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


                                    FORM 10-Q


             [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended:  June 30, 2000

                                       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
          P. O. Box 3296
          Abilene, Texas                       79604
(Address of principal executive offices)     (Zip Code)

                                 (915) 677-5550
              (Registrant's telephone number, including area code)

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     NO

              Indicate the number of shares outstanding of each of
             the issuer's classes of common stock at June 30, 2000.

                 Class:  Common Stock, par value $0.25 per share
                 Outstanding at June 30, 2000:  2,273,647 shares




<PAGE>
                                     PART I

                              FINANCIAL INFORMATION


Item 1. Financial Statements.



                                        2

<PAGE>

                          INDEPENDENT BANKSHARES, INC.
                           CONSOLIDATED BALANCE SHEETS
                       JUNE 30, 2000 AND DECEMBER 31, 1999
                                   (Unaudited)
<TABLE>


                                                  June 30,       December 31,
ASSETS                                              2000             1999
                                               -------------   ---------------

<S>                                            <C>             <C>
Cash and Cash Equivalents:
  Cash and Due from Banks                       $  17,901,000     $ 22,985,000

  Federal Funds Sold                               24,818,000       15,775,000
                                                -------------     ------------
     Total Cash and Cash Equivalents               42,719,000       38,760,000
                                                -------------     ------------
Securities:
  Available-for-sale                               40,344,000       48,387,000
  Held-to-maturity                                 62,379,000       60,516,000
                                                -------------     ------------
     Total Securities                             102,723,000      108,903,000
                                                -------------     ------------
Loans:
  Total Loans                                     183,386,000      187,143,000
  Less:
    Unearned Income on Installment Loans              224,000          517,000
    Allowance for Possible Loan Losses              2,203,000        1,833,000
                                                -------------     ------------
      Net Loans                                   180,959,000      184,793,000
                                                -------------     ------------
Intangible Assets                                   9,823,000       10,158,000
Premises and Equipment                              9,529,000        9,816,000
Accrued Interest Receivable                         3,397,000        3,538,000
Other Real Estate and Other Repossessed Assets        262,000          272,000
Other Assets                                        2,176,000        2,022,000
                                                -------------     ------------
         Total Assets                            $351,588,000     $358,262,000
                                                =============     ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
  Noninterest-bearing Demand Deposits            $ 59,480,000     $ 57,441,000
  Interest-bearing Demand Deposits                 98,363,000      102,573,000
  Interest-bearing Time Deposits                  152,915,000      158,285,000
                                                 ------------     ------------
      Total Deposits                              310,758,000      318,299,000
Accrued Interest Payable                            1,097,000        1,074,000
Other Liabilities                                     685,000          533,000
                                                 ------------     ------------
      Total Liabilities                           312,540,000      319,906,000
                                                 ------------     ------------
Guaranteed Preferred Beneficial Interests in
  the Company's Subordinated Debentures            13,000,000       13,000,000
                                                 ------------      -----------
Stockholders' Equity:
Common Stock                                          583,000          583,000
Additional Paid-in Capital                         15,955,000       15,955,000
Retained Earnings                                  10,502,000        9,972,000
Unrealized Loss on Available-for-sale                (195,000)        (343,000)
Securities
Treasury Stock (at Cost)                             (669,000)        (669,000)
Unearned Employee Stock Ownership Plan Stock         (128,000)        (142,000)
                                                 ------------    -------------
      Total Stockholders' Equity                   26,048,000       25,356,000
                                                 ------------    -------------
       Total Liabilities and Stockholders'       $351,588,000     $358,262,000
Equity                                           ============     ============

</TABLE>

   See Accompanying Notes to Consolidated Financial Statements.

                                 3
<PAGE>

                   INDEPENDENT BANKSHARES, INC.
    CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
    QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
                            (Unaudited)

<TABLE>


                                                                          Six Month Period
                                          Quarter Ended June 30,           Ended June 30,
                                         ------------------------    --------------------------
                                            2000          1999           2000          1999
                                         ----------    ----------    ------------   ----------
<S>                                     <C>           <C>           <C>            <C>
Interest Income:
  Interest and Fees on Loans             $4,368,000   $4,198,000     $ 8,714,000   $8,437,000
  Interest on Securities                  1,498,000    1,500,000       3,056,000    2,906,000
  Interest on Federal Funds Sold            375,000      288,000         621,000      699,000
                                         ----------   ----------     -----------   ----------
    Total Interest Income                 6,241,000    5,986,000      12,391,000   12,042,000
                                         ----------   ----------     -----------   ----------
Interest Expense:
  Interest on Deposits                    2,608,000    2,434,000       5,135,000    4,977,000
                                         ----------   ----------     -----------   ----------
   Total Interest Expense                 2,608,000    2,434,000       5,135,000    4,977,000
                                         ----------   ----------     -----------   ----------
     Net Interest Income                  3,633,000    3,552,000       7,256,000    7,065,000
  Provision for Loan Losses                 400,000       65,000         510,000      170,000
                                         ----------   ----------     -----------   ----------
      Net Interest Income After
       Provision for Loan Losses          3,233,000    3,487,000       6,746,000    6,895,000
                                         ----------   ----------     -----------   ----------
Noninterest Income:
  Service Charges                           649,000      722,000       1,328,000    1,439,000
  Trust Fees                                 50,000       51,000         117,000      109,000
  Other Income                               54,000       60,000         120,000      128,000
                                         ----------   ----------     -----------   ----------
    Total Noninterest Income                753,000      833,000       1,565,000    1,676,000
                                         ----------   ----------     -----------   ----------
Noninterest Expenses:
  Salaries and Employee Benefits          1,509,000    1,496,000       3,010,000    3,029,000
  Net Occupancy Expense                     372,000      363,000         737,000      706,000
  Equipment Expense                         302,000      254,000         589,000      519,000
  Distributions on Guaranteed Preferred
    Beneficial Interests in the
      Company's Subordinated Debentures     276,000      276,000         552,000      552,000
  Amortization of Intangible Assets         167,000      181,000         335,000      334,000
  Merger-related Expense                    102,000            0         311,000            0
  Stationery, Printing and Supplies         155,000      139,000         294,000      262,000
      Expense                               155,000      139,000         294,000      262,000
  Professional Fees                         118,000      114,000         242,000      208,000
  Net Costs Applicable to Other Real
     Estate and Other Repossessed Assets     11,000       28,000          17,000       56,000
  Other Expenses                            495,000      505,000         999,000    1,016,000
                                         ----------   ----------     -----------   ----------
     Total Noninterest Expenses           3,507,000    3,356,000       7,086,000    6,682,000
                                         ----------   ----------     -----------   ----------
       Income Before Federal Income         479,000      964,000       1,225,000    1,889,000
Taxes
Federal Income Taxes                        169,000      336,000         422,000      632,000
                                         ----------   ----------     -----------   ----------
          Net Income                        310,000      628,000         803,000    1,257,000

Other Comprehensive Income, Net of
Taxes:
  Unrealized Holding Gains (Losses) on
     Available-for-sale Securities
       Arising During the Period             71,000     (189,000)        148,000     (340,000)
                                         ----------    ---------     -----------   ----------

        Comprehensive Income             $  381,000   $  439,000     $   951,000   $  917,000
                                         ==========   ==========     ===========   ==========
Preferred Stock Dividends                $        0   $    5,000              $0   $   10,000
                                         ==========   ==========     ===========   ==========
Net Income Available to Common
 Stockholders                            $  310,000   $  623,000     $   803,000   $1,247,000
                                         ==========   ==========     ===========   ==========

Basic Earnings Per Common Share          $     0.14   $     0.29     $      0.36   $     0.57
                                         ==========   ==========     ===========   ==========
Diluted Earnings Per Common Share        $     0.14   $     0.28     $      0.36   $     0.55
                                         ==========   ==========     ===========   ==========

</TABLE>

See Accompanying Notes to Consolidated Financial Statements.


                                 4

<PAGE>

                   INDEPENDENT BANKSHARES, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS
          SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
                            (Unaudited)

<TABLE>
                                                       2000              1999
                                                    -----------      -----------
<S>                                                <C>              <C>
Cash Flows from Operating Activities:
  Net Income                                        $   803,000     $  1,257,000
Adjustments to Reconcile Net Income to Net Cash
   Provided by
  Operating Activities:
   Deferred Federal Income Tax Expense                        0          268,000
   Depreciation and Amortization                        701,000          713,000
   Provision for Loan Losses                            510,000          170,000
   Gains of Sales of Securities                         (1,000)                0
   Gains on Sales of Premises and Equipment                   0           (1,000)
   Writedown of Other Real Estate and Other
      Repossessed Assets                                  3,000                0
   (Increase) Decrease in Accrued Interest
      Receivable                                        141,000          (28,000)
   (Increase) Decrease in Other Assets                 (154,000)          23,000
   Increase (Decrease) in Accrued Interest
     Payable                                             23,000         (230,000)
   Increase in Other Liabilities                        152,000          133,000
                                                    -----------     ------------

      Net Cash Provided by Operating Activities       2,178,000        2,296,000
                                                    -----------     ------------

Cash Flows from Investing Activities:
   Proceeds from Maturities of Available-for-sale    10,128,000        3,487,000
      Securities
   Proceeds from Maturities of Held-to-maturity       3,923,000       30,070,000
      Securities
   Proceeds from Sales of Available-for-sale
      Securities                                      3,000,000                0
   Purchases of Available-for-sale Securities        (4,891,000)     (23,685,000)
   Purchases of Held-to-maturity Securities          (5,836,000)     (26,968,000)
   Net Decrease in Loans                              3,033,000        1,415,000
   Proceeds from Sales of Premises and Equipment              0            1,000
   Additions to Premises and Equipment                  (79,000)        (139,000)
   Proceeds from Sales of Other Real Estate and         317,000          822,000
     Other Repossessed Assets                       -----------     ------------
       Net Cash Used in Investing Activities          9,595,000      (14,997,000)
                                                    -----------     ------------

Cash Flows from Financing Activities:
   Decrease in Deposits                              (7,541,000)     (10,870,000)
   Repayment of Notes Payable                                 0           (1,000)
   Payment of Cash Dividends                           (273,000)        (230,000)
   Purchase of Treasury Stock                                 0         (640,000)
                                                    -----------     ------------
      Net Cash Used in Financing Activities         (7,814,000)      (11,741,000)
                                                    -----------     ------------

Net Increase (Decrease) in Cash and Cash
  Equivalents                                         3,959,000      (24,442,000)

Cash and Cash Equivalents at Beginning of Period     38,760,000       64,737,000
                                                    -----------     ------------


Cash and Cash Equivalents at End of Period          $42,719,000     $ 40,295,000
                                                    ===========     ============

Noncash Investing Activities:
   Additions to Other Real Estate and Other
    Repossessed Assets Through Foreclosures         $   309,000     $    499,000

</TABLE>

   See Accompanying Notes to Consolidated Financial Statements.

                                 5

<PAGE>

                   INDEPENDENT BANKSHARES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Summary of Significant Accounting Policies

     For information with regard to significant accounting
policies, reference is made to Notes to Consolidated Financial
Statements included in the Annual Report on Form 10-K for the year
ended December 31, 1999, which was filed with the Securities and
Exchange Commission pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934, as amended.

     The accompanying financial statements reflect all adjustments
necessary to present a fair statement of the results for the
interim periods presented, and all adjustments are of a normal
recurring nature.

(2)  Treasury Stock

     During the first half of 1999, Independent Bankshares, Inc.
(the "Company") authorized the repurchase of up to 80,000 shares of
the Company's Common Stock in the open market. As of March 31,
2000, the Company had repurchased a total of 60,000 shares of its
Common Stock at an average price of $11.15 per share. The
repurchased shares are currently held as treasury stock.

(3)  Unearned ESOP Shares

     The Company's Employee Stock Ownership/401(k) Plan (the
"Plan") purchased 18,750 shares of Common Stock in an underwritten
offering (the "1997 Offering") for $214,000. The funds used for the
purchase were borrowed from the Company. The note evidencing such
borrowing is due in eighty-four equal monthly installments of
$4,000, including interest, and matures on February 27, 2004. The
note bears interest at the Company's floating base rate plus 1%
(10.50% at June 30, 2000). The note is collateralized by the stock
purchased in the 1997 Offering.

     As a result of the lending arrangement between the Company and
the Plan, the shares are considered "unearned." The shares are
"earned" on a pro rata basis as principal payments are made on the
note. The shares are included in the Company's earnings per share
calculations only as they are earned. At June 30, 2000, a total of
11,242 shares with an original cost of $128,000 are considered to
be unearned.

(4)  Earnings Per Share

     Basic earnings per common share is computed by dividing net
income available to common stockholders by the weighted average
number of shares and share equivalents outstanding during the
period. Because the Company's outstanding Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") was
cumulative, the dividends allocable to such preferred stock reduced
income available to common stockholders in the basic earnings per
share calculations. In computing diluted earnings per common share
for the quarter and six-month period ended June 30, 1999, the
conversion of the Series C Preferred Stock was assumed, as the
effect was dilutive. The remainder of the Series C Preferred Stock
was converted to Common Stock during the fourth quarter of 1999.
The weighted average common shares outstanding used in computing
basic earnings per common share for the quarters ended June 30,
2000 and 1999, was 2,262,000 and 2,161,000 shares, respectively.
The weighted average common shares outstanding used in computing
diluted earnings per common share for the quarters ended June 30,
2000 and 1999, was 2,262,000 and 2,265,000 shares, respectively.
The weighted average common shares outstanding used in computing
basic earnings per common share for the six-month periods ended
June 30, 2000 and 1999, were 2,262,000 and 2,182,000 shares,
respectively. The weighted average common shares outstanding used
in computing diluted earnings per common share for the six-month
periods ended June 30, 2000 and 1999, were 2,262,000 and 2,289,000
shares, respectively.

                                 6

<PAGE>

(5)  Accumulated Other Comprehensive Income

     An analysis of accumulated other comprehensive income for the
quarters and six-month periods ended June 30, 2000 and 1999, is as
follows:

<TABLE>
                        Unrealized Gain (Loss) on Available-for-sale Securities
                        -------------------------------------------------------
                                                         Six-month Period
                         Quarter Ended June 30,           Ended June 30,
                         ----------------------    ------------------------
                           2000         1999          2000          1999
                         ----------    ---------    ---------     -------
                                            (In thousands)
<S>                       <C>            <C>         <C>          <C>
Balance, beginning of
  period                   $ (266)       $   10      $  (343)       $    161
Current period change          71          (189)         148            (340)
                           -------       ------      -------        --------
Balance, at June 30        $ (195)       $ (179)     $  (195)       $   (179)
                           ======        ======      =======        ========

</TABLE>


(6)  Legal Proceedings

     The Estate of Harry V. Howard, Deceased, filed a lawsuit
against First State Bank, National Association (the "Bank") (as
successor to First State Bank of Odessa, N.A.), (The Estate of
Harry V. Howard, Deceased v. First State Bank of Odessa, N.A.,
Odessa, Texas, Cause No. 1268) on July 9, 1999, in the County
Court of Upton County, Texas. This case was subsequently refiled
in the 104th District Court for Taylor County, Texas as Cause No.
22080-B. The plaintiffs' lawsuit relates to the Bank's management
of the Harry V. Howard Trust. The lawsuit alleges that the Bank,
in its capacity as trustee of this testamentary trust, failed to
adequately oversee the trust assets and allowed waste to occur to
the trust principal. Additionally, the lawsuit alleges that the
Bank made inappropriate distributions to the current beneficiary
of the trust. The lawsuit also alleges, among other things, other
general acts of mismanagement and breach of fiduciary duty. The
lawsuit seeks actual and exemplary damages in excess of
$10,000,000, as well as pre and post-judgment interest and
attorneys' fees.  The Bank denies any allegations made in the
petition and intends to vigorously defend this suit.

     The Bank has trust errors and omissions liability insurance
to cover certain risk associated with claims filed against the
Bank as trustee.  The Bank has notified the insurance company of
the complaint filed against the Bank. The insurance company has
determined preliminarily that it appears the Bank has coverage,
except for any punitive or exemplary damages, under the policy up
to $2,000,000.

     The above mentioned complaint is still at an early stage.
Consequently, at this time it is not possible to predict whether
the Bank will incur any liability or to estimate the damages, or
the range of damages, if any, that the Bank might incur in
connection with such action.

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

(7)  Pending Sale of the Company

     On March 1, 2000, the Company executed a definitive agreement
(the "Agreement") with State National Bancshares, Inc. ("State
National") for State National, to acquire all of the Company's
outstanding Common Stock for cash of approximately $45,473,000, or
$20.00 per share. The aggregate purchase price will
increase if the closing of the transaction does not occur on or
before the 160th day following the execution date of the Agreement.
The Agreement additionally calls for State National to assume the
Company's obligations on $13,000,000 of outstanding Trust Preferred
Securities. State National is a privately held bank holding company
headquartered in Lubbock, Texas. The transaction was approved by
the Company's shareholders on July 12, 2000, and is expected to be
completed on August 11, 2000.

                                 7

<PAGE>


Item 2.   Management's Discussion and Analysis of Financial
           Condition and Results of Operations

     This Quarterly Report on Form 10-Q contains certain forward-
looking statements and information relating to Independent
Bankshares, Inc. (the "Company") and its subsidiaries that are
based on the beliefs of the Company's management as well as
assumptions made by and information currently available to the
Company's management. When used in this report, the words
"anticipate," "believe," "estimate," "expect" and "intend" and
words or phrases of similar import, as they relate to the Company
or its subsidiaries or Company management, are intended to identify
forward-looking statements. Such statements reflect the current
view of the Company with respect to future events and are subject
to certain risks, uncertainties and assumptions related to certain
factors including, without limitation, competitive factors, general
economic conditions, customer relations, the interest rate
environment, governmental regulation and supervision, nonperforming
asset levels, loan concentrations, changes in industry practices,
one time events and other factors described herein. Based upon
changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions
prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or
intended. The Company does not intend to update these forward-
looking statements.

The Company
-----------

     The Company is a bank holding company that, at June 30, 2000,
owned 100% of the common securities of Independent Capital Trust
("Independent Capital") and 100% of Independent Financial Corp.
("Independent Financial") which, in turn, owned 100% of First State
Bank, National Association, Abilene, Texas (the "Bank"). The Bank
currently operates full-service banking locations in the cities of
Abilene (three locations), Azle (two locations), Lubbock, Odessa
(four locations), San Angelo, Stamford and Winters.

Results of Operations
---------------------

General

     The following discussion and analysis presents the more
significant factors affecting the Company's financial condition at
June 30, 2000, and December 31, 1999, and results of operations for
each of the quarters and six-month periods ended June 30, 2000 and
1999. This discussion and analysis should be read in conjunction
with the Consolidated Financial Statements, notes thereto and other
financial information appearing elsewhere in this quarterly report.

Net Income

     Net income for the quarter ended June 30, 2000, amounted to
$310,000 ($0.14 basic and diluted earnings per common share)
compared to net income of $628,000 ($0.29 basic and $0.28 diluted
earnings per common share, respectively) for the quarter ended June
30, 1999.  Net income for the six-month period ended June 30, 2000,
was $803,000 ($0.36 basic and diluted earnings per common share)
compared to net income of $1,257,000 ($0.57 basic and $0.55 diluted
earnings per common share) for the six-month period ended June 30,
1999. Net income and earnings per share decreased in 2000 primarily
due to an increase in the Company's provision for loan losses and
expensing of costs associated with the pending sale of the Company
to State National Bancshares, Inc. ("State National").

Net Interest Income

     Net interest income represents the amount by which interest
income on interest-earning assets, including loans and securities,
exceeds interest paid on interest-bearing liabilities, including
deposits and other borrowed funds.  Net interest income is the
principal source of the Company's earnings.  Interest rate



                                 8
<PAGE>






fluctuations, as well as changes in the amount and type of interest-
earning assets and interest-bearing liabilities, combine to affect
net interest income.

     Net interest income amounted to $3,633,000 for the second
quarter of 2000, an increase of $81,000, or 2.3%, from the second
quarter of 1999.  Net interest income for the second quarter of
1999 was $3,552,000.  Net interest income for the first six months
of 2000 was $7,256,000, an increase of $191,000, or 2.7%, from net
interest income of $7,065,000 for the first six months of 1999.
The increases in 2000 were primarily due to increases in the net
interest margin.  The net interest margin on a fully taxable-
equivalent basis, was 4.68% for the second quarter and first six
months of 2000, compared to 4.54% and 4.51% for the second quarter
and first six months of 1999, respectively.  The primary reason for
the increases in the net interest margin during the first half of
2000 is a shift within the Company's loan portfolio to more
commercial and real estate loans and away from lower-yielding
indirect installment loans.

     At June 30, 2000, approximately $57,887,000, or 31.6%, of the
Company's total loans, net of unearned income, were loans with
floating interest rates.  Average overall rates paid for various
types of certificates of deposit increased from the first half of
1999 to the first half of 2000. For example, the average rate paid
for certificates of deposit less than $100,000 increased from 4.82%
for the first half of 1999 to 5.19% for the first half of 2000,
while the average rate paid by the Company for certificates of
deposit of $100,000 or more also increased from 4.93% during the
first six months of 1999 to 5.41% during the first six months of
2000.  Rates on other types of deposits, such as interest-bearing
demand, savings and money market deposits, however, actually
decreased from an average of 2.12% during the first half of 1999 to
an average of 2.04% during the first half of 2000.  These changes
caused the Company's overall cost of interest-bearing deposits to
increase from 3.74% for the first six months of 1999 to 3.99% for
the first six months of 2000.

     The following table presents the average balance sheets of the
Company for the quarters and six-month periods ended June 30, 2000
and 1999, and indicates the interest earned or paid on the major
categories of interest-earning assets and interest-bearing
liabilities on a fully taxable-equivalent basis and the average
rates earned or paid on each major category.  This analysis details
the contribution of interest-earning assets and the impact of the
cost of funds on overall net interest income.


                                9
<PAGE>

 <TABLE>

                                                     Quarter Ended June 30,
                                   ---------------------------------------------------------
                                               2000                          1999
                                    ---------------------------  ---------------------------

                                               Interest
                                    Average    Income/   Yield/   Average    Income/   Yield/
                                    Balance    Expense    Rate    Balance    Expense    Rate
                                   ---------   -------    -----   --------   -------   ------
<S>                                   <C>      <C>       <C>     <C>        <C>       <C>
ASSETS                                               (Dollars in thousands)

Interest-earning assets:
 Loans, net of unearned income (1) $184,810    $4,368     9.45%   $182,438   $4,198    9.20%
  Securities (2)                    106,537     1,558     5.85     110,835    1,554    5.61
  Federal funds sold                 24,138       375     6.21      24,337      288    4.73
                                   --------    ------    -----     -------   ------    ----
     Total interest-earning assets  315,485     6,301     7.99     317,610    6,040    7.61
                                   --------    ------    -----     -------   ------    ----
Noninterest-earning assets:
  Cash and due from banks            18,408                         18,804
  Intangible assets                   9,905                         10,580
  Premises and equipment              9,589                         10,129
  Accrued interest receivable
    and other assets                  6,229                          6,065
  Allowance for possible loan
   losses                            (1,847)                        (1,801)
                                   --------                       --------
     Total noninterest-earning
        assets                       42,284                         43,777
                                   --------                       --------
         Total assets              $357,769                       $361,387
                                   ========                       ========

LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
  Demand, savings and money
   market deposits                 $101,339    $  518     2.05%   $106,538   $  556    2.09%
  Time deposits                     154,734     2,090     5.40     157,045    1,878    4.78
                                   --------    ------    -----    --------   ------    ----
Total interest-bearing
  liabilities                       256,075     2,608     4.08     263,583    2,434    3.69
                                   --------    ------    -----    --------   ------    ----

Noninterest-bearing liabilities:
  Demand deposits                    60,352                         58,157
  Accrued interest payable and
   other liabilities                  2,135                          2,066
                                   --------                       --------
    Total noninterest-bearing
       liabilities                   62,487                         60,223
                                   --------                       --------
       Total liabilities            318,560                        323,806
Guaranteed preferred beneficial
  interests in the Company's
   subordinated debentures           13,000                         13,000
Stockholders' equity                 26,209                         24,581
                                   --------                       --------
      Total liabilities and
         stockholders' equity      $357,769                       $361,387
                                   ========                       ========

Net interest income                            $3,693                        $3,606
                                               ======                        ======
Interest rate spread (3)                                 3.91%                          3.92%
                                                         ====                           ====
Net interest margin (4)                                  4.68%                          4.54%
                                                         ====                           ====

</TABLE>

______________________________
(1)  Nonaccrual loans are included in the Average Balance columns,
     and income recognized on these loans, if any, is
     included in the Interest Income/Expense columns.  Interest
     income on loans includes fees on loans, which are not
     material in amount.
(2)  Nontaxable interest income on securities was adjusted to a
     taxable yield assuming a tax rate of 34%.
(3)  The interest rate spread is the difference between the
     average yield on interest-earning assets and the average
     cost of interest-bearing liabilities.
(4)  The net interest margin is equal to net interest income, on a
     fully taxable-equivalent basis, divided by average interest-
     earning assets.


                                10

<PAGE>



<TABLE>


                                                   Six-month Period Ended June 30,
                                     ----------------------------------------------------------

                                                 2000                          1999
                                     ----------------------------  ----------------------------


                                                 Interest                    Interest
                                      Average    Income/   Yield/  Average    Income/   Yield/
                                      Balance    Expense    Rate   Balance    Expense    Rate
                                     ----------  --------  -----   --------   -------   -------
<S>                                  <C>         <C>       <C>     <C>       <C>       <C>
ASSETS                                                 (Dollars in thousands)

Interest-earning assets:
  Loans, net of unearned income (1)   $ 185,486  $  8,714    9.40% $183,393   $ 8,437      9.20%
  Securities (2)                        109,015     3,174    5.82   105,660     3,017      5.71
  Federal funds sold                     20,797       621    5.97    29,406       699      4.75
                                      ---------  --------   -----  --------   -------   -------

     Total interest-earning assets      315,298    12,509    7.94   318,459    12,153      7.63
                                      ---------  --------   -----  --------   -------   -------

Noninterest-earning assets:
  Cash and due from banks                19,419                      19,537
  Intangible assets                       9,989                      10,634
  Premises and equipment                  9,661                      10,166
  Accrued interest receivable
    and other assets                      6,097                       6,275
  Allowance for possible loan
    losses                               (1,825)                     (1,799)
                                      ---------                    --------
      Total noninterest-earning
        assets                           43,341                      44,813
                                      ---------                    --------
          Total assets                $ 358,639                    $363,272
                                      =========                    ========

LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
  Demand, savings and money
   market deposits                     $102,210  $  1,043    2.04% $107,878   $ 1,141      2.12%
  Time deposits                         155,478     4,092    5.26   158,197     3,836      4.85
                                       --------  --------   -----  --------   -------      ----
    Total interest-bearing
      liabilities                       257,688     5,135    3.99   266,075     4,977      3.74
                                       --------  --------   -----  --------   -------      ----
Noninterest-bearing liabilities:
  Demand deposits                        59,922                      57,506
  Accrued interest payable and
    other liabilities                     2,102                       2,085
                                       --------                    --------
    Total noninterest-bearing
      liabilities                        62,024                      59,591
                                       --------                    --------
        Total liabilities               319,712                     325,666
Guaranteed preferred beneficial
   interests in the Company's
   subordinated debentures               13,000                      13,000
Stockholders' equity                     25,927                      24,606
                                       --------                    --------
         Total liabilities and
           stockholders' equity        $358,639                    $363,272
                                       ========                    ========

Net interest income                              $  7,374                     $ 7,176
                                                 ========                     =======
Interest rate spread (3)                                     3.95%                         3.89%
                                                             ----                          ====
Net interest margin (4)                                      4.68%                         4.51%
                                                             ====                          ====

</TABLE>


______________________________

(1)  Nonaccrual loans are included in the Average Balance columns,
     and income recognized on these loans, if any, is included in
     the Interest Income/Expense columns.  Interest income on
     loans includes fees on loans, which are not material in
     amount.
(2)  Nontaxable interest income on securities was adjusted to a
     taxable yield assuming a tax rate of 34%.
(3)  The interest rate spread is the difference between the
     average yield on interest-earning assets and the average cost
     of interest-bearing liabilities.
(4)  The net interest margin is equal to net interest income, on a
     fully taxable-equivalent basis, divided by average interest-
     earning assets.

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

                                11

<PAGE>

<TABLE>

                                         Quarters Ended            Six-month Periods Ended
                                     June 30, 2000 vs. 1999         June 30, 2000 vs 1999
                                   ---------------------------   ---------------------------
                                   Increase (Decrease) Due to     Increase (Decrease) Due To
                                           Changes In:                   Changes In:
                                  ----------------------------   ---------------------------
<S>                               <C>           <C>     <C>      <C>       <C>      <C>
                                     Volume      Rate    Total    Volume    Rate      Total
                                  -----------   ------  ------   --------  -------   -------
                                                        (In thousands)
Interest-earning assets:
  Loans, net of unearned
   income (1)                         $    55     $115     $170   $   95    $ 182    $  277
  Securities (2)                          (61)      65        4       98       59       157
  Federal funds sold                       (3)      90       87     (205)     127       (78)
                                      -------    -----    -----   ------    -----    ------
     Total interest income                 (9)     270      261      (12)     368       356
                                      -------    -----    -----   ------    -----    ------

Interest-bearing liabilities:
  Deposits:
  Demand, savings and money
   market deposits                        (27)     (11)     (38)     (58)     (40)      (98)
  Time deposits                           (28)     240      212      (66)     322       256
                                      -------    -----    -----   ------     ----    ------
      Total interest expense              (55)     229      174     (124)     282       158
                                      -------    -----    -----   ------    -----    ------

Increase in net interest income       $    46    $  41    $  87  $   112   $   86    $  198
                                      =======    =====    =====  =======   ======    ======

</TABLE>

______________________________
(1)  Nonaccrual loans have been included in average assets for the
     purposes of the computations, thereby reducing yields.
(2)  Information with respect to tax-exempt securities is provided
     on a fully taxable-equivalent basis assuming a tax rate of
     34%.

Provision for Loan Losses

     The amount of the provision for loan losses is based on
periodic (not less than quarterly) evaluations of the loan
portfolio, especially nonperforming and other potential problem
loans.  During these evaluations, consideration is given to such
factors as: management's evaluation of specific loans; the level
and composition of nonperforming loans; historical loss experience;
results of examinations by regulatory agencies; an internal asset
review process conducted by the Company that is independent of the
management of the Bank; expectations of future economic conditions
and their impact on particular industries and individual borrowers;
the market value of collateral; the strength of available
guarantees; concentrations of credits; and other judgmental
factors.  The provisions for loan losses made for the quarter and
six-month period ended June 30, 2000, were $400,000 and $510,000,
respectively, compared to $65,000 and $170,000 for the quarter and
six-month period ended June 30, 1999, respectively. These represent
increases of $335,000, or 515.4%, and $340,000, or 200.0%.  The
increased provisions for the quarter and six-month period ended
June 30, 2000, were due to increased classified and nonperforming
loans at June 30, 2000. Of the total gross charge-offs of $194,000
during the first half of 2000, $68,000, or 35.1%, were indirect
installment loans.  The Bank is continuing to make some indirect
installment loans; however, the Company is attempting to reduce its
reliance on such loans by increasing commercial and real estate
loans.  See "Analysis of Financial Condition-Loan Portfolio" below.

Noninterest Income

     Noninterest income decreased $80,000, or 9.6%, from $833,000
during the second quarter of 1999 to $753,000 during the second
quarter of 2000.  Noninterest income also decreased $111,000, or
6.6%, from $1,676,000 for the first six months of 1999 to
$1,565,000 for the first six months of 2000.


     Service charges on deposit accounts and on other types of
services are the major source of noninterest income to the Company.
This source of income decreased from $722,000 during the second
quarter of 1999 to $649,000 during the second quarter of 2000, a
10.1% decrease, and decreased $111,000, or 7.7%, from $1,439,000
for the first six months of 1999 to $1,328,000 for the first six
months of 2000.



                               12
<PAGE>




The decrease was primarily due to an unusually high
amount of charges for checks that were drawn on insufficient funds
during the first half of 1999.

     Trust fees from the operation of the trust department of the
Bank decreased $1,000, or 2.0%, from $51,000 during the second
quarter of 1999 to $50,000 during the same period in 2000, but
increased $8,000, or 7.3%, from $109,000 for the first six months
of 1999 to $117,000 for the first six months of 2000 as a result of
an overall increase in the value of assets under management of the
trust department and one-time termination fees assessed during the
first quarter of 2000.

     Other income is the sum of several components of noninterest
income including check printing income, commissions earned from the
sale of mutual funds and annuities, bankcard royalty income,
insurance premiums earned on automobiles financed through the
Company's indirect installment loan program and other sources of
miscellaneous income.  Other income decreased $6,000, or 10.0%,
from $60,000 during the second quarter of 1999 to $54,000 during
the second quarter of 2000, and decreased $8,000, or 6.3%, from
$128,000 for the first six months of 1999 to $120,000 for the
corresponding period in 2000 primarily due to decreases in check
printing income and bank card royalty income.

Noninterest Expenses

     Noninterest expenses increased $151,000, or 4.5%, from
$3,356,000 during the second quarter of 1999 to $3,507,000 during
the second quarter of 2000 and increased $404,000, or 6.0%, from
$6,682,000 during the first six months of 1999 to $7,086,000 during
the first six months of 2000.  Noninterest expenses for the six-
month period ended June 30, 2000, were higher than the same period
for 1999 primarily as a result of costs incurred in association
with the pending sale of the Company to State National.

     Salaries and employee benefits rose $13,000, or 0.9%, from
$1,496,000 for the second quarter of 1999 to $1,509,000 for the
corresponding period of 2000, but decreased $19,000, or 0.6%, from
$3,029,000 for the six-month period ended June 30, 1999, to
$3,010,000 for the corresponding period of 2000. The year-to-date
decrease was primarily a result of consolidation of the operations
of the two locations of Azle State Bank, Azle, Texas ("Azle State")
that became branches of the Bank in March 1999. This decrease was
partially offset by overall salary increases.

     Net occupancy expense increased $9,000, or 2.5%, from $363,000
for the second quarter of 1999 to $372,000 for the same period in
2000, and increased $31,000, or 4.4%, from $706,000 for the first
six months of 1999 to $737,000 for the first six months of 2000.
The increase was primarily a result of increases in property taxes
and utility expenses during the first half of 2000.

     Equipment expense increased from $254,000 for the second
quarter of 1999 to $302,000 for the corresponding period in 2000,
representing an increase of $48,000, or 18.9%.  These expenses also
increased $70,000, or 13.5%, from $519,000 for the first six months
of 1999 to $589,000 for the first six months of 2000. The increase
was due to the leasing of additional check processing hardware for
the Bank's two branches in Azle and an increase in equipment
repairs expense.

     Distributions on guaranteed preferred beneficial interests in
the Company's subordinated debentures totaled $276,000 and $552,000
for the quarters and six-month periods ended June 30, 2000 and
1999, respectively.

     Amortization of intangible assets decreased $14,000, or 7.7%,
from $181,000 during the second quarter of 1999 to $167,000 during
the second quarter of 2000, but increased $1,000, or 0.3%, from
$334,000 for the first six months of 1999 to $335,000 for the first
six months of 2000.

     Stationery, printing and supplies expense increased $16,000,
or 11.5%, from $139,000 for the second quarter of 1999 to $155,000
for the second quarter of 2000, and increased $32,000, or 12.2%,
from $262,000



                                 13
<PAGE>


for the first six months of 1999 to $294,000 for the
first six months of 2000.  Increases in printed forms and check
printing expenses associated with the Azle State branch conversion
was partially offset by a decrease in supplies expense.

     Professional fees, which include legal and accounting fees,
increased $4,000, or 3.5%, from $114,000 during the second quarter
of 1999 to $118,000 during the second quarter of 2000, and
increased $34,000, or 16.3%, from $208,000 during the first six
months of 1999 to $242,000 for the corresponding period of 2000.
The increase in 2000 is primarily due to an increase in legal fees
associated with the litigation described in Note 6 to the
Consolidated Financial Statements. Under its insurance coverage,
the Company has a $25,000 retention on expenses associated with
such litigation.

     Net costs applicable to other real estate and other
repossessed assets consist of expenses associated with holding and
maintaining repossessed assets, the net gain or loss on the sales
of such assets, the write-down of the carrying value of the assets
and any rental income that is credited as a reduction in expense.
The Company recorded net costs of $11,000 and $17,000 for the
second quarter and first six months of 2000, respectively, compared
to net costs of $28,000 and $56,000 for the second quarter and
first six months of 1999, respectively.  The decrease in 2000 was
due to a decrease in the number of repossessed automobiles as a
result in the reduction in the number of indirect installment
loans.

     Other noninterest expense includes, among many other items,
postage, due from bank account charges, data processing,
advertising, armored car and courier fees, travel and
entertainment, insurance, regulatory examinations, directors' fees,
dues and subscriptions, franchise taxes and Federal Deposit
Insurance Corporation ("FDIC") insurance expense.  These expenses
decreased $10,000, or 2.0%, from $505,000 during the second quarter
of 1999 to $495,000 during the second quarter of 2000, and
decreased $17,000, or 1.7%, from $1,016,000 for the first six
months of 1999 to $999,000 for the first half of 2000. The
decreases during 2000 were a result of efforts by the Company to
manage increases in such expenses.

Federal Income Taxes

     The Company accrued $169,000 and $336,000 in federal income
taxes in the second quarter of 2000 and 1999, respectively, and
accrued $422,000 and $632,000 in federal income taxes for the first
six months of 2000 and 1999, respectively.  The effective tax rates
for the first six months of 2000 and 1999 were 34.4% and 33.5%,
respectively.  The lower effective rate for 1999 was a result of
utilization of tax credit carryforwards during 1999.

Impact of Inflation

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

Analysis of Financial Condition
-------------------------------

Assets

     Total assets decreased $6,674,000, or 1.9%, from $358,262,000
at December 31, 1999, to $351,588,000 at June 30, 2000, due to
decreases in interest-bearing demand deposits and interest-bearing
time deposits during the first six months of 2000. These decreases
were somewhat offset by an increase in noninterest-bearing demand
deposits.


                                 14
<PAGE>



Cash and Cash Equivalents

     The amount of cash and cash equivalents increased $3,959,000,
or 10.2%, from $38,760,000 at December 31, 1999, to $42,719,000 at
June 30, 2000. Decreases in cash and due from banks, due to higher
amounts of cash on hand that were maintained at most of the Bank's
branch locations at December 31, 1999, in case of potential Y2K
problems that never materialized, were offset by increases in
federal funds sold during the first half of 2000.

Securities

     Securities decreased $6,180,000, or 5.7%, from $108,903,000 at
December 31, 1999, to $102,723,000 at June 30, 2000. The decrease
in 2000 is due to maturities of securities during the first half of
2000 and the investments of such funds in federal funds sold as a
result of the increased yield available on federal funds sold.

     The Board of Directors of the Bank reviews all securities
transactions monthly and the securities portfolio periodically. The
Company's current investment policy provides for the purchase of
U.S. Treasury securities, federal agency securities and mortgage-
backed securities having maturities of five years or less and for
the purchase of state, county and municipal agencies' securities
with maximum maturities of 10 years. The Company's policy is to
maintain a securities portfolio with staggered maturities to meet
its overall liquidity needs. Municipal securities must be rated A
or better. Certain school district issues, however, are acceptable
with a Baa rating. Securities totaling $40,344,000 are classified
as available-for-sale and are carried at fair value at June 30,
2000. Securities totaling $62,379,000 are classified as held-to-
maturity and are carried at amortized cost. Available-for-sale
securities aggregating $3,000,000 were sold immediately prior to
maturity during the first half of 2000. The decision to sell securities
classified as available-for-sale is based upon management's
assessment of changes in economic or financial market conditions.

     Certain of the Company's securities are pledged to secure
public and trust fund deposits and for other purposes required or
permitted by law. At June 30, 2000, the book value of U.S. Treasury
and other U.S. Government agency securities so pledged amounted to
$20,563,000, or 20.0% of the total securities portfolio.

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

<TABLE>
                                              June 30, 2000      December 31, 1999
                                          --------------------    ---------------
                                            Amount        %       Amount      %
                                          ---------   --------   --------  -------
                                                   (Dollars in thousands)

<S>                                       <C>         <C>       <C>        <C>
Carrying value:
  Obligations of U.S. Government
   agencies and corporations               $ 72,925       71.0%  $ 75,016     68.9%
  U.S. Treasury securities                   12,971       12.6     15,982     14.7
  Obligations of states and political
   subdivisions                               9,043        8.8      9,103      8.4
  Mortgage-backed securities                  6,765        6.6      7,783      7.1
  Other securities                            1,019        1.0      1,019      0.9
                                           --------    -------   --------   ------

Total carrying value of securities         $102,723      100.0%  $108,903    100.0%
                                           ========      =====   ========    =====

Total fair value of securities             $101,443              $107,608
                                           ========              ========

</TABLE>


                                 15
<PAGE>


     The market value of securities classified as held-to-maturity
is usually different from the reported carrying value of such
securities due to interest rate fluctuations that cause market
valuations to change.

     The following table provides the maturity distribution and
weighted average interest rates of the Company's total securities
portfolio at June 30, 2000. The yield has been computed by relating
the forward income stream on the securities, plus or minus the
anticipated amortization of premiums or accretion of discounts, to
the carrying value of the securities. The book value of securities
classified as held-to-maturity is their cost, adjusted for previous
amortization or accretion. The restatement of the yields on tax-
exempt securities to a fully taxable-equivalent basis has been
computed assuming a tax rate of 34%.

<TABLE>


                                                                   Estimated      Weighted
      Type and Maturity Grouping        Principal    Carrying         Fair        Average
           at June 30, 2000               Amount       Value         Value         Yield
 ------------------------------------   ---------  ------------   ------------  -----------

                                                       (Dollars in thousands)

<S>                                     <C>        <C>            <C>           <C>
Obligations of U.S. Government
  agencies and corporations:
  Within one year                       $ 22,000      $ 21,965        $ 21,900          5.41%
  After one but within five years         51,145        50,960          50,126          5.77
                                        --------      --------        --------         -----
   Total obligations of U.S. Government
     agencies and corporations            73,145        72,925          72,026          5.66
                                        --------      --------        --------         -----
U.S. Treasury securities:
  Within one year                         11,000        10,979          10,979          5.32
  After one but within five years          2,000         1,992           1,992          6.63
                                        --------      --------        --------         -----
    Total U.S. Treasury securities        13,000        12,971          12,971          5.52
                                        --------      --------        --------         -----
Obligations of states and political
   subdivisions:
  Within one year                            290           305             290          8.71
  After one but within five years          4,540         4,777           4,526          8.47
  After five but within ten years          3,665         3,840           3,799          8.13
  After ten years                            120           121             119          8.35
                                        --------      --------        --------         -----
    Total obligations of states and        8,615         9,043           8,734          8.33
     politicalsubdivisions              --------      --------        --------         -----

Mortgage-backed securities                 6,722         6,765           6,693          6.92
                                        --------      --------        --------         -----

Other securities:
  Within one year                              0             0               0            --
  After one but within five years              0             0               0            --
  After five but within ten years              0             0               0            --
  After ten years                          1,019         1,019           1,019          4.83
                                        --------      --------        --------         -----
    Total other securities                 1,019         1,019           1,019          4.83
                                        --------      --------        --------         -----

       Total securities                 $102,501      $102,723        $101,443          5.95%
                                        ========      ========        ========         =====

</TABLE>



Loan Portfolio

     Total loans, net of unearned income, decreased $3,464,000, or
1.9%, from $186,626,000 at December 31, 1999, to $183,162,000 at
June 30, 2000. The decrease during the first six months of 2000 was
primarily a result of continued net payoffs of the Company's
indirect installment loans. These payoffs resulted in a decrease of
approximately $4.9 million in such loans.



                                 16
<PAGE>


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

     Due to diminished loan demand during the early 1990's, the
Bank instituted an installment loan program whereby it began to
purchase automobile loans from automobile dealerships in its market
areas. Under this program, an automobile dealership will agree to
make a loan to a prospective customer to finance the purchase of a
new or used automobile. The different financial institutions that
have a pre-established relationship with the particular dealership
review the transaction, including the credit history of the
prospective borrower, and decide if they would agree to purchase
the loan from the dealership and, if so, at what rate of interest.
The dealership selects the financial institution to which it
decides to sell the loan. The financial institution purchasing the
loan has a direct loan to the borrower collateralized by the
automobile, and the dealership realizes a profit based on the
difference between the interest rate quoted to the buyer by the
dealership and the interest rate at which the loan is purchased by
the financial institution. At June 30, 2000, the Company had
approximately $9,092,000, net of unearned income, of this type of
loan outstanding compared to approximately $14,004,000 of this type
loan at December 31, 1999. The decrease is due to management's
decision to shift the loan portfolio toward more commercial and
real estate loans and less toward indirect installment loans.

     The following table presents the Company's loan balances at
the dates indicated separated by loan types.

                                         June 30,  December 31,
                                           2000       1999
                                         -------   -----------
                                           (In thousands)
     Real estate loans                  $ 70,567     $ 72,268
     Commercial loans                     60,729       55,270
     Loans to individuals                 39,934       46,748
     Other loans                          12,156       12,857
                                         -------     --------
      Total loans                        183,386      187,143
     Less unearned income                    224          517
                                         -------     --------
      Loans, net of unearned income     $183,162     $186,626
                                        ========     ========


     Loan concentrations are considered to exist when there are
amounts loaned to a multiple number of borrowers engaged in similar
activities that would cause them to be similarly impacted by
economic or other conditions. The Company had no concentrations of
loans at June 30, 2000, except for those described in the above
table. The Bank had no loans outstanding to foreign countries or
borrowers headquartered in foreign countries at June 30, 2000.

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

     The following table presents the distribution of the maturity
of the Company's loans and the interest rate sensitivity of those
loans, excluding loans to individuals, at June 30, 2000. The table
also presents the portion of loans that have fixed interest rates
or interest rates that fluctuate over the life of the loans in
accordance with changes in the money market environment as
represented by the prime rate.

                                17

<PAGE>


<TABLE>




                                               One to    Over        Total
                                 One Year       Five     Five       Carrying
                                 and Less      Years    Years        Value
                              -----------     -------   ------     ----------
                                                  (In thousands)
<S>                           <C>            <C>       <C>       <C>
     Real estate loans          $  13,040     $48,249   $ 9,278     $   70,567
     Commercial loans              38,927      19,324     2,478         60,729
     Other loans                    9,619       2,150       387         12,156
                                ---------     -------   --------    ----------
      Total loans               $  61,586     $69,723   $12,143     $  143,452
                                =========     =======   =======     ==========

     With fixed interest rates  $  21,232     $56,158   $ 8,973     $   86,363
     With variable interest
       rates                       40,354      13,565     3,170         57,089
                                ---------     -------   -------     ----------
     Total loans                $  61,586     $69,723   $12,143     $  143,452
                                =========     =======   =======     ==========

</TABLE>

Allowance for Possible Loan Losses

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

     The amount of the allowance equals the cumulative total of the
loan loss provisions made from time to time, reduced by loan charge-
offs, and increased by recoveries of loans previously charged off.
The Company's allowance was $2,203,000, or 1.20% of loans, net of
unearned income, at June 30, 2000, compared to $1,833,000, or 0.98%
of loans, net of unearned income, at December 31, 1999.

     Credit and loan decisions are made by management and the Board
of Directors of the Bank in conformity with loan policies
established by the Board of Directors of the Company. The Company's
practice is to charge off any loan or portion of a loan when it is
determined by management to be uncollectible due to the borrower's
failure to meet repayment terms, the borrower's deteriorating or
deteriorated financial condition, the depreciation of the
underlying collateral, the loan's classification as a loss by
regulatory examiners or for other reasons. The Company charged off
$85,000 and $194,000 in loans during the second quarter and first
six months of 2000, respectively. Recoveries during the second
quarter and first six months of 2000 were $22,000 and $54,000,
respectively.

     The following table presents the provisions for loan losses,
loans charged off and recoveries on loans previously charged off,
the amount of the allowance, the average loans outstanding and
certain pertinent ratios for the quarters and six-month periods
ended June 30, 2000 and 1999.

                               18
<PAGE>

<TABLE>

                                           Quarter Ended         Six-month Period
                                              June 30,            Ended June 30,
                                           ---------------     ------------------
                                             2000    1999       2000       1999
                                          --------  ------     --------   -------

                                                    (Dollars in thousands)
<S>                                       <C>        <C>       <C>        <C>
Analysis of allowance for possible
  loan losses:
Balance, beginning of period              $  1,866    $1,849    $ 1,833     $ 1,842
      Provision for loan losses                400        65        510         170
                                          --------    ------    -------     -------
                                             2,266     1,914      2,343       2,012
                                          --------    ------    --------    -------
     Loans charged off:
      Real estate loans                          0         1           0          1
      Commercial loans                          21        32          50         32
      Loans to individuals                      64       134         138        276
      Other loans                                0         0           6          0
                                         ---------   -------    --------    -------
       Total charge-offs                        85       167         194        309
                                         ---------   -------    --------    -------
     Recoveries of loans previously
      charged off:
      Real estate loans                          1       47            1         47
      Commercial loans                           1       11            6         20
      Loans to individuals                      20       32           46         67
      Other loans                                0        0            1          0
                                        ----------   ------     --------    -------
       Total recoveries                         22       90           54        134
                                        ----------   ------     --------    -------
        Net loan charge-offs                    63       77          140        175
                                        ----------   ------     --------    -------
     Balance, end of period             $    2,203  $ 1,837     $  2,203   $  1,837
                                        ==========  =======     ========   ========
     Average loans outstanding, net
       of unearned income               $  184,810  $182,438    $185,486   $183,393
                                        ==========  ========    ========   ========
     Ratio of net loan charge-offs
     to average loans outstanding,
     net of unearned income
          (annualized)                       0.09%     0.17%        0.15%      0.19%
                                        =========   =======     ========   ========
     Ratio of allowance for possible
     loan losses to total loans, net
     of unearned income, at June 30         1.20%     1.01%         1.20%      1.01%
                                        ========    ======      ========   ========
</TABLE>


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

     As the economies of the Company's market areas recovered and
stabilized over the past several years, there was a steady
reduction in the amount of the provisions, as a percentage of
average loans outstanding, necessary to maintain an adequate
balance in the allowance. This reflected not only the loan loss
trend, but management's assessment of the continued reduction of
credit risks associated with the loan portfolio. Due to an increase
in nonperforming and classified loans at June 30, 2000, as
discussed below, a somewhat larger provision was made during the
second quarter of 2000.

     The amount of the allowance is established by management based
upon estimated risks inherent in the existing loan portfolio.
Management reviews the loan portfolio on a continuing basis to
evaluate potential problem loans. This review encompasses
management's estimate of current economic conditions and the
potential impact on various industries, prior loan loss experience
and the financial conditions of individual borrowers. Loans that
have been specifically identified as problem or nonperforming loans
are reviewed on at least a quarterly basis, and management
critically evaluates the prospect of ultimate losses
arising from such loans, based on the borrower's financial
condition and the value of available collateral. When a risk can be
specifically quantified for a loan, that amount is specifically
allocated in the allowance. In addition, the Company allocates the
allowance based upon the historical loan loss experience of the


                                 19
<PAGE>



different types of loans. Despite such allocation, both the
allocated and unallocated portions of the allowance are available
for charge-offs for all loans.

     The following table shows the allocations in the allowance and
the respective percentages of each loan category to total loans at
June 30, 2000, and December 31, 1999.

<TABLE>


                                         June 30, 2000               December 31, 1999
                                 ----------------------------   --------------------------
                                                  Percent of                    Percent of
                                                   Loans by                      Loans by
                                   Amount of     Category to     Amount of     Category to
                                   Allowance    Loans, Net of    Allowance     Loans, Net of
                                 Allocated to      Unearned     Allocated to    Unearned
                                   Category         Income        Category        Income
                                 ------------   -------------   -----------    -----------
<S>                               <C>           <C>             <C>           <C>
                                                   (Dollars in thousands)
Real estate loans                   $   257           38.5%      $    198            38.7%
Commercial loans                        345           33.2            254            29.6
Loans to individuals                    361           21.7            672            24.8
Other loans                           1,037            6.6             37             6.9
                                    -------       --------       --------         -------
  Total allocated                     2,000          100.0%         1,161           100.0%
                                                  ========                        =======
Unallocated                             203                           672
                                    -------                      --------
Total allowance for possible        $ 2,203                      $  1,833
  loan losses                       =======                      ========

</TABLE>


Loan Review Process

     The Company follows a loan review program to evaluate the
credit risk in its loan portfolio. Through the loan review process,
the Bank maintains an internally classified loan list that, along
with the list of nonperforming loans discussed below, helps
management assess the overall quality of the loan portfolio and the
adequacy of the allowance. Loans classified as "substandard" are
those loans with clear and defined weaknesses such as highly
leveraged positions, unfavorable financial ratios, uncertain
repayment sources, involvement in bankruptcy proceedings or poor
financial condition, which may jeopardize recoverability of the
loan. Loans classified as "doubtful" are those loans that have
characteristics similar to substandard loans, but also have an
increased risk that a loss may occur or at least a portion of the
loan may require a charge-off if liquidated at present. Although
loans classified as substandard do not duplicate loans classified
as doubtful, both substandard and doubtful loans may include some
loans that are past due at least 90 days, are on nonaccrual status
or have been restructured. Loans classified as "loss" are those
loans that are usually in the process of being charged off. At June
30, 2000, substandard loans totaled $4,828,000, of which $823,000
were loans designated as nonaccrual, 90 days past due or
restructured. There were no doubtful loans or loss loans.
Substandard, doubtful and loss loans at December 31, 1999, were
$1,765,000, $0 and $4,000, respectively. The increase in substandard
loans at June 30, 2000, was due to certain loans which had become
90 days past due or classified at June 30, 2000. Subsequent to
June 30, 2000, the Bank agreed to renew or advance on these loans
and the Bank obtained additional collateral on certain of the loans.

     In addition to the internally classified loans, the Bank also
has a "watch list" of loans that further assists the Bank in
monitoring its loan portfolio. A loan is included on the watch list
if it demonstrates one or more deficiencies requiring attention
in the near term or if the loan's ratios have weakened to a point
where more frequent monitoring is warranted. These loans do not
have all the characteristics of a classified loan (substandard,
doubtful or loss), but do have weakened elements as compared with
those of a satisfactory credit. Management of the Bank reviews these
loans in assessing the adequacy of the allowance. Substantially all
of the loans on the watch list at June 30, 2000, were current and paying
in accordance with loan terms; however, $53,000 of such loans were
an nonaccrual, but were guaranteed by a U.S.


                                20

<PAGE>


governmental agency. At June 30, 2000, watch list loans totaled
$3,101,000 (including $667,000 of loans guaranteed by U.S.
governmental agencies). Of the total loans on the watch list,
$2,113,000 represented one loan that the Bank had not renewed
as of June 30, 2000, but which was renewed subsequent to that date,
and $317,000 of the loans involved borrowers who had filed Chapter 13
bankruptcy and the Bank was awaiting finalization of the individual
borrowers' bankruptcy plans. At June 30, 2000, $49,000 of loans not
classified and not on the watch list were designated as nonaccrual or
restructured loans. See "Nonperforming Assets" below.

Nonperforming Assets

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

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

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

     The following table lists nonaccrual, past due and
restructured loans and other real estate and other repossessed
assets at June 30, 2000, and December 31, 1999.

                                          June 30,  December 31,
                                            2000         1999
                                        ----------  -------------
                                             (In thousands)
     Nonaccrual loans                   $    115       $  236
     Accruing loans contractually past
       due over 90 days                      733          203
     Restructured loans                      144          186
     Other real estate and other
       repossessed assets                    262          272
                                        --------       ------
     Total nonperforming assets         $  1,254       $  897
                                        ========       ======
     The gross interest income that would have been recorded during
the second quarter and first six months of 2000 on the Company's
nonaccrual loans if such loans had been current, in accordance with
the original terms thereof and outstanding throughout the period or, if
shorter, since origination, was approximately $3,000 and $8,000,
respectively. Interest income totaling $15,000 was actually
recorded (received) on loans that were on nonaccrual during the
first six months of 2000.

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


                                 21
<PAGE>

Intangible Assets

     Intangible assets decreased $335,000, or 3.3%, from
$10,158,000 at December 31, 1999, to $9,823,000 at June 30, 2000.
This decrease was due entirely to core deposit intangible and
goodwill amortization expense recorded during the first six months
of 2000.

Premises and Equipment

     Premises and equipment decreased $287,000, or 2.9%, during the
first six months of 2000, from $9,816,000 at December 31, 1999, to
$9,529,000 at June 30, 2000. The decrease was due to depreciation
expense of $366,000, which was recorded during the first half of
2000. This decrease was partially offset by purchases of small
amounts of equipment during the first six months of 2000.

Accrued Interest Receivable

     Accrued interest receivable consists of interest that has
accrued on securities and loans, but is not yet payable under the
terms of the related agreements. The balance of accrued interest
receivable decreased $141,000, or 4.0%, from $3,538,000 at December
31, 1999, to $3,397,000 at June 30, 2000. The increase was
primarily a result of decreases in loans and securities, on which
interest is collected periodically, and an increase in federal
funds sold, on which interest is collected daily. Of the total
balance at June 30, 2000, $2,018,000, or 59.4%, was interest
accrued on loans and $1,379,000, or 40.6%, was interest accrued on
securities. The amounts of accrued interest receivable and
percentages attributable to loans and securities at December 31,
1999, were $2,058,000, or 58.2%, and $1,480,000, or 41.8%,
respectively.

Other Real Estate and Other Repossessed Assets

     Other real estate and other repossessed assets consist of real
property and other assets unrelated to banking premises or
facilities. Income derived from other real estate and other
repossessed assets, if any, is generally less than that which would
have been earned as interest at the original contract rates on the
related loans. At June 30, 2000, and December 31, 1999, other real
estate and other repossessed assets had an aggregate book value of
$262,000 and $272,000, respectively. Other real estate and other
repossessed assets decreased $10,000, or 3.7%, during the first six
months of 2000, primarily due to the sale of two parcels of real
estate. Of the June 30, 2000, balance, $232,000 represented three
commercial and two residential properties and $30,000 represented
six repossessed automobiles.

Other Assets

     The most significant component of other assets at June 30,
2000, is a net deferred tax asset of $488,000. The balance of other
assets increased $154,000, or 7.6%, to $2,176,000 at June 30, 2000,
from $2,022,000 at December 31, 1999, partially as a result of an
increase in the amount of prepaid expenses during the first six
months of 2000.

Deposits

     The Bank's lending and investing activities are funded almost
entirely by core deposits, 50.8% of which are demand, savings and
money market deposits at June 30, 2000. Total deposits decreased
$7,541,000, or 2.4%, from $318,299,000 at December 31, 1999, to
$310,758,000 at June 30, 2000. The decrease was due to decreases in
interest-bearing demand and time deposits. These decreases were
partially offset by an increase in noninterest bearing demand
deposits. The Bank does not have any brokered deposits.


                                 22
<PAGE>





     The following table presents the average amounts of, and the
average rates paid on, deposits of the Company for the quarters
ended June 30, 2000 and 1999.

<TABLE>


                            Quarter Ended June 30,          Six-month Period Ended June 30,
                      ----------------------------------  ----------------------------------
                            2000              1999              2000              1999
                      ---------------   ---------------   ---------------    ---------------
                       Average  Average  Average  Average  Average  Average  Average   Average
                       Amount    Rate    Amount    Rate    Amount    Rate    Amount     Rate
                      --------  -----    -------  ------   -------  -----    -------   -----
                                        (Dollars in thousands)
<S>                     <C>     <C>     <C>        <C>    <C>       <C>      <C>       <C>
Noninterest-bearing
  demand deposits      $60,352    --%    $58,157    --%    $59,922    --%    $57,506     --%
Interest-bearing
  demand,savings and
   money market
   deposits            101,339   2.05    106,538   2.09    102,210   2.04    107,878    2.12
Time deposits of
  less than $100,000   103,697   5.33    109,837   4.74    103,948   5.19    110,517    4.82
Time deposits of
  $100,000 or more      51,037   5.56     47,208   4.88     51,530   5.41     47,680    4.93
                      --------  -----   --------  -----   --------  -----   --------   -----
Total deposits        $316,425   3.30%  $321,740   3.03%  $317,610   3.23%  $323,579    3.08%
                      ========  =====   ========  =====   ========  =====   ========   =====

</TABLE>


     The maturity distribution of time deposits of $100,000 or more
at June 30, 2000, is presented below.

                                     At June 30, 2000
                                     ----------------
                                      (In thousands)
          3 months or less               $16,070
          Over 3 through 6 months         14,617
          Over 6 through 12 months        14,446
          Over 12 months                   4,414
                                         -------
             Total time deposits of
               $100,000 or more          $49,547
                                         =======
     The Bank experiences relatively limited reliance on time
deposits of $100,000 or more. Time deposits of $100,000 or more are
a more volatile and costly source of funds than other deposits and
are most likely to affect the Company's future earnings because of
interest rate sensitivity. At June 30, 2000, and December 31, 1999,
deposits of $100,000 or more represented approximately 14.1% and
14.9%, respectively, of the Company's total assets.

Accrued Interest Payable

     Accrued interest payable consists of interest that has accrued
on deposits, but is not yet payable under the terms of the related
agreements. The balance of accrued interest payable increased
$23,000, or 2.1%, from $1,074,000 at December 31, 1999, to
$1,097,000 at June 30, 2000, due to an increase in interest rates
being paid on interest-bearing time deposits.

Other Liabilities

     The most significant components of other liabilities are
amounts accrued for various types of expenses. The balance of other
liabilities increased $152,000 or 28.5%, from $533,000 at December
31, 1999, to $685,000 at June 30, 2000, primarily due to an
increase in accrued property taxes that were paid on December 31,
1999, and an increase in unearned income on safe deposit box
rental, the vast majority of which is collected at the first of
each year and earned throughout the remainder of the year.

Interest Rate Sensitivity

     Interest rate risk arises when an interest-earning asset
matures or when its rate of interest changes in a time frame
different from that of the supporting interest-bearing liability.
The Company seeks to minimize the difference between the amount of
interest-earning assets and the amount of interest-bearing
liabilities that could change interest rates in the same time frame
in an attempt to reduce the risk of significant adverse


                                 23
<PAGE>




effects on the Company's net interest income caused by interest
rate changes. The Company does not attempt to match each interest-earning
asset with a specific interest-bearing liability. Instead, as shown in
the table below, it aggregates all of its interest-earning assets
and interest-bearing liabilities to determine the difference
between the two in specific time frames. This difference is known
as the rate-sensitivity gap. A positive gap indicates that more
interest-earning assets than interest-bearing liabilities mature in
a time frame, and a negative gap indicates the opposite.
Maintaining a balanced position will reduce risk associated with
interest rate changes, but it will not guarantee a stable interest
rate spread because the various rates within a time frame may
change by differing amounts and occasionally change in different
directions. Management regularly monitors the interest sensitivity
position and considers this position in its decisions in regard to
interest rates and maturities for interest-earning assets acquired
and interest-bearing liabilities accepted.

     The Company's objective is to maintain a ratio of interest-
sensitive assets to interest-sensitive liabilities that is as
balanced as possible. The following table shows that ratio to be
67.9% at the 90-day interval, 63.4% at the 180-day interval and
62.3% at the 365-day interval at June 30, 2000. Currently, the
Company is in a liability-sensitive position at the three
intervals. During an overall rising interest rate environment, as
was evident during the first six months of 2000, this position
would normally produce a lower net interest margin than in a
falling interest rate environment; however, because the Company had
$98,363,000 of interest-bearing demand, savings and money market
deposits at June 30, 2000, that are somewhat less rate-sensitive,
the Company's net interest margin does not necessarily decrease in
an overall rising interest rate environment. Excluding these types
of deposits, the Company's interest-sensitive assets to interest-
sensitive liabilities ratio at the 365-day interval would have been
107.0% at June 30, 2000. The interest sensitivity position is
presented as of a point in time and can be modified to some extent
by management as changing conditions dictate.

     The following table shows the interest rate sensitivity
position of the Company at June 30, 2000.
<TABLE>

                                                                           Volumes
                                                                           Subject
                                             Cumulative Volumes              to
                                         Subject to Repricing Within      Repricing
                                       -------------------------------      After
                                       90 Days    180 Days    365 Days     1 Year       Total
                                       -------    ---------   --------    ---------   ---------
<S>                                   <C>        <C>         <C>         <C>        <C>
Interest-earning assets:                               (Dollars in thousands)
  Federal funds sold                  $  24,818   $  24,818   $  24,818    $      0    $ 24,818
  Securities                              5,289      16,248      33,249      69,474     102,723
  Loans, net of unearned income          72,721      78,146      88,508      94,654     183,162
                                      ---------   ---------   ---------    --------    --------
  Total interest-earning assets         102,828     119,212     146,575     164,128     310,703
Interest-bearing liabilities:
  Demand, savings and money market
    deposits                             98,363      98,363      98,363           0      98,363
  Time deposits                          53,010      89,725     136,924      15,991     152,915
                                      ---------   ---------   ---------   ---------    --------
    Total interest-bearing
      liabilities                       151,373     188,088     235,287      15,991     251,278
                                      ---------   ---------   ---------   ---------    --------
Rate-sensitivity gap(1)               $ (48,545)  $ (68,876)  $ (88,712)  $ 148,137    $ 59,425
                                      =========   =========   =========   =========    ========

Rate-sensitivity ratio(2)                  67.9%       63.4%       62.3%
                                      =========   =========   =========

</TABLE>


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




                                 24
<PAGE>



Selected Financial Ratios

     The following table presents selected financial ratios
(annualized) for the quarters and six-month periods ended June 30,
2000 and 1999.

                                   Quarter Ended    Six-month Period
                                      June 30,      Ended June 30,
                                   -------------    --------------
                                    2000    1999     2000   1999
                                   -----   -----    ------ -------
Net income to:
  Average assets                    0.35%   0.70%    0.45%  0.69%
  Average interest-earning assets   0.39    0.79     0.51   0.79
  Average stockholders' equity      4.73   10.22     6.19  10.22
Dividend payout (1) to:
  Net income                       43.87   17.36    34.00  17.50
  Average stockholders' equity      2.08    1.77     2.11   1.79
Average stockholders' equity to:
  Average total assets              7.33    6.80     7.23   6.77
  Average loans (2)                14.18   13.47    13.98  13.42
  Average total deposits            8.28    7.64     8.16   7.60
Average interest-earning assets to:
  Average total assets             88.18   87.89    87.92  87.66
  Average total deposits           99.70   98.72    99.27  98.42
  Average total liabilities        99.03   98.09    98.62  97.79
Ratio to total average deposits of:
  Average loans (2)                58.41   56.70    58.40  56.68
  Average noninterest-bearing
     deposits                      19.07   18.08    18.87  17.77
  Average interest-bearing
     deposits                      80.93   81.92    81.13  82.23
Total interest expense to total
    interest income                41.79   40.66    41.44  41.33
Efficiency ratio (3)               69.61   65.47    70.08  65.67
_________________________
(1)  Dividends on Common Stock only.
(2)  Before allowance for possible loan losses.
(3)  Calculated as a noninterest expense less distributions on
     guaranteed preferred beneficial interests in the Company's
     subordinated debentures, amortization of intangibles and
     expenses related to other real estate and other repossessed
     assets divided by the sum of net interest income before
     provision for loan losses and total noninterest income,
     excluding securities gains and losses.

Liquidity

The Bank

     Liquidity with respect to a financial institution is the
ability to meet its short-term needs for cash without suffering an
unfavorable impact on its on-going operations.  The need for the
Bank to maintain funds on hand arises principally from maturities
of short-term borrowings, deposit withdrawals, customers' borrowing
needs and the maintenance of reserve requirements.  Liquidity with
respect to a financial institution can be met from either assets or
liabilities.  On the asset side, the primary sources of liquidity
are cash and due from banks, federal funds sold, maturities of
securities and scheduled repayments and maturities of loans.  The
Bank maintains adequate levels of cash and near-cash investments to
meet its day-to-day needs.  Cash and due from banks averaged
$18,408,000 and $19,419,000 during the second quarter and first six
months of 2000, respectively, and $18,804,000 and $19,537,000
during the second quarter and first six months of 1999,
respectively.  These amounts comprised 5.1% and 5.4% of average
total assets during the second quarter and first six months of
2000, respectively, and 5.2% and 5.4% of average total assets
during the second quarter and first six months of 1999,
respectively.



                                 25
<PAGE>




     The average level of securities and federal funds
sold was $130,675,000 and $129,812,000 during the second quarter
and first six months of 2000, respectively, and $135,172,000 and
$135,066,000 during the second quarter and first six months of 1999,
respectively. The decreases in average balances from of 1999 to 2000
was primarily due to a decrease in total deposits during that time
period.

     A total of $1,000,000 and $3,000,000 of securities classified
as available-for-sale were sold during the quarter and six-month
period ended June 30, 2000, respectively. No securities were sold
during the quarter or six-month period ended June 30, 1999. At June
30, 2000, $33,249,000, or 34.6%, of the Company's securities
portfolio, excluding mortgage-backed securities, matured within one
year and $57,729,000, or 60.2%, excluding mortgage-backed
securities, matured after one but within five years. The Bank's
commercial and real estate lending activities are concentrated in
loans with maturities of less than five years with both fixed and
adjustable interest rates, while its installment lending activities
are concentrated in loans with maturities of three to five years
and with primarily fixed interest rates. The Bank's experience,
however, has been that these installment loans are paid off in an
average of approximately thirty months. At June 30, 2000,
approximately $88,508,000, or 48.3%, of the Company's loans, net of
unearned income, matured within one year and/or had adjustable
interest rates. Approximately $78,321,000, or 54.6%, of the
Company's loans (excluding loans to individuals) matured within one
year and/or had adjustable interest rates. See "Analysis of
Financial Condition - Loan Portfolio" above.

     On the liability side, the principal sources of liquidity are
deposits, borrowed funds and the accessibility to money and capital
markets. Customer deposits are by far the largest source of funds.
During the second quarter and first six months of 2000, the
Company's average deposits were $316,425,000 and $317,610,000, or
88.4% and 88.6%, of average total assets, respectively, compared to
$321,740,000 and $323,581,000, or 89.0% and 89.1% of average total
assets, respectively, during the second quarter and first six
months of 1999. The Company attracts its deposits primarily from
individuals and businesses located within the market areas served
by the Bank. See "Analysis of Financial Condition - Deposits"
above.

     The level of nonperforming assets has squeezed interest
margins and has resulted in noninterest expenses from net operating
costs and write-downs associated with nonperforming assets,
although the ratio of such nonperforming assets to total assets has
generally been decreasing over the past several years. To improve
liquidity, the Bank has implemented various cost-cutting and
revenue-generating measures and extended efforts to reduce
nonperforming assets.

The Company

     The Company depends on the Bank for liquidity in the form of
cash flow, primarily to meet debt service and dividend requirements
and to cover other operating expenses. This cash flow comes from
three sources: (1) dividends resulting from earnings of the Bank,
(2) current tax liabilities generated by the Bank and
(3) management and service fees for services performed for the
Bank.

     The payment of dividends to the Company is subject to
applicable law and the scrutiny of regulatory authorities.
Dividends paid by the Bank to Independent Financial during the
second quarter and first six months of 2000 were $450,000 and
$900,000, respectively; in turn, Independent Financial and
Independent Capital Trust paid dividends to the Company totaling
$459,000 and $918,000, respectively, during the same time periods
of 2000.  Dividends paid by the Bank to Independent Financial
during the second quarter and first six months of 1999 were
$400,000 and $875,000, respectively; in turn, Independent Financial
and Independent Capital Trust paid dividends to the Company of
$409,000 and $893,000, respectively, during the same time periods.
At June 30, 2000, there were approximately $4,341,000 in dividends
available for payment to Independent Financial by the Bank without
regulatory approval.

     The payment of current tax liabilities generated by the Bank
and management and service fees constituted 47.8% and 2.6%
respectively, of the Company's cash flow during the second quarter
of 2000. These percentages were 48.2% and 3.3%, respectively, for
the first six months of 2000. Pursuant to a tax-


                                 26
<PAGE>


sharing agreement, the Bank pays to the Company an amount equal
to its individual tax liability on the accrual method of federal
income tax reporting. The accrual method generates more timely
payments of current tax liabilities by the Bank to the Company,
increasing the regularity of cash flow and shifting the time value
of such funds to the Company.  In the event that the Bank incurs
losses, the Company may be required to refund tax liabilities
previously collected. Current tax liabilities totaling $900,000
were paid by the Bank to the Company during the first six months
of 2000, compared to a total of $885,000 during the first six
months of 1999.

     The net operating loss carryforwards available for regular
federal income tax purposes were fully utilized by December 31,
1997. The Company's alternative minimum tax credit carryforwards
were fully utilized at December 31, 1999.

     The Bank pays management fees to the Company for services
performed.  These services include, but are not limited to,
financial and accounting consultation, attendance at the Bank's
board meetings, audit and loan review services and related
expenses.  The Bank paid a total of $25,000 and $63,000 in
management fees to the Company in the second quarter and first six
months of 2000, respectively.  The Bank paid a total of $48,000 and
$73,000 in management fees to the Company during the second quarter
and first six months of 1999, respectively. The Company's fees must
be reasonable in relation to the management services rendered, and
the Bank is prohibited from paying management fees to the Company
if the Bank would be undercapitalized after any such distribution
or payment.

Capital Resources

     At June 30, 2000, stockholders' equity totaled $26,048,000, or
7.4% of total assets, compared to $25,356,000, or 7.1% of total
assets, at December 31, 1999.

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

     Banking regulators also have leverage ratio requirements. The
leverage ratio requirement is measured as the ratio of Tier 1
capital to adjusted quarterly average assets. The leverage ratio
standards require all banking companies to have a minimum leverage
ratio of at least 4% and to be designated as well-capitalized, the
banking company must have a leverage ratio of at least 5%. The
following table provides a calculation of the Company's risk-based
capital and leverage ratios and a comparison of the Company's and
the Bank's risk-based capital ratios and leverage ratios to the
minimum regulatory and well-capitalized minimum requirements at
June 30, 2000.

                                27

<PAGE>
<TABLE>



The Company                                                 June 30, 2000
-----------                                                 -------------
<S>                                                   <C>
Tier 1 capital:
  Common stockholders' equity, excluding unrealized
   loss on available-for-sale securities                      $  26,243
  Qualifying guaranteed preferred beneficial interests
   in the Company's subordinated debentures(1)                    8,747
  Intangible assets                                              (9,823)
                                                              ---------
     Total Tier 1 capital                                        25,167
                                                              ---------

Tier 2 capital:
  Guaranteed preferred beneficial interests in
   the Company's subordinated debentures(1)                       4,253
  Allowance for possible loan losses (2)                          2,203
                                                              ---------
    Total Tier 2 capital                                          6,456
                                                              ---------

        Total capital                                         $  31,623
                                                              =========

Risk-weighted assets                                          $ 201,308
                                                              =========

Adjusted quarterly average assets                             $ 347,705
                                                              =========

                                       Regulatory       Well-capitalized   Actual Ratios at
The Company                             Minimum             Minimum          June 30, 2000
-----------                         ----------------   -----------------   ----------------
<S>                                <C>                 <C>                <C>

Tier 1 capital to risk-weighted
  assets ratio                            4.00%               6.00%              12.50%
Total capital to risk-weighted
  assets ratio                            8.00               10.00               15.71
Leverage ratio                            4.00                5.00                7.24

The Bank
--------

Tier 1 capital to risk-weighted
  assets ratio                            4.00%               6.00               14.04%
Total capital to risk-weighted
  assets ratio                            8.00               10.00               15.14
Leverage ratio                            4.00                5.00                8.10

</TABLE>

___________________________
(1)  Limited to 25% of total Tier 1 capital, with any remainder
     qualifying as Tier 2 capital.
(2)  Limited to 1.25% of risk-weighted assets.

     The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") requires each federal banking agency to revise its
risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities, as well as
reflect the actual performance and expected risk of loss on multi-
family mortgages. This law also requires each federal banking
agency to specify the levels at which an insured institution would
be considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Under the FDIC's regulations, the
Company and the Bank were both "well capitalized" at June 30,
2000.

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



                                 28
<PAGE>



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

     The Company began paying quarterly cash dividends of $0.03
per share on the Common Stock during the second quarter of 1994.
The Company's Board of Directors increased the Company's quarterly
Common Stock cash dividend to $0.05 per share during the second
quarter of 1996 and to $0.06 per share during the first quarter of
2000.

Pending Sale of the Company

     On March 1, 2000, the Company executed a definitive agreement
(the "Agreement") with State National for State National, to
acquire all of the Company's outstanding Common Stock for cash of
approximately $45,473,000, or approximately $20.00 per share. The
aggregate purchase price will increase if the closing of the
transaction does not occur on or before the 160th day following the
execution date of the Agreement. The Agreement additionally calls
for State National to assume the Company's obligations on
$13,000,000 of outstanding Trust Preferred Securities. State
National is a privately held bank holding company headquartered in
Lubbock, Texas. The transaction was approved by the Company's
shareholders on July 12, 2000, and is expected to be completed on
August 11, 2000.


                                29


<PAGE>

                             PART II

                        OTHER INFORMATION

Item 1.   Legal Proceedings.

     The Estate of Harry V. Howard, Deceased, filed a lawsuit
against the Bank (as successor to First State Bank of Odessa,
N.A.), (The Estate of Harry V. Howard, Deceased v. First State
Bank of Odessa, N.A., Odessa, Texas, Cause No. 1268) on July 9,
1999, in the County Court of Upton County, Texas. This case was
subsequently refiled in the 104th District Court for Taylor
County, Texas as Cause No. 22080-B. The plaintiffs' lawsuit
relates to the Bank's management of the Harry V. Howard Trust. The
lawsuit alleges that the Bank, in its capacity as trustee of this
testamentary trust, failed to adequately oversee the trust assets
and allowed waste to occur to the trust principal. Additionally,
the lawsuit alleges that the Bank made inappropriate distributions
to the current beneficiary of the trust. The lawsuit also alleges,
among other things, other general acts of mismanagement and breach
of fiduciary duty. The lawsuit seeks actual and exemplary damages
in excess of $10,000,000, as well as pre and post-judgment
interest and attorneys' fees.  The Bank denies any allegations
made in the petition and intends to vigorously defend this suit.

     The Bank has trust errors and omissions liability insurance
to cover certain risk associated with claims filed against the
Bank as trustee.  The Bank has notified the insurance company of
the complaint filed against the Bank. The insurance company has
determined preliminarily that it appears the Bank has coverage
except for any punitive or exemplary damages under the policy up
to $2,000,000.

     The above mentioned complaint is still at an early stage.
Consequently, at this time it is not possible to predict whether
the Bank will incur any liability or to estimate the damages, or
the range of damages, if any, that the Bank might incur in
connection with such action.

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

Item 2.   Changes in Securities.

     None

Item 3.   Defaults upon Senior Securities.

     None

Item 4.   Submission of Matters to a Vote of Security Holders

     At the Company's Special Meeting of Shareholders held on
Wednesday, July 12, 2000 (the "Special Meeting"), the shareholders
of the Company approved and adopted the Agreement and Plan of
Reorganization between State National and the Company dated as of
March 1, 2000, pursuant to which New FSB, Inc., a wholly owned
subsidiary of State National, will merge with and into the Company
with the Company continuing as the surviving corporation and as a
wholly owned subsidiary of State National.

     Of the Company's 2,273,647 issued and outstanding shares of
common stock, 1,778,445 (78.22%) were represented at the Special
Meeting. Of the shares represented, 1,759,538 shares of the
Company's common stock (77.39% of the total shares outstanding)
voted for the merger, 5,638 shares (0.25% of the
total shares outstanding) voted against the merger and 13,269
shares (0.58% of the total shares outstanding) abstained.


                                 30
<PAGE>




Item 5.   Other Information.

     None

Item 6.   Exhibits and Reports on Form 8-K.

     (a)  Exhibits

          27.1 Financial Data Schedule

     (b)  Reports on Form 8-K

          None


                                31


<PAGE>
                            SIGNATURE


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




Date:  August 10, 2000        Independent Bankshares, Inc.
                              (Registrant)



                         By:  /s/Randal N. Crosswhite
                              -------------------------------
                              Randal N. Crosswhite
                              Senior Vice President and Chief
                              Financial Officer


                                32

<PAGE>