank subject to
regulation by the Texas Department of Banking (the "TDB").
Because the FDIC provides deposit insurance to the Banks, the
Banks are also subject to supervision and regulation by the FDIC
(even though the FDIC is not the primary federal regulator of the
Banks).

RECENT AND PENDING LEGISLATION

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

     Financial Institutions Reform, Recovery and Enforcement Act
of 1989

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

     Under FIRREA, federal bank regulators were granted expanded
enforcement authority over "institution-affiliated parties"
(i.e., officers, directors, controlling shareholders, as well as
attorneys, appraisers or accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect
on an insured institution). Federal banking regulators have
greater flexibility to bring enforcement actions against insured
institutions and institution-affiliated parties, including cease
and desist orders, prohibition orders, civil money penalties,
termination of insurance and the imposition of operating
restrictions and capital plan requirements. These enforcement
actions, in general, may be initiated for violations of laws and
regulations and unsafe or unsound practices. Since the enactment
of FIRREA, the federal bank regulators have significantly
increased the use of written agreements to correct compliance
deficiencies with respect to applicable laws and regulations and
to ensure safe and sound practices. Violations of such written
agreements are grounds for initiation of cease-and-desist
proceedings. FIRREA granted the FDIC back-up enforcement
authority to recommend enforcement action to an appropriate
federal banking agency and to bring such enforcement action
against a financial institution or an institution-affiliated
party if such federal banking agency fails to follow the FDIC's
recommendation. FIRREA also requires, except under certain
circumstances, public disclosure of final enforcement actions by
the federal banking agencies.

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

     The Federal Deposit Insurance Corporation Improvement Act of
1991

     The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") was adopted to recapitalize the BIF and impose
certain supervisory and regulatory reforms on insured depository
institutions. FDICIA, in general, includes provisions, among
others, to (i) increase the FDIC's line of credit with the U.S.
Treasury in order to provide the FDIC with additional funds to
cover the losses of federally insured banks, (ii) reform the
deposit insurance system, including the implementation of risk-
based deposit insurance premiums, (iii) establish a format for
closer monitoring of financial institutions to enable prompt
corrective action by banking regulators when a financial
institution begins to experience financial difficulty, (iv)
establish five capital levels for financial institutions ("well
capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically
undercapitalized") that impose more scrutiny and restrictions on
less capitalized institutions, (v) require the banking regulators
to set operational and managerial standards for all insured
depository institutions and their holding companies, including
limits on excessive compensation to executive officers,
directors, employees and principal shareholders, and establish
standards for loans secured by real estate, (vi) adopt certain
accounting reforms and require annual on-site examinations of
federally insured institutions, including the ability to require
independent audits of banks and thrifts, (vii) revise risk-based

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capital standards to ensure that they (a) take adequate account
of interest-rate changes, concentration of credit risk and the
risks of nontraditional activities, and (b) reflect the actual
performance and expected risk of loss of multi-family mortgages,
and (viii) restrict state-chartered banks from engaging in
activities not permitted for national banks unless they are
adequately capitalized and have FDIC approval. FDICIA also
authorized the FDIC to make special assessments on insured
depository institutions, in amounts determined by the FDIC to be
necessary to give it sufficient assessment income to repay
amounts borrowed from the U.S. Treasury and other sources or for
any other purpose the FDIC deems necessary. FDICIA also grants
authority to the FDIC to establish semiannual assessment rates on
BIF and SAIF member banks so as to maintain these funds at the
designated reserve ratios.

     FDICIA, as noted above, authorizes and (under certain
circumstances) requires the federal banking agencies to take
certain actions against institutions that fail to meet certain
capital-based requirements. The federal banking agencies are
required, under FDICIA, to establish five levels of insured
depository institutions based on leverage limit and risk-based
capital requirements established for institutions subject to
their jurisdiction plus, in their discretion, individual
additional capital requirements for such institutions. Under the
final rules that have been adopted by each of the federal banking
agencies, an institution is designated (i) "well-capitalized" if
the institution has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater, and
a leverage ratio of 5% or greater, and the institution is not
subject to an order, written agreement, capital directive, or
prompt corrective action directive to meet and maintain a
specific capital level for any capital measure, (ii) "adequately
capitalized" if the institution has a total risk-based capital
ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4%
or greater, and a leverage ratio of 4% or greater, (iii)
"undercapitalized" if the institution has a total risk-based
capital ratio that is less than 8%, a Tier 1 risk-based capital
ratio that is less than 4%, or a leverage ratio that is less than
4%, (iv) "significantly undercapitalized" if the institution has
a total risk-based capital ratio that is less than 6%, a Tier 1
risk-based capital ratio that is less than 3%, or a leverage
ratio that is less than 3%, and (v) "critically undercapitalized"
if the institution has a ratio of tangible equity to total assets
that is equal to or less than 2%.

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

     Significantly or critically undercapitalized institutions
and undercapitalized institutions that do not submit or comply
with acceptable capital restoration plans are subject to
restrictions on the compensation of senior executive officers and
to additional regulatory sanctions that may include a forced
offering of shares or merger, restrictions on affiliate
transactions, restrictions on rates paid on deposits, asset
growth and new activities, the dismissal of directors or senior
executive officers and mandatory divestitures by the institution
or its parent company. The banking agency must require the
offering of shares or merger and restrict affiliate transactions
and the rates paid on deposits unless it is determined that they
would not further capital improvement. FDICIA generally requires
the appointment of a conservator or receiver within 90 days after
an institution becomes critically undercapitalized. The federal
banking agencies have adopted uniform procedures for the issuance
of directives by the appropriate federal banking agency. Under
these procedures, an institution will generally be provided
advance notice when the appropriate federal banking agency
proposes to impose one or more of the sanctions set forth above.
These procedures provide an opportunity for the institution to
respond to the proposed agency action or, where circumstances
warrant immediate agency action, an opportunity for
administrative review of the agency's action.

     As described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Capital Resources,"
both the Company and the Banks were "well capitalized" at
December 31, 1998.

     Pursuant to FDICIA, the Federal Reserve and the other
federal banking agencies adopted real estate lending guidelines
pursuant to which each insured depository institution is required
to adopt and maintain written real estate lending policies in
conformity with the prescribed guidelines. Under these
guidelines, each institution is expected to set loan-to-value
ratios not exceeding the supervisory limits set forth in the
guidelines. A loan-to-value ratio is generally defined as the
total loan amount divided by the appraised value of the property
at the time the loan is originated. The guidelines require that
the institution's real estate policy include proper loan
documentation and prudent underwriting standards. These
guidelines became effective on March 19, 1993. These rules have
had no material adverse impact on the Company and the Banks.

     FDICIA also contained the Truth in Savings Act, which
requires clear and uniform disclosure of the rates of interest
payable on deposit accounts by depository institutions, and the
fees assessable against deposit accounts, so that

                               -5-

<PAGE>

consumers can make a meaningful comparison between the competing
claims of financial institutions with regard to deposit accounts
and products.

     Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994

     Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act") in
September 1994. Since September 1995, bank holding companies have
the right to expand, by acquiring existing banks, into all
states, even those which had theretofore restricted entry. The
legislation also provided that, subject to future action by
individual states, a holding company has the right, commencing in
1997, to convert the banks which it owns in different states to
branches of a single bank. A state was permitted to "opt out" of
provisions of the Interstate Act which permitted conversion of
separate banks to branches, but was not permitted to "opt out" of
the law allowing bank holding companies from other states to
enter the state. Texas has adopted legislation to "opt out" of
the interstate branching provisions (which Texas law currently
expires on September 2, 1999). The federal legislation also
establishes limits on acquisitions by large banking
organizations, providing that no acquisition may be undertaken if
it would result in the organization having deposits exceeding
either 10% of all bank deposits in the United States or 30% of
the bank deposits in the state in which the acquisition would
occur.

     Economic Growth and Regulatory Paperwork Reduction Act of
1996

     The Economic Growth and Regulatory Paperwork Reduction Act
of 1996 ("EGRPRA") was signed into law on September 30, 1996.
EGRPRA streamlined the non-banking activities application process
for well-capitalized and well-managed bank holding companies.
Under EGRPRA, qualified bank holding companies may commence a
regulatorily approved non-banking activity without prior notice
to the Federal Reserve; written notice is required within 10 days
after commencing the activity. Under EGRPRA, the prior notice
period is reduced to 12 days in the event of any non-banking
acquisition or share purchase, assuming the size of the
acquisition does not exceed 10% of risk-weighted assets of the
acquiring bank holding company and the consideration does not
exceed 15% of Tier 1 capital. The foregoing prior notice
requirement also applies to commencing non-banking activity de
novo which has been previously approved by order of the Federal
Reserve, but not yet implemented by regulations.

PENDING LEGISLATION

     Because of concerns relating to competitiveness and the
safety and soundness of the banking industry, Congress is
considering a number of wide-ranging proposals for altering the
structure, regulation and competitive relationships of the
nation's financial institutions. Among such bills are new
proposals to merge the BIF and the SAIF insurance funds, to
eliminate the federal thrift charter, to alter the statutory
separation of commercial and investment banking and to further
expand the powers of banks, bank holding companies and
competitors of banks. It cannot be predicted whether or in what
form any of these proposals will be adopted or the extent to
which the business of the Company may be affected thereby.

BANK AND BANK HOLDING COMPANY REGULATION

     Under the BHCA, the activities of a bank holding company are
limited to businesses so closely related to banking, managing or
controlling banks as to be a proper incident thereto. The Company
is also subject to capital requirements applied on a consolidated
basis in a form substantially similar to those required of the
Banks. The BHCA also requires a bank holding company to obtain
approval from the Federal Reserve before (i) acquiring, directly
or indirectly, ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition,
it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares), (ii)
acquiring all or substantially all of the assets of another bank
or bank holding company, or (iii) merging or consolidating with
another bank holding company. The Federal Reserve will not
approve any acquisition, merger or consolidation that would have
a substantially anticompetitive result, unless the
anticompetitive effects of the proposed transaction are clearly
outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The Federal
Reserve also considers capital adequacy and other financial and
managerial factors in reviewing acquisitions or mergers.

     The BHCA also prohibits a bank holding company, with certain
limited exceptions, (i) from acquiring or retaining direct or
indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank or bank holding
company, or (ii) from engaging directly or indirectly in
activities other than those of banking, managing or controlling
banks, or providing services for its subsidiaries. The principal
exceptions to these prohibitions involve certain non-bank
activities which, by statute or by Federal Reserve regulation or
order, have been identified as activities closely related to the
business of banking or of managing or controlling banks. The
Federal Reserve, in making such determination, considers whether
the performance of such activities by a bank holding company can
be

                               -6-

<PAGE>

expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency in
resources, which can be expected to outweigh the risks of
possible adverse effects such as decreased or unfair competition,
conflicts of interest or unsound banking practices. FIRREA
(described in more detail herein) made a significant addition to
the list of permitted non-bank activities for bank holding
companies by providing that bank holding companies may acquire
thrift institutions upon approval by the Federal Reserve.

INSURANCE OF ACCOUNTS

     The FDIC provides insurance, through the BIF, to deposit
accounts at the Banks to a maximum of $100,000 for each insured
depositor.

     Through December 31, 1992, all FDIC-insured institutions,
whether members of the BIF or the SAIF, paid the same premium (23
cents per $100 of assessable deposits) under a flat-rate system
mandated by law. FDICIA required the FDIC to raise the reserves
of the BIF and the SAIF, implement a risk-related premium system
and adopt a long-term schedule for recapitalizing the BIF.
Effective January 1, 1993, the FDIC amended its regulations
regarding insurance premiums to provide that a bank or thrift
would pay an insurance assessment within a range of 23 cents to
31 cents for each $100 of assessable deposits, depending on its
risk classification.

     Effective January 1, 1996, the FDIC implemented an amendment
to the BIF risk-based assessment schedule which effectively
eliminated deposit insurance assessments for most commercial
banks and other depository institutions with deposits insured by
the BIF only, while maintaining the assessment rate for SAIF-
insured institutions in even the lowest risk-based premium
category at 23 cents for each $100 of assessable deposits.
Following enactment of EGRPRA, the overall assessment rate
beginning in 1997 for institutions in the lowest risk-based
premium category was revised to equal 1.29 cents and 6.44 cents
for each $100 of assessable deposits of BIF and SAIF,
respectively, in comparison to the prior assessment rate for such
institutions, applicable only to SAIF deposits, of 23 cents for
each $100 of assessable deposits. At this time, the deposit
insurance assessment rate for institutions in the lowest risk-
based premium category is zero, and all of the assessments paid
by institutions in this category are used to service debt issued
by the Financing Corporation, a federal agency established to
finance the recapitalization of the former Federal Savings and
Loan Insurance Corporation.

REGULATIONS GOVERNING CAPITAL ADEQUACY

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

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

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

     On October 21, 1996, the Federal Reserve issued a press
release announcing that it had approved the use of certain
cumulative preferred stock instruments in Tier 1 capital for bank
holding companies.

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

                               -7-

<PAGE>

     Management of the Company believes that the risk-weighting
of assets and the risk-based capital guidelines do not have a
material adverse impact on the Company's operations or on the
operations of the Banks. The requirement of deducting certain
intangibles in computing capital ratios contained in the
guidelines, however, could adversely affect the ability of the
Company to make acquisitions in the future in transactions that
would be accounted for using the purchase method of accounting.
Although these requirements would not reduce the ability of the
Company to make acquisitions using the pooling of interests
method of accounting, the Company has not historically made, and
has no present plans to make, acquisitions on this basis.

COMMUNITY REINVESTMENT ACT

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

REGULATIONS GOVERNING EXTENSIONS OF CREDIT

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

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

RESERVE REQUIREMENTS

     The Federal Reserve requires all depository institutions to
maintain reserves against their transaction accounts and non-
personal time deposits. Reserves of 3% must be maintained against
net transaction accounts of $47.8 million or less (subject to
adjustment by the Federal Reserve) and an initial reserve of
$1,434,000 plus 10% (subject to adjustment by the Federal Reserve
to a level between 8% and 14%) must be maintained against that
portion of net transaction accounts in excess of such amount. The
balances maintained to meet the reserve requirements imposed by
the Federal Reserve may be used to satisfy liquidity
requirements.

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

DIVIDENDS

     The Company's primary sources of funds are the dividends and
management fees paid by the Banks. The ability of the Banks to
pay dividends and management fees is limited by various state and
federal laws, by the regulations promulgated by their respective
primary regulators and by the principles of prudent bank
management.

MONETARY POLICY AND ECONOMIC CONTROL

     The commercial banking business in which the Company engages
is affected not only by general economic conditions, but also by
the monetary policies of the Federal Reserve. Changes in the
discount rate on member bank borrowing, availability of borrowing
at the "discount window," open market operations, the imposition
of changes in reserve requirements against member banks deposits
and assets of foreign branches, and the imposition of and changes

                               -8-

<PAGE>

in reserve requirements against certain borrowings by banks and
their affiliates are some of the instruments of monetary policy
available to the Federal Reserve. These monetary policies are
used in varying combinations to influence overall growth and
distributions of bank loans, investments and deposits, and such
use may affect interest rates charged on loans or paid on
deposits. The monetary policies of the Federal Reserve have had a
significant effect on the operating results of commercial banks
and are expected to do so in the future. The monetary policies of
the Federal Reserve are influenced by various factors, including
inflation, unemployment, short-term and long-term changes in the
international trade balance and in the fiscal policies of the
U.S. Government. Future monetary policies and the effect of such
policies on the future business and earnings of the Company and
the Banks cannot be predicted.

COMPETITION

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

EMPLOYEES

     At March 18, 1999, the Company and the Banks had 177
full-time equivalent employees.  Employees are provided with
employee benefits, such as an employee stock ownership/401(k)
plan and life, health and long-term disability insurance plans.
The Company considers the relationship of the Banks with their
respective employees to be good.

                              -9-

<PAGE>

ITEM 2.        PROPERTIES

     At March 18, 1999, the Company occupied approximately 600
square feet of space for its corporate offices at 547 Chestnut
Street, Abilene, Texas.  The Main Bank of First State occupies
approximately 8,000 square feet at this same facility. The
following table sets forth, at March 18, 1999, certain
information with respect to the banking premises owned or leased
by the Company and First State.  The Company considers such
premises adequate for its needs and the needs of First State.
<TABLE>
<CAPTION>
                         Approximate
       Location        Square Footage                Ownership and Occupancy
     --------------     ------------------        -------------------------------------------
     <S>                  <C>                     <C>
     Abilene, Texas       8,600                   Owned by First State; occupied by the Main
                                                  Bank and the Company

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

    Abilene, Texas          400                   Leased by First State; occupied by the Buffalo
                                                  Gap Road Branch

   Azle, Texas           20,400(1)                Owned by First State and two other condominium
                                                  owners; occupied and leased by
                                                  the Azle Main Branch

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

    Lubbock, Texas       23,200(2)                Owned by First State; occupied and leased by
                                                  the Lubbock Branch

   Odessa, Texas         62,400(3)                Owned by First State; occupied and leased by
                                                  the Odessa Main Branch

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

   Odessa, Texas            400                   Leased by First State; occupied by the 42nd
                                                  Street Branch

   Odessa, Texas            400                   Leased by First State; occupied by the County
                                                  Road West Branch

   San Angelo, Texas      6,800(4)                Owned by First State; occupied and leased by
                                                  the San Angelo Branch

   Stamford, Texas       14,000                   Owned by First State; occupied by the Stamford
                                                  Branch

   Winters, Texas         9,500                   Owned by First State; occupied by the Winters
                                                  Branch

_________________
(1)  First State owns condominium interests totaling approximately 17,100 square
     feet, of which it leases approximately 300 square feet.  Two other condominium
     owners own units totaling approximately 3,300 square feet.
(2)  The Lubbock Branch occupies approximately 13,300 square feet and leases
     approximately 9,900 square feet.
(3)  The Odessa Main Branch occupies approximately 18,500 square feet, leases
     approximately 23,900 square feet and is attempting to lease the remaining
     approximately 20,000 square feet.
(4)  The San Angelo Branch occupies approximately 3,400 square feet and leases
     approximately 3,400 square feet.

</TABLE>

     The Banks own or lease certain additional tracts of land for
parking, drive-in facilities and for future expansion or
construction of new premises.  Aggregate annual rentals of the
Company and the Banks for all leased premises during the year
ended December 31, 1998, were $116,000.  This amount represents
rentals paid for the lease of land by the Wylie Branch and of
banking premises by the Buffalo Gap Road, Winwood, 42nd Street
and County Road West Branches of First State.

ITEM 3.        LEGAL PROCEEDINGS

     In November 1995, the Pension Benefit Guaranty Corporation
(the "PBGC") sent a letter to the Company regarding the
Retirement Plan for Employees of the Texas Bank and Trust Co.,
Sweetwater, Texas (the "Texas Bank 

                              -10-
<PAGE>

Plan"). In the letter, the PBGC alleged that the Company was responsible
for the Texas Bank Plan and asked that the Company assume
sponsorship of the Texas Bank Plan.  The Company declined the
PBGC's request to assume responsibility for, and sponsorship of,
the Texas Bank Plan. If the Company had assumed responsibility
for the Texas Bank Plan, the Company would have owed as of June
30, 1995, according to PBGC calculations, approximately $656,000
to the PBGC. In response, the PBGC, in June 1996, terminated the
Texas Bank Plan and became the Texas Bank Plan's trustee,
effective as of June 30, 1992.

     Texas Bank and Trust Co., Sweetwater, Texas ("Texas Bank"),
became a repossessed asset of the First State, a former
subsidiary of the Company, through a bank foreclosure that
occurred in 1985.  The First State was placed into receivership
by the Federal Deposit Insurance Corporation (the "FDIC") on
February 17, 1989.  Texas Bank was placed into receivership by
the FDIC on July 27, 1989.

     The Company did not intend to assume any responsibility for
the Texas Bank Plan and had decided to vigorously contest any
attempt by the PBGC to have the Company assume responsibility
with respect to any aspect of the Texas Bank Plan. The statute of
limitations for any action to be taken by the PBGC against the
Company regarding this matter was set to expire on June 30, 1998.
The PBGC indicated to the Company that as of June 30, 1998, the
Company's potential responsibility to the Texas Bank Plan,
according to PBGC calculations, was in excess of $1,000,000.  The
Company and the PBGC entered into settlement negotiations, and on
June 30, 1998, the Company and the PBGC executed a tolling
agreement to extend the expiration of the statute of limitations
regarding this matter to July 20, 1998. A settlement agreement
was negotiated and consummated on July 20, 1998, and the Company
paid a total of $125,000 ($83,000, net of tax) to the PBGC to
avoid costs of litigation regarding this matter.

     The Company is involved in certain legal proceedings arising
in the ordinary course of business. Based upon information
currently available to the Company, management believes that the
ultimate liability resulting from such litigation will not have a
material adverse effect on the Company's results of operation or
financial condition.

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

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


                              -11-

<PAGE>

                             PART II

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

MARKET INFORMATION

     The Company's Common Stock trades on the American Stock
Exchange (the "AMEX") under the symbol "IBK." Independent
Capital's Trust Preferred Securities trade on the AMEX under the
symbol "IBK.Pr." The following table sets forth, for the periods
indicated, the high and low sales prices for the Common Stock and
Trust Preferred Securities as quoted on the AMEX and the amount
of cash dividends and distributions paid per share, adjusted for
the 5-for-4 stock split of the Common Stock, effected in the form
of a 25% stock dividend, paid to stockholders in May 1997.
<TABLE>
<CAPTION>

                                        Common Stock              Trust Preferred Securities
                               ------------------------------  ---------------------------
                                                      Cash                               
                                                   Dividends                       Distributions
                                High       Low     Per Share     High      Low     Per Security
                               -------   -------  -----------    ----      ----    -------------
<S>                           <C>         <C>      <C>           <C>       <C>       <C>
Year Ended December 31, 1997                                                       
-----------------------------
First Quarter                 $13 5/8    $11 1/2     $0.04        $ ___     $ ___     $    ___
Second Quarter                 13 1/4     11 13/16    0.05          ___       ___          ___
Third Quarter                  18 1/4     13 1/8      0.05          ___       ___          ___
Fourth Quarter                 19 3/4     16 1/8      0.05          ___       ___          ___
                                                                                   
Year Ended December 31, 1998                                                       
----------------------------
First Quarter                 $19 5/8    $15 3/4     $0.05        $ ___     $ ___     $    ___
Second Quarter                 19         14 3/8      0.05          ___       ___          ___
Third Quarter                  15 9/16    11          0.05         10 1/16    10 1/16      ___
Fourth Quarter                 11 7/8     10 1/4      0.05         10 3/4      9 1/2       0.23
                                                                                   
Year Ending December 31, 1999
-----------------------------
First Quarter
 (through March 18)           $12 1/8    $10 1/2     $0.05(1)     $10 7/8   $  9 1/2    $  0.21(2)
_____________
(1)  This cash dividend was paid February 26, 1999, to stockholders of record on
     February 12, 1999.
(2)  This distribution is scheduled to be paid on March 31, 1999, to security
     holders of record on such date.
</TABLE>


SHAREHOLDERS

     At March 18, 1999, there were 1,777 stockholders who were individual
participants in security position listings.

DIVIDEND POLICY

     The holders of the Common Stock will be entitled to receive any cash
dividends as may be declared by the Company's Board of Directors.  The
declaration and payment of future dividends to holders of the Common Stock will
be at the discretion of the Company's Board of Directors and will depend upon a
number of factors, including the extent of funds legally available therefor,
dividend requirements of the Company's Series C Cumulative Convertible Preferred
Stock ("Series C Preferred Stock"), the Company's earnings and financial
condition, capital requirements of its subsidiaries, regulatory requirements and
considerations and such other factors as the Company's Board of Directors may
deem relevant.

     As a holding company, the Company is ultimately dependent upon its
subsidiaries to provide funding for its operating expenses, debt service and
dividends.  Various banking laws applicable to the Company's subsidiaries limit
the payment of dividends, management fees and other distributions by such
subsidiaries to the Company and may therefore limit the ability of the Company
to make dividend payments.

     Holders of the Series C Preferred Stock are entitled to receive, if, as and
when declared by the Company's Board of Directors, out of funds legally
available therefor, in preference to the holders of Common Stock and any other
stock ranking junior to the Series C Preferred Stock in respect of dividends,
quarterly cumulative cash dividends at the annual rate of $4.20 per share (i.e.,
an annual rate of 10%). The aggregate annual dividend payment on the 5,066
shares of the Series C Preferred Stock outstanding at December 31, 1998, was
approximately $21,000. If earnings and cash flow from ordinary operations of the
Company are not sufficient to enable it to pay the full amount of the dividend
on

                                      -12-
                                        
<PAGE>

the Series C Preferred Stock, the Company may cumulate all or a portion of the
annual dividend. The Company currently has the right to cause, on any
anniversary of December 12, 1997, the mandatory conversion of the Series C
Preferred Stock into cash and/or Common Stock. The Series C Preferred Stock is
the Company's only outstanding preferred stock.

     The Company may not, among other things, declare or pay any cash dividend
in respect of the Common Stock or any stock junior to the Series C Preferred
Stock with respect to dividends or liquidation rights unless, on the date of
payment, all accumulated dividends in respect of the Series C Preferred Stock
are paid or set aside. Furthermore, the Company may not declare or pay any
dividends in respect of the Common Stock or purchase, redeem or otherwise
acquire shares of Common Stock if, on the record date for such payment, or on
the date of such purchase, redemption or acquisition, such action would cause
shareholders' equity (including mandatorily redeemable preferred stock) of the
Company, as reported in the most recent quarterly or annual financial statements
filed by the Company with the Commission, to be less than an amount equal to the
sum of (i) 140% of the number of then outstanding shares of Series C Preferred
Stock multiplied by its liquidation value ($298,000 at December 31, 1998) and
(ii) 140% of the number of then outstanding shares of any stock ranking senior
as to dividends to the Series C Preferred Stock multiplied by the liquidation
value of such senior stock (none at December 31, 1998).  Dividend payments on
any other stock junior to the Series C Preferred Stock with respect to dividends
or liquidation rights would be similarly limited. See "Item 1.
Business-Regulation and Supervision."

ITEM 6.   SELECTED FINANCIAL DATA

     The information required by this item is incorporated herein by reference
from page 28 of the Company's 1998 Annual Report to Shareholders under the
caption "Selected Consolidated Financial Information."

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

     The information required by this item is incorporated herein by reference
from pages 30 through 55, inclusive, of the Company's 1998 Annual Report to
Shareholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

     The information required by this item is incorporated herein by reference
from page 37 through 39, inclusive, of the Company's 1998 Annual Report to
Shareholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     All information required by this item is incorporated herein by reference
from pages 7 through 27, inclusive, of the Company's 1998 Annual Report to
Shareholders under the captions "Report of PricewaterhouseCoopers LLP,
Independent Accountants," "Consolidated Balance Sheets," "Consolidated
Statements of Income and Comprehensive Income," "Consolidated Statements of
Changes in Stockholders' Equity," "Consolidated Statements of Cash Flows,"
"Notes to Consolidated Financial Statements" and "Quarterly Data (Unaudited)."

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

     None.

                                      -13-

<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item is incorporated herein by reference
from pages 4 through 6 and page 11, inclusive, of the Company's definitive proxy
statement to be filed pursuant to Regulation 14A with the Securities and
Exchange Commission relating to its Annual Meeting of Shareholders to be held
April 27, 1999 (the "Definitive Proxy Statement"), under the respective captions
"Item 1.  Election of Directors" and "Executive Officers."

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this item is incorporated herein by reference
from pages 12 and 13 of the Company's Definitive Proxy Statement under the
caption "Executive Compensation."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated herein by reference
from pages 2 and 3, inclusive, of the Company's Definitive Proxy Statement under
the caption "Voting Securities and Principal Shareholders."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated herein by reference
from pages 12 and 13 of the Company's Definitive Proxy Statement under the
caption "Executive Compensation - Transactions with Management."

                                      -14-

<PAGE>

                                     PART IV

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

          (a)  Documents Filed as Part of Report.

          1.   Financial Statements

                    The following Consolidated Financial Statements of the
          Company included in PART II of this report are incorporated by
          reference from the Company's Annual Report to Shareholders for the
          year ended December 31, 1998, furnished to the Securities and Exchange
          Commission pursuant to Rule 14a-3(b):

                                                      Page
                                                   Reference to
                           Item                   Annual Report
          ----------------------------------    ------------------
          Report of PricewaterhouseCoopers LLP,
          Independent Accountants                       7

          Consolidated Balance Sheets as of
          December 31, 1998 and 1997                    8

          Consolidated Statements of Income
          and Comprehensive Income for the 
          three years in the period ended
          December 31, 1998                             9

          Consolidated Statements of Changes
          in Stockholders' Equity for the 
          three years in the period ended
          December 31, 1998                            10

          Consolidated Statements of Cash
          Flows for the three years in the
          period ended December 31, 1998               11

          Notes to Consolidated Financial
          Statement                                  12-26

          2.   Financial Statement Schedules

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

                  3.                              Exhibits

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

          No.     Description
          --      -----------
          3.1     Restated Articles of Incorporation of Independent
                  Bankshares, Inc. (Exhibit 3.1 to the Company's Annual Report
                  on Form 10-K for the year ended December 31, 1994).

          3.2    Restated Bylaws of Independent Bankshares, Inc. (Exhibit
                  3.2 to the Company's Annual Report on Form 10-K for the year
                  ended December 31, 1994).

          3.3    Amendment to Restated Bylaws of Independent Bankshares,
                 Inc. dated March 17, 1999 (filed herewith).

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

          4.2    1999 Stock Option Plan of Independent Bankshares, Inc.
                 (filed herewith).

         10.1    Form of Incentive Stock Option Agreement (filed
                 herewith).

                                      -15-


<PAGE>

         10.2    Form of Nonqualified Stock Option Agreement (filed herewith).

         10.3    Master Equipment Lease Agreement, dated December 24,
                 1992, between Independent Bankshares, Inc. and NCR Credit
                 Corporation, Amendment to Master Equipment Lease Agreement
                 dated concurrently therewith, and related form of Schedule and
                 Commencement Certificate (Exhibit 10.7 to the Company's Annual
                 Report on Form 10-K for the year ended December 31, 1993).

         10.4    Loan Agreement, dated September 21, 1998, by and between
                 Bank One, Texas, National Association and the Company and
                 Independent Financial Corp. and First State Bank, National
                 Association and related Promissory Note of the Company, Pledge
                 Agreement of the Company and Pledge Agreement of Independent
                 Financial Corp.  (Exhibit 10.1 to the Company's Current Report
                 on Form 8-K dated September 22, 1998).

         10.5    Agreement and Plan of Reorganization dated May 29, 1998,
                 by and between the Company and Azle Bancorp (previously filed
                 as Exhibit 1.1 to the Company's Current Report on Form 8-K
                 dated June 19, 1998).

         13.1    Annual Report to Shareholders for the year ended December
                 31, 1998 (filed herewith).

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

         23.1   Consent of PricewaterhouseCoopers LLP (filed herewith).

         27.1   Financial Data Schedule (filed herewith).

          (b)  Current Reports on Form 8-K.

                  Current Report on Form 8-K dated September 22, 1998,
                  reporting the consummation of the acquisition of Azle Bancorp
                  and Azle State by the Company.


                                      -16-
                                        

<PAGE>

                                   SIGNATURES

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

                                        INDEPENDENT BANKSHARES, INC.


                                       By:       /s/ Bryan W. Stephenson
                                          ---------------------------------
                                           Bryan W. Stephenson,
                                           President and Chief Executive 
                                           Officer

Date:     March 31, 1999


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

<TABLE>
<CAPTION>
              Signature                             Title                   Date
              ----------                         ----------               -------
                                                                      
<S>                                     <C>                           <C>
     /s/ Bryan W Stephenson             President, Chief Executive    March 31, 1999
----------------------------------      Officer and Director
Bryan W. Stephenson
                                                                      
                                                                      
                                                                      
     /s/ Randal N. Crosswhite           Senior Vice President, Chief  March 31, 1999
----------------------------------      Financial Officer, Corporate
Randal N. Crosswhite                    Secretary and Director
                                                                      
                                                                      
                                                                      
     /s/John L. Beckham                 Director                      March 31, 1999
----------------------------------
John L. Beckham
                                                                      
                                                                      
                                                                      
     /s/ Lee Caldwell                   Director                      March 31, 1999
----------------------------------
Lee Caldwell
                                                                      
                                                                      
                                                                      
     /s/ Mrs. Wm. R. (Amber) Cree       Director                      March 31, 1999
-----------------------------------
Mrs. Wm. R. (Amber) Cree
                                                                      

-----------------------------------     Director                      March __, 1999
Louis S. Gee


----------------------------------      Director                      March __, 1999
Nancy E. Jones


   /s/Marshal M. Keller
-----------------------------------     Director                      March 3, 1999
Marshal M. Kellar

                                      -17-

<PAGE>                                                                      

                                                                      
                                                                      
     /s/ Tommy McAlister                Director                      March 31, 1999
----------------------------------
Tommy McAlister
                                                                      
                                                                      
                                                                      
     /s/ Scott Taliaferro               Director                      March 31, 1999
----------------------------------
Scott L. Taliaferro
                                                                      
                                                                      
                                                                      
     /s/ James D. Webster, M.D.         Director                      March 31, 1999
-----------------------------------
James D. Webster, M.D.
                                                                      
                                                                      
                                                                      
     /s/ C.G. Whitten                   Director                      March __, 1999
-----------------------------------
C.G. Whitten
                                                                      
                                                                      
                                                                      
                                                                      

</TABLE>

                                      -18-

<PAGE>

                                INDEX TO EXHIBITS

    Exhibit Number                              Description
   ---------------      -----------------------------------------------------
          3.1           Restated Articles of Incorporation of Independent
                        Bankshares, Inc. (Exhibit 3.1 to the Company's Annual
                        Report on Form 10-K for the year ended December 31, 
                        1994).
          3.2           Restated Bylaws of Independent Bankshares, Inc. (Exhibit
                        3.2 to the Company's Annual Report on Form 10-K for the
                        year ended December 31, 1994).
          3.3           Amendment to Restated Bylaws of Independent Bankshares,
                        Inc. dated March 17, 1999 (filed herewith).
          4.1           Specimen Stock Certificate for Common Stock of the 
                        Company (Exhibit 4.1 to the Company's Registration 
                        Statement on Form S-1, SEC File No. 333-16419).
          4.2           1999 Stock Option Plan of Independent Bankshares, Inc.
                        (filed herewith).
         10.1           Form of Incentive Stock Option Agreement (filed 
                        herewith).
         10.2           Form of Nonqualified Stock Option Agreement (filed
                        herewith).
         10.3           Master Equipment Lease Agreement, dated December 24, 
                        1992, between Independent Bankshares, Inc. and NCR 
                        Credit Corporation, Amendment to Master Equipment 
                        Lease Agreement dated concurrently therewith, and 
                        related form of Schedule and Commencement Certificate
                        (Exhibit 10.7 to the Company's Annual Report on 
                        Form 10-K for the year ended December 31, 1993).
         10.4           Loan Agreement, dated September 21, 1998, by 
                        and between Bank One, Texas, National Association 
                        and the Company and Independent Financial Corp. 
                        and First State Bank, National Association and 
                        related Promissory Note of the Company, Pledge 
                        Agreement of the Company and Pledge Agreement of
                        Independent Financial Corp. (previously filed as 
                        Exhibit 10.1 to the Company's Current Report on 
                        Form 8-K dated September 22, 1998).  Pledge 
                        Agreement of the Company and Pledge Agreement of
                        Independent Financial Corp.  (Exhibit 10.1 to 
                        the Company's Current Report on Form 8-K 
                        dated September 22, 1998).
         10.5           Agreement and Plan of Reorganization dated 
                        May 29, 1998, by and between the Company and Azle 
                        Bancorp (previously filed as Exhibit 1.1 to 
                        the Company's Current Report on Form 8-K
                        dated June 19, 1998).
         13.1           Annual Report to Shareholders for the year 
                        ended December 31, 1998 (filed herewith).
         21.1           Subsidiaries of Independent Bankshares, Inc.
                        (filed herewith).
         23.1           Consent of PricewaterhouseCoopers LLP (filed 
                        herewith).
         27.1           Financial Data Schedule (filed herewith).
   
                                   -19-
<PAGE>