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, 1999

                                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 [X]     NO [ ]



       Indicate the number of shares outstanding of each of
      the issuer's classes of common stock at June 30, 1999.

          Class:  Common Stock, par value $0.25 per share
          Outstanding at June 30, 1999:  2,173,117 shares

<PAGE>

                              PART I

                       FINANCIAL INFORMATION


Item 1. Financial Statements.

                                -2-

<PAGE>

                  INDEPENDENT BANKSHARES, INC.
                  CONSOLIDATED BALANCE SHEETS
              JUNE 30, 1999 AND DECEMBER 31, 1998
                          (Unaudited)


                                          June 30,      December 31,
ASSETS                                       1999           1998
------                                  --------------   -----------
Cash and Cash Equivalents:
 Cash and Due from Banks                $  17,320,000    $22,562,000
 Federal Funds Sold                        22,975,000     42,175,000
                                          -----------    -----------
   Total Cash and Cash Equivalents         40,295,000     64,737,000
                                          -----------    -----------
Securities:
 Available-for-sale                        49,928,000     30,370,000
 Held-to-maturity                          61,619,000     64,838,000
                                          -----------    -----------
   Total Securities                       111,547,000     95,208,000
                                          -----------    -----------
Loans:
 Total Loans                              183,602,000    186,326,000
 Less:
  Unearned Income on Installment Loans        967,000      1,766,000
  Allowance for Possible Loan Losses        1,837,000      1,842,000
                                          -----------    -----------
   Net Loans                              180,798,000    182,718,000
                                          -----------    -----------
Intangible Assets                          10,498,000     10,831,000
Premises and Equipment                     10,053,000     10,294,000
Accrued Interest Receivable                 3,282,000      3,254,000
Other Real Estate and Other
  Repossessed Assets                          307,000        630,000
Other Assets                                2,215,000      2,506,000
                                        -------------   ------------
      Total Assets                      $ 358,995,000   $370,178,000
                                        =============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
 Noninterest-bearing Demand Deposits    $  60,641,000   $ 60,086,000
 Interest-bearing Demand Deposits         103,299,000    110,485,000
 Interest-bearing Time Deposits           155,994,000    160,233,000
                                        -------------   ------------
   Total Deposits                         319,934,000    330,804,000
Accrued Interest Payable                      924,000      1,163,000
Other Liabilities                             571,000        706,000
                                        -------------   ------------
     Total Liabilities                    321,429,000    332,673,000
                                        -------------   ------------
Guaranteed Preferred Beneficial
  Interests in the Company's
  Subordinated Debentures                  13,000,000     13,000,000
                                        -------------   ------------
Stockholders' Equity:
Series C Preferred Stock                       45,000         51,000
Common Stock                                  558,000        554,000
Additional Paid-in Capital                 15,936,000     15,933,000
Retained Earnings                           9,002,000      7,975,000
Unrealized Gain (Loss) on Available-
  for-sale Securities                        (179,000)       161,000
Treasury Stock                               (640,000)             0
Unearned ESOP Stock                          (156,000)      (169,000)
                                        -------------   ------------
     Total Stockholders' Equity            24,566,000     24,505,000
                                        -------------   ------------
      Total Liabilities and
       Stockholders' Equity             $ 358,995,000   $370,178,000
                                        =============   ============


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, 1999 AND 1998
                           (Unaudited)
<TABLE>
<CAPTION>


                                                                         Six-month Period
                                           Quarter Ended June 30,          Ended June 30,
                                        -------------------------   -------------------------
                                            1999         1998            1999         1998
                                        ----------  ------------    -----------  ------------
<S>                                     <C>         <C>             <C>          <C>
Interest Income:
 Interest and Fees on Loans             $ 4,198,000 $  3,189,000    $ 8,437,000   $ 6,333,000
 Interest on Securities                   1,500,000      955,000      2,906,000     1,973,000
 Interest on Federal Funds Sold             288,000      505,000        699,000       918,000
                                        ----------- ------------    -----------   -----------
  Total Interest Income                   5,986,000    4,649,000     12,042,000     9,224,000
                                        ----------- ------------    -----------   -----------
Interest Expense:
 Interest on Deposits                     2,434,000    2,134,000      4,977,000     4,287,000
                                        ----------- ------------    -----------   -----------
  Total Interest Expense                  2,434,000    2,134,000      4,977,000     4,287,000
                                        ----------- ------------    -----------   -----------
  Net Interest Income                     3,552,000    2,515,000      7,065,000     4,937,000
   Provision for Loan Losses                 65,000      125,000        170,000       300,000
                                        ----------- ------------    -----------   -----------

  Net Interest Income After
    Provision for Loan Losses             3,487,000    2,390,000      6,895,000     4,637,000
                                        ----------- ------------    -----------   -----------
Noninterest Income:
  Service Charges                           722,000      514,000      1,439,000       974,000
  Trust Fees                                 51,000       57,000        109,000       104,000
  Other Income                               60,000      107,000        128,000       259,000
                                        ----------- ------------     ----------   -----------

  Total Noninterest Income                  833,000      678,000      1,676,000     1,337,000
                                        ----------- ------------    -----------   -----------
Noninterest Expenses:
  Salaries and Employee Benefits          1,496,000    1,066,000      3,029,000     2,145,000
  Net Occupancy Expense                     363,000      239,000        706,000       468,000
  Distributions on Guaranteed
   Preferred Beneficial Interests
   in the Company'sSubordinated
   Debentures                               276,000            0        552,000             0
  Equipment Expense                         254,000      188,000        519,000       402,000
  Amortization of Intangible Assets         181,000       57,000        334,000       113,000
  Stationery, Printing and Supplies
  Expense                                   139,000      108,000        262,000       206,000
  Professional Fees                         114,000      203,000        208,000       266,000
  Net Costs Applicable to Other Real
    Estate and Other Repossessed Assets      28,000       21,000         56,000        47,000
  Other Expenses                            505,000      372,000      1,016,000       790,000
                                        -----------  -----------    -----------    ----------
    Total Noninterest Expenses            3,356,000    2,254,000      6,682,000     4,437,000
                                        -----------  -----------    -----------    ----------
Income Before Federal
  Income Taxes                              964,000      814,000      1,889,000     1,537,000
  Federal Income Taxes                      336,000      295,000        632,000       564,000
                                        -----------  -----------    -----------   -----------
    Net Income                              628,000      519,000      1,257,000       973,000
Other Comprehensive Income, Net of Taxes:
  Unrealized Holding Gains (Losses) on
   Available-for-sale Securities
   Arising During the Period               (189,000)      (9,000)      (340,000)        8,000
                                        -----------  -----------     ----------   -----------
Comprehensive Income                    $   439,000  $   510,000     $  917,000   $   981,000
                                        ===========  ===========     ==========   ===========
Preferred Stock Dividends               $     5,000  $     6,000     $   10,000   $    12,000
                                        ===========  ===========     ==========   ===========
Net Income Available to Common
 Stockholders                           $   623,000  $   513,000     $1,247,000   $   961,000
                                        ===========  ===========     ==========   ===========
Basic Earnings Per Common Share
 Available to Common Stockholders       $      0.29  $      0.26     $     0.57   $      0.49
                                        ===========  ===========     ==========   ===========
Diluted Earnings Per Common Share
 Available to Common Stockholders      $      0.28   $      0.25     $     0.55   $      0.47
                                        ===========  ===========     ==========   ===========

</TABLE>



   See Accompanying Notes to Consolidated Financial Statements.

                                -4-

<PAGE>
                   INDEPENDENT BANKSHARES, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS
          SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
                            (Unaudited)
<TABLE>
<CAPTION>

                                                                  1999               1998
                                                              -----------       ------------
<S>                                                           <C>               <C>
Cash Flows from Operating Activities:
 Net Income                                                   $ 1,257,000        $   973,000
Adjustments to Reconcile Net Income to Net Cash
 Provided by Operating Activities:
  Deferred Federal Income Tax Expense                             268,000            232,000
  Depreciation and Amortization                                   713,000            393,000
  Provision for Loan Losses                                       170,000            300,000
  Gains on Sales of Premises and Equipment                         (1,000)                 0
  Gains on Sales of Other Real Estate and
    Other Repossessed Assets                                            0             (3,000)
  Decrease (Increase) in Accrued Interest Receivable              (28,000)            68,000
  Decrease (Increase) in Other Assets                              23,000           (133,000)
  Decrease in Accrued Interest Payable                           (239,000)           (79,000)
  Increase in Other Liabilities                                   133,000            113,000
                                                               ----------        -----------
Net Cash Provided by Operating Activities                       2,296,000          1,864,000
                                                              -----------        -----------

Cash Flows from Investing Activities:
  Proceeds from Maturities of Available-for-sale Securities     3,487,000          5,189,000
  Proceeds from Maturities of Held-to-maturity Securities      30,070,000         19,866,000
  Purchases of Available-for-sale Securities                  (23,685,000)        (9,019,000)
  Purchases of Held-to-maturity Securities                    (26,968,000)       (12,768,000)
  Net Decrease (Increase) in Loans                              1,416,000           (763,000)
  Additions to Premises and Equipment                            (139,000)          (386,000)
  Proceeds from Sales of Other Real Estate and Other
    Repossessed Assets                                            822,000          1,010,000
                                                              -----------        -----------
   Net Cash Provided by (Used in) Investing Activities        (14,997,000)         3,129,000
                                                              -----------        -----------

Cash Flows from Financing Activities:
  Decrease in Deposits                                        (10,870,000)        (1,837,000)
  Repayment of Notes Payable                                       (1,000)           (53,000)
  Payment of Cash Dividends                                      (230,000)          (210,000)
  Purchase of Treasury Stock                                     (640,000)                 0
                                                              -----------        -----------
   Net Cash Used in Financing Activities                      (11,741,000)        (2,100,000)
                                                              -----------        -----------
Net Increase (Decrease) in Cash and Cash Equivalents          (24,442,000)         2,893,000
Cash and Cash Equivalents at Beginning of Period               64,737,000         39,418,000
                                                              -----------        -----------
Cash and Cash Equivalents at End of Period                    $40,295,000        $42,311,000
                                                              ===========        ===========
Noncash Investing Activities:
  Additions to Other Real Estate and Other Repossessed
   Assets Through Foreclosures                                $   499,000        $   611,000
  Sales of Other Real Estate and Other Repossessed
   Assets Financed with Loans                                           0             83,000

</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, 1998, 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)  ACQUISITION OF SUBSIDIARY BANK

     The Company completed the acquisition of Azle Bancorp and its
subsidiary bank, Azle State Bank, Azle, Texas ("Azle State"),
effective September 22, 1998, for an aggregate cash consideration
of $19,025,000.  To obtain funding for the acquisition, the Company
sold an aggregate of 230,000 shares of Common Stock at a price of
$11.50 per share, and Independent Capital Trust, a Delaware
business trust formed by the Company ("Independent Capital"), sold
1,300,000 of its 8.5% Cumulative Trust Preferred Securities (the
"Trust Preferred Securities") at $10.00 per preferred security
(having a liquidation value of $13,000,000) in an underwritten
offering (the "1998 Offering").  The proceeds from the sale of the
Trust Preferred Securities were used by Independent Capital to
purchase an equivalent amount of Subordinated Debentures of the
Company.  The Company also borrowed $4,300,000 from a financial
institution in Fort Worth, Texas (the "Fort Worth Bank") to finance
a portion of the cost of acquiring Azle Bancorp.  The borrowings
from the Fort Worth Bank were paid off on September 30, 1998, from
the proceeds of a cash dividend paid to the Company by Azle State.
At the date of acquisition, Azle Bancorp had total assets of
$93,158,000, total loans, net of unearned income, of $45,163,000
total deposits of $80,955,000 and stockholders' equity of
$9,872,000.  This acquisition was accounted for using the purchase
method of accounting.  A total of $8,014,000 of intangible assets,
including $2,895,000 of core deposit intangible and $5,119,000 of
goodwill, was recorded as a result of this acquisition.  The core
deposit intangible is being amortized over a period of 12 years and
the goodwill is being amortized over a period of 25 years.

(3)  TREASURY STOCK

     During the first six months of 1999, the Company authorized
the repurchase of up to 80,000 shares of the Company's Common Stock
in the open market.  As of June 30, 1999, the Company had
repurchased a total of 57,500 shares of its Common Stock at an
average price of $11.12 per share.  The repurchased shares are
currently being held as treasury stock.

(4)  UNEARNED ESOP STOCK

     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%
(9.00% at June 30, 1999).  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, 1999, a total of
13,579 shares with an original cost of $156,000 are considered to
be unearned.

                                -6-




<PAGE>

(5)  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") is
cumulative, the dividends allocable to such preferred stock reduces
income available to common stockholders in the basic earnings per
share calculations.  In computing diluted earnings per common share
for the quarters ended June 30, 1999 and 1998, the conversion of
the Series C Preferred Stock was assumed, as the effects are
dilutive.  The weighted average common shares outstanding used in
computing basic earnings per common share for the quarters ended
June 30, 1999 and 1998, was 2,161,000 and 1,968,000 shares,
respectively. The weighted average common shares outstanding used
in computing basic earnings per share for the six-month periods
ended June 30, 1999 and 1998, was 2,182,000 and 1,964,000 shares,
respectively. The weighted average common shares outstanding used
in computing diluted earnings per common share for the quarters
ended June 30, 1999 and 1998, was 2,265,000 and 2,088,000 shares,
respectively. The weighted average common shares outstanding used
in computing diluted earnings per common share for the six-month
periods ended June 30, 1999 and 1998, was 2,289,000 and 2,087,000
shares, respectively.

                                -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, 1999,
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.

     As noted in "Note 2:  Acquisition of Subsidiary Bank," the
Company acquired Azle Bancorp and Azle State Bank, Azle, Texas
("Azle State"), on September 22, 1998.  Azle State was merged with
and into and became a branch of the Bank on March 12, 1999.

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

General

     The following discussion and analysis presents the more
significant factors affecting the Company's financial condition at
June 30, 1999, and December 31, 1998, and results of operations for
each of the quarters and six-month periods ended June 30, 1999 and
1998.  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, 1999, amounted to
$628,000 ($0.29 basic and $0.28 diluted earnings per common share,
respectively) compared to net income of $519,000 ($0.26 basic and
$0.25 diluted earnings per common share, respectively) for the
quarter ended June 30, 1998.  Net income for the six-month period
ended June 30, 1999, was $1,257,000 ($0.57 basic and $0.55 diluted
earnings per common share, respectively) compared to net income of
$973,000 ($0.49 basic and $0.47 diluted earnings per common share,
respectively) for the six-month period ended June 30, 1998. Net
income and earnings per share increased in 1999 primarily due to
the acquisition of Azle State, an increase in the Company's net
interest margin and a reduction in the amount of the provision for
loan losses recorded for the first half of 1999 compared to the
first half of 1998.

Net Interest Income

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

                          -8-

<PAGE>

     Net interest income amounted to $3,552,000 for the second
quarter of 1999, an increase of $1,037,000, or 41.2%, from the
second quarter of 1998.  Net interest income for the second quarter
of 1998 was $2,515,000.  Net interest income for the first six
months of 1999 was $7,065,000, an increase of $2,128,000, or 43.1%,
from net interest income of $4,937,000 for the first six months of
1998.  The increases in 1999 were primarily due to the acquisition
of Azle State effective September 22, 1998.  The net interest
margin on a fully taxable-equivalent basis, was 4.54% and 4.51% for
the second quarter and first six months of 1999, respectively,
compared to 4.22% and 4.16% for the second quarter and first six
months of 1998, respectively.  The primary reasons for the
increases in the net interest margin during the first half of 1999
are the acquisition of Azle State, a 55-basis point decrease in the
Company's overall cost of interest-bearing deposits and 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, 1999, approximately $50,229,000, or 27.5%, 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 decreased from the first half of
1998, to the first half of, 1999.  For example, the average rate
paid for certificates of deposit less than $100,000 decreased from
5.31% for the first half of 1998 to 4.82% for the first half of
1999, while the average rate paid by the Company for certificates
of deposit of $100,000 or more also decreased from 5.39% during the
first six months of 1998 to 4.93% during the first six months of
1999.  Rates on other types of deposits, such as interest-bearing
demand, savings and money market deposits, decreased from an
average of 2.63% during the first half of 1998 to an average of
2.12% during the first half of 1999.  These changes caused the
Company's overall cost of interest-bearing deposits to decrease
from 4.29% for the first six months of 1998 to 3.74% for the first
six months of 1999.

     The following table presents the average balance sheets of the
Company for the quarters and six-month periods ended June 30, 1999
and 1998, 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>
<CAPTION>

                                                       Quarter Ended June 30,
                                       ----------------------------------------------------------
                                                  1999                        1998
                                       ---------------------------   ----------------------------
                                                  Interest                      Interest
                                      Average     Income/    Yield/   Average   Income/   Yield/
                                      Balance     Expense     Rate    Balance   Expense   Rate
                                     --------     -------   --------  -------   --------  -------
<S>                                  <C>          <C>       <C>       <C>       <C>       <C>

ASSETS(1)                                              (Dollars in thousands)
Interest-earning assets:
  Loans, net of unearned income (2)  $ 182,438    $  4,198      9.20%  $ 139,485  $3,189    9.15%
  Securities (3)                       110,835       1,554      5.61      62,726     959    6.12
  Federal funds sold                    24,337         288      4.73      36,547     505    5.53
                                     ---------    --------    ------    --------  ------    ----
     Total interest-earning assets     317,610       6,040      7.61     238,758   4,653    7.80
                                     ---------    --------    ------    --------  ------    ----
Noninterest-earning assets:
  Cash and due from banks               18,804                            13,309
  Intangible assets                     10,580                             3,074
  Premises and equipment                10,129                             7,474
  Accrued interest receivable
     and other assets                    6,065                             4,391
  Allowance for possible loan
     losses                             (1,801)                           (1,075)
                                     ---------                          --------
     Total noninterest-earning
       assets                           43,777                            27,173
                                     ---------                          --------
          Total assets               $ 361,387                          $265,931
                                     =========                          ========

LIABILITIES AND STOCKHOLDERS' EQUITY(1)
Interest-bearing liabilities:
  Demand, savings and money
     market deposits                 $ 106,538      $   556       2.09% $ 76,660      $  491     2.56%
  Time deposits                        157,045        1,878       4.78   122,716       1,643     5.36
                                     ---------      -------     ------   -------       -----     ----
    Total interest-bearing
        liabilities                    263,583        2,434       3.69   199,376       2,134      4.28
                                     ---------      -------     ------   -------       -----      ----
Noninterest-bearing liabilities:
  Demand deposits                       58,157                            43,857
  Accrued interest payable and
    other liabilities                    2,066                             1,487
                                     ---------                          --------
    Total noninterest-bearing
         liabilities                    60,223                            45,344
                                     ---------                          --------
          Total liabilities            323,806                           244,720
  Guaranteed preferred beneficial
    interests in the Company's
     subordinated   debentures          13,000                                 0
Stockholders' equity                    24,581                            21,211
          Total liabilities and      ---------                          --------
            stockholders' equity    $  361,387                         $ 265,931
                                     =========                         =========
Net interest income                               $  3,606                           $ 2,519
                                                  ========                           ======
Interest rate spread (4)                                          3.92%                           3.52%
                                                                ======                            ====
Net interest margin (5)                                           4.54%                           4.22%
                                                                ======                            ====

</TABLE>

_________________________

(1)  The Average Balance and Interest Income/Expense columns
     include the balance sheet and income statement accounts of Azle
     State from September 22, 1998, the date of acquisition of such
     bank.
(2)  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.
(3)  Nontaxable interest income on securities was adjusted to a
     taxable yield assuming a tax rate of 34%.
(4)  The interest rate spread is the difference between the average
     yield on interest-earning assets and the average cost of interest-
     bearing liabilities.
(5)  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>
<CAPTION>
                                             Six-month Period Ended June 30,
                              ---------------------------------------------------------------
                                         1999                                1998
                              ------------------------------     -----------------------------
                                         Interest                           Interest
                              Average    Income/     Yield/       Average   Income/    Yield/
                              Balance    Expense     Rate         Balance   Expense    Rate
                              --------   -------    --------      -------   --------   -------
<S>                           <C>       <C>         <C>           <C>       <C>        <C>

ASSETS(1)                                    (Dollars in thousands)
Interest-earning assets:
 Loans, net of unearned
   income (2)                 $183,393  $  8,437      9.20%       $139,564   $  6,333     9.08%
 Securities (3)                105,660     3,017      5.71          64,655      1,979     6.12
 Federal funds sold             29,406       699      4.75          33,436        918     5.49
                              --------  --------     -----        --------   --------     ----
Total interest-earning
 assets                        318,459    12,153      7.63         237,655      9,230     7.77
                              --------  --------     -----        --------   --------     ----

Noninterest-earning assets:
 Cash and due from banks        19,537                              13,664
 Intangible assets              10,634                               3,102
 Premises and equipment         10,166                               7,482
 Accrued interest
  receivable and other
  assets                         6,275                               4,654
 Allowance for possible
  loan losses                   (1,799)                             (1,089)
                             ---------                            --------
 Total noninterest-
  earning assets                44,813                              27,813
                             ---------                            --------
 Total assets                $ 363,272                            $265,468
                             =========                            ========

LIABILITIES AND STOCKHOLDERS' EQUITY(1)
Interest-bearing liabilities:
  Demand, savings and money
   market deposits           $ 107,878  $  1,141     2.12%        $ 77,458    $  1,018    2.63%
   Time deposits               158,197     3,836     4.85          122,520       3,269    5.34
                             ---------  --------     ----         --------    --------    ----
  Total interest-
   bearing liabilities         266,075     4,977     3.74          199,978       4,287    4.29
                             ---------  --------     ----         --------    --------    ----

Noninterest-bearing
 liabilities:
  Demand deposits               57,506                              42,996
  Accrued interest payable
   and other liabilities         2,085                               1,471
                              --------                            --------
  Total noninterest-
   bearing liabilities          59,591                              44,467
                              --------                            --------
  Total liabilities            325,666                             244,445
   Guaranteed preferred
     beneficial interests in
     the Company's subordinated
     debentures                 13,000                                   0
Stockholders' equity            24,606                              21,023
                              --------                            --------
     Total liabilities and
       stockholders' equity   $363,272                           $ 265,468
                              ========                           =========
Net interest income                      $   7,176                           $  4,943
                                         =========                           ========
Interest rate spread (4)                             3.89%                                3.48%
                                                     ====                                 ====
Net interest margin (5)                              4.51%                                4.16%
                                                     ====                                 ====

</TABLE>

______________________________

(1)  The Average Balance and Interest Income/Expense columns
     include the balance sheet and income statement accounts of Azle
     State from September 22, 1998, the date of acquisition of such
     bank.
(2)  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.
(3)  Nontaxable interest income on securities was adjusted to a
     taxable yield assuming a tax rate of 34%.
(4)  The interest rate spread is the difference between the average
     yield on interest-earning assets and the average cost of interest-
     bearing liabilities.
(5)  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>
<CAPTION>
                                          Quarters Ended           Six-month Periods Ended
                                     June 30, 1999 vs. 1998 (1)    June 30, 1999 vs 1998 (1)
                                    --------------------------    ----------------------------
                                    Increase (Decrease) Due to    Increase (Decrease) Due To
                                         Changes In:                  Changes In
                                    --------------------------    ----------------------------
                                      Volume    Rate    Total      Volume     Rate     Total
                                    ---------   -----   --------  ---------  -------  --------
                                                          (In thousands)
<S>                                  <C>        <C>      <C>       <C>       <C>      <C>
Interest-earning assets:
  Loans, net of unearned income (2)   $  986   $  23    $ 1,009    $ 1,994    $  110   $ 2,104
  Securities (3)                         736    (141)       595      1,255      (217)    1,038
Federal funds sold                      (168)    (49)      (217)      (110)     (109)     (219)
                                      ------   -----    -------    -------    ------    ------
     Total interest income             1,554    (167)     1,387      3,139      (216)    2,923
                                      ------   -----    -------    -------    ------    ------
Interest-bearing liabilities:
  Deposits:
     Demand, savings and money
       market deposits                   191    (126)        65        399      (276)      123
  Time deposits                          461    (226)       235        954      (387)      567
                                      ------   -----    -------    -------    ------    ------
     Total interest expense              652    (352)       300      1,353      (663)      690
                                      ------   -----    -------    -------    ------    ------
Increase in net interest income       $  902     185    $ 1,087    $ 1,786    $  447    $2,233
                                      ======   =====    =======    =======    ======    ======
</TABLE>

______________________________

(1)  Income statement items include the income statement accounts
     of Azle State beginning September 22, 1998, the date of acquisition
     of such bank.
(2)  Nonaccrual loans have been included in average assets for the
     purposes of the computations, thereby reducing yields.
(3)  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, 1999, were $65,000 and $170,000,
respectively, compared to $125,000 and $300,000 for the quarter and
six-month period ended June 30, 1998, respectively. These represent
decreases of $60,000, or 48.0%, and $130,000, or 43.3%.  The
decreased provisions for the quarter and six-month period ended
June 30, 1999, were due to decreased charge-offs during the first
half of 1999, particularly in the area of indirect installment
loans. Of the total gross charge-offs of $309,000 during the half
of 1999, $240,000, or 77.7%, 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. In
management's opinion, the overall quality of the Company's loan
portfolio has continued to improve.

Noninterest Income

     Noninterest income increased $155,000, or 22.9%, from $678,000
during the second quarter of 1998 to $833,000 during

                             -12-

<PAGE>

the second quarter of 1999.  Noninterest income also increased $339,000,
or 25.4%, from $1,337,000 for the first six months of 1998 to
$1,676,000 for the first six months of 1999.

     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 increased from $514,000 during the second
quarter of 1998 to $722,000 during the second quarter of 1999, a
40.5% increase, and increased $465,000, or 47.7%, from $974,000 for
the first six months of 1998 to $1,439,000 for the first six months
of 1999.  The increase was primarily due to the acquisition of Azle
State during September 1998, which accounted for $332,000, or 71.4%,
of the increase.

     Trust fees from the operation of the trust department of the
Bank decreased $6,000, or 10.5%, from $57,000 during the second
quarter of 1998 to $51,000 during the same period in 1999, but
increased $5,000, or 4.8%, from $104,000 for the first six months
of 1998 to $109,000 for the first six months of 1999 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 1999.

     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, insurance premiums earned on
automobiles financed through the Company's indirect installment
loan program, bankcard royalty income and other sources of
miscellaneous income.  Other income decreased $47,000, or 43.9%,
from $107,000 during the second quarter of 1998 to $60,000 during
the second quarter of 1999, and decreased $131,000, or 50.6%, from
$259,000 for the first six months of 1998 to $128,000 for the
corresponding period in 1999 primarily due to a significant
decrease in insurance premiums received during the first six months
of 1999 on automobiles financed through the Company's installment
lending program, which loans had declined as a result of a shift by
the Company to more commercial and real estate lending.

Noninterest Expenses

     Noninterest expenses increased $1,102,000, or 48.9%, from
$2,254,000 during the second quarter of 1998 to $3,356,000 during
the second quarter of 1999 and increased $2,245,000, or 50.6%, from
$4,437,000 during the first six months of 1998 to $6,682,000 during
the first six months of 1999.  Noninterest expenses for the six-
month period ended June 30, 1999, were higher than the same period
for 1998 primarily as a result of the acquisition of Azle State in
September 1998, which accounted for $1,644,000, or 73.2%, of the
increase. An additional $552,000, or 24.6%, of the increase was due
to distributions paid on the Company's 8.5% Cumulative Trust
Preferred Securities (the "Trust Preferred Securities"), which were
issued in an underwritten offering to fund the acquisition of Azle
State (the "1998 Offering").

     Salaries and employee benefits rose $430,000, or 40.3%, from
$1,066,000 for the second quarter of 1998 to $1,496,000 for the
corresponding period of 1999, and increased $884,000, or 41.2%,
from $2,145,000 for the six-month period ended June 30, 1998, to
$3,029,000 for the corresponding period of 1999.  Approximately
92.8% of the increase was a result of the acquisition of Azle State
in September 1998.

     Net occupancy expense increased $124,000, or 51.9%, from
$239,000 for the second quarter of 1998 to $363,000 for the same
period in 1999, and increased $238,000, or 50.9%, from $468,000 for
the first six months of 1998 to $706,000 for the first six months
of 1999.  Approximately $184,000, or 77.3%, of the year-to-date
increase was a result of the acquisition of Azle State.

     Distributions on guaranteed preferred beneficial interests in
the Company's subordinated debentures totaled $276,000 and $552,000
for the quarter and six-month period ended June 30, 1999,
respectively, compared to $0 for the same periods in 1998. The
Company's Trust Preferred Securities were issued in September 1998
in conjunction with the 1998 Offering.

     Equipment expense increased from $188,000 for the second
quarter of 1998 to $254,000 for the corresponding period in 1999,
representing an increase of $66,000, or 35.1%.  These expenses also
increased $117,000, or 29.1%, from $402,000 for the first six months
of 1998 to $519,000 for the first six months of 1999. Approximately
$103,000, or 88.0%, of the year-to-date increase was due to the
acquisition of Azle State.

     Amortization of intangible assets increased $124,000, or
217.5%, from $57,000 during the second quarter of 1998 to $181,000
during the second quarter of 1999, and increased $221,000, or
195.6%, from $113,000 for the first six months of 1998 to $334,000
for the first six months of 1999. Amortization expense of
intangible assets related to the acquisition of Azle State on
September 22, 1998, was the cause of the increases.

                         -13-

<PAGE>

     Stationery, printing and supplies expense increased $31,000,
or 28.7%, from $108,000 for the second quarter of 1998 to $139,000
for the second quarter of 1999, and increased $56,000, or 27.2%,
from $206,000 for the first six months of 1998 to $262,000 for the
first six months of 1999.  Over 91% of the increase during the
first half of 1999 was due to the Azle State acquisition.

     Professional fees, which include legal and accounting fees,
decreased $89,000, or 43.8%, from $203,000 during the second
quarter of 1998 to $114,000 during the second quarter of 1999, and
decreased $58,000, or 21.8%, from $266,000 during the first six
months of 1998 to $208,000 for the corresponding period of 1999.
The Company recorded $125,000 in expense during the second quarter
of 1998 as a result of the settlement of potential litigation
involving a bank that had been repossessed by a former subsidiary
bank of the Company.  The decrease in 1999, as a result of this
settlement in 1998, was offset somewhat by a $42,000 increase in
professional fees due to the acquisition of Azle State.

     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 $28,000 and $56,000 for the
second quarter and first six months of 1999, respectively, compared
to net costs of $21,000 and $47,000 for the second quarter and
first six months of 1998, respectively.  Of the $56,000 in net
costs incurred in 1999, $43,000 represented expenses associated
with other repossessed assets, primarily automobiles.

     Other noninterest expense includes, among many other items,
postage, data processing, due from bank account charges,
advertising, armored car and courier fees, travel and
entertainment, regulatory examinations, directors' fees, dues and
subscriptions and Federal Deposit Insurance Corporation ("FDIC")
insurance expense.  These expenses increased $133,000, or 35.8%,
from $372,000 during the second quarter of 1998 to $505,000 during
the second quarter of 1999, and increased $226,000, or 28.6%, from
$790,000 for the first six months of 1998 to $1,016,000 for the
first half of 1999. The increases during 1999 were due entirely to
the acquisition of Azle State.

Federal Income Taxes

     The Company accrued $336,000 and $295,000 in federal income
taxes in the second quarter of 1999 and 1998, respectively, and
accrued $632,000 and $564,000 in federal income taxes for the first
six months of 1999 and 1998, respectively.  The effective tax rates
for the first six months of 1999 and 1998 were 33.5% and 36.7%,
respectively.  The lower effective rate for 1999 was a result of an
increase in nontaxable income on obligations of states and
political subdivisions owned by Azle State.

Impact of Inflation

     The effects of inflation on the local economies in which the
various branches of the Bank operate 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 $11,183,000, or 3.0%, from $370,178,000
at December 31, 1998, to $358,995,000 at June 30, 1999, due to a
decrease in interest-bearing demand and time deposits during the
first six months of 1999 at most of the Bank's larger branches.

Cash and Cash Equivalents

     The amount of cash and cash equivalents decreased $24,442,000,
or 37.8%, from $64,737,000 at December 31, 1998, to $40,295,000 at
June 30, 1999, due to purchases of securities during the first half
of 1999 with funds that

                           -14-

<PAGE>


were invested temporarily in federal funds
sold at December 31, 1998, and as a result of a decrease in
deposits during the first six months of 1999.

Securities

     Securities increased $16,339,000, or 17.2%, from $95,208,000
at December 31, 1998, to $111,547,000 at June 30, 1999.  The
increase in 1999 is due to purchases of securities during the first
half of 1999 with funds that had been invested temporarily in
federal funds sold at December 31, 1998, as noted above.

     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 $49,928,000 are classified
as available-for-sale and are carried at fair value at June 30,
1999.  Securities totaling $61,619,000 are classified as held-to-
maturity and are carried at amortized cost.  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, 1999, the book value of U.S.
Treasury and other U.S. Government agency securities so pledged
amounted to $17,970,000, or 16.1% 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>
<CAPTION>

                                             June 30, 1999              December 31, 1998
                                           ---------------------      --------------------
                                             Amount         %           Amount         %
                                           -----------   -------      ----------   -------
                                                       (Dollars in thousands)

<S>                                        <C>           <C>          <C>          <C>
Carrying value:
     Obligations of U.S. Government
       agencies and corporations            $ 72,294       64.8%       $   61,669    64.8%
     U.S. Treasury securities                 19,109       17.1            11,573    12.2
     Mortgage-backed securities                9,938        8.9            12,121    12.7
     Obligations of states and political
       subdivisions                            9,187        8.3             9,262     9.7
     Other securities                          1,019        0.9               583     0.6
                                           ---------      -----        ----------   -----
Total carrying value of securities         $ 111,547      100.0%       $   95,208   100.0%
                                           =========      =====        ==========   =====
Total fair value of securities             $ 110,746                   $   95,276
                                           =========                   ==========

</TABLE>


     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, 1999.  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%.

                               -15-



<PAGE>
<TABLE>
<CAPTION>


                                                                                           Estimated       Weighted
Type and Maturity Grouping                             Principal           Carrying         Fair            Average
     at June 30, 1999                                    Amount             Value           Value         Yield
--------------------------                             -----------         ---------      ----------     ----------

                                                                              (Dollars in thousands)
<S>                                                    <C>                 <C>            <C>            <C>
Obligations of U.S. Government
  agencies and corporations:
 Within one year                                       $    12,000         $   12,022      $  12,007        5.80%
 After one but within five years                            60,245             60,272         59,628        5.43
                                                       -----------         ----------      ---------        ----
 Total obligations of U.S. Government
   agencies and corporations                                72,245             72,294         71,635        5.49
                                                       -----------         ----------      ---------        ----
U.S. Treasury securities:
 Within one year                                             9,000              9,039          9,045        5.58
 After one but within five years                            10,000             10,070         10,070        5.19
                                                       -----------         ----------      ---------        ----
 Total U.S. Treasury securities                             19,000             19,109         19,115        5.37
                                                       -----------         ----------      ---------        ----

Mortgage-backed securities                                   9,861              9,938          9,894        5.86
                                                       -----------         ----------      ---------        ----
Obligations of states and political subdivisions:
 Within one year                                                50                 50             50        6.35
 After one but within five years                               905                946            933        8.55
 After five but within ten years                             4,465              4,692          4,644        9.23
 After ten years                                             3,275              3,499          3,456        9.71
                                                       -----------         ----------      ---------        ----
 Total obligations of states and political
  subdivisions                                               8,695              9,187          9,083        9.32
                                                       -----------         ----------      ---------        ----

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                                      $   110,820         $  111,547      $ 110,746        5.80%
                                                       ===========         ==========      =========        ====

</TABLE>


Loan Portfolio

     Total loans, net of unearned income, decreased $1,925,000, or
1.0%, from $184,560,000 at December 31, 1998, to $182,635,000 at
June 30, 1999.  The decrease during the first six months of 1999
was a result of continued net payoffs of the Company's indirect
installment loans.  These payoffs resulted in a decrease of
approximately $8,950,000, or 29.9%, in such loans.  This decrease
was partially offset by an aggregate increase in other types of
loans during the first six months of 1999.

     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

                           -16-

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, 1999, the Company had
approximately $20,940,000, net of unearned income, of this type of
loan outstanding compared to approximately $29,890,000 of this type
loan at December 31, 1998.  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,
                                           1999       1998
                                         --------   ----------
                                             (In thousands)

     Real estate loans                    $ 71,873   $  71,901
     Loans to individuals                   56,165      57,564
     Commercial loans                       43,233      47,551
     Other loans                            12,331       9,310
                                          --------   ---------
      Total loans                          183,602     186,326
     Less unearned income                      967       1,766
                                          --------   ---------
      Loans, net of unearned income       $182,635   $ 184,560
                                          ========   =========

     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, 1999, 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, 1999.

     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, 1999.  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.

                                           One to    Over      Total
                              One Year      Five     Five     Carrying
                              and Less     Years     Years     Value
                              --------    --------   -------  ----------
                                       (In thousands)

     Real estate loans        $ 14,551    $ 47,688  $ 9,634    $ 71,873
     Commercial loans           24,932      16,475    1,826      43,233
     Other loans                 9,737       2,150      444      12,331
                              --------    --------  -------    --------
      Total loans             $ 49,220    $ 66,313  $11,904    $127,437
                              ========    ========  =======    ========
     With fixed interest
       rates                  $ 20,376    $ 50,602  $ 7,752    $ 78,730
     With variable interest
       rates                    28,844      15,711    4,152      48,707
                              --------    --------  -------    --------
          Total loans         $ 49,220    $ 66,313  $11,904    $127,437
                              ========    ========  =======    ========

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

                           -17-

<PAGE>

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 $1,837,000, or 1.01% of loans, net of
unearned income, at June 30, 1999, compared to $1,842,000, or 1.00%
of loans, net of unearned income, at December 31, 1998.

     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 $167,000 and $309,000 in loans during the second quarter and
first six months of 1999, respectively.  Recoveries during the
second quarter and first six months  of 1999 were $90,000 and
$134,000, 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, 1999 and 1998.


<TABLE>
<CAPTION>

                                                Quarter Ended                Six-month Period
                                                    June 30,                  Ended June 30,
                                           -----------------------        -----------------------
                                              1999        1998                1999         1998
                                           ---------   -----------        ----------   ----------

                                                                 (Dollars in thousands)
     <S>                                   <C>         <C>                 <C>        <C>
     Analysis of allowance for possible
      loan losses:
     Balance, beginning of period           $   1,849    $   1,121           $  1,842   $  1,173
          Provision for loan losses                65          125                170        300
                                             --------   ----------          ---------   --------
                                                1,914        1,246              2,012      1,473
                                             --------   ----------          ----------  --------
     Loans charged off:
          Real estate loans                         1            0                  1         40
          Loans to individuals                    134          155                276        355
          Commercial loans                         32            3                 32          3
          Other loans                               0            0                  0          0
                                             --------   ----------          ---------   --------
              Total charge-offs                   167          158                309        398
                                             --------   ----------          ---------   --------
     Recoveries of loans previously
       charged off:
          Real estate loans                        47           15                 47         15
          Loans to individuals                     32           14                 67         21
          Commercial loans                         11            4                 20         10
          Other loans                               0            0                  0          0
                                             --------   ----------          ---------   --------
              Total recoveries                     90           33                134         46
                                             --------   ----------          ---------   --------
                     Net loan charge-offs          77          125                175        352
                                             --------   ----------          ---------   --------
     Balance, end of period                  $  1,837   $    1,121          $   1,837   $  1,121
                                             ========   ==========          =========   ========
     Average loans outstanding, net of
       unearned income                       $182,438   $  139,485          $ 183,393   $139,564
                                             ========   ==========          =========  =========
     Ratio of net loan charge-offs to
       average loans outstanding, net
       of unearned income (annualized)           0.17%        0.36%              0.19%      0.50%
                                             ========   ==========          =========   ========
     Ratio of allowance for possible
       loan losses to total loans, net
       of unearned income, at June 30            1.01%        0.80%              1.01%      0.80%
                                             ========   ==========          =========   ========

</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.

                        -18-

<PAGE>


     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.  The Company
increased the provision in the first six months of 1998, however,
due to higher than normal charge-offs in the Company's indirect
installment loan portfolio, which, as noted above, continues to
decline. As noted above, the Company made a smaller provision
during the first half of 1999 due to decreased loan charge-offs
during that time period.

     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 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, 1999, and December 31, 1998.


<TABLE>
<CAPTION>

                                   June 30, 1999                 December 31, 1998
                                --------------------       ----------------------------
                                          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
                          ------------   -----------      -------------    ------------
                                                  (Dollars in thousands)
<S>                        <C>            <C>              <C>             <C>
Real estate loans           $   206            39.4%        $    106               39.0%
Loans to individuals            734            30.2              577               30.2
Commercial loans                178            23.7              164               25.8
Other loans                      31             6.7                9                5.0
                            -------       ---------         --------        -----------
 Total allocated              1,149           100.0%             856              100.0%
                                          =========                         ===========
Unallocated                     688                              986
                            -------                         --------
Total allowance for
  possible loan losses      $ 1,837                         $  1,842
                            =======                         ========
</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 or poor financial condition, which may
jeopardize recoverability of the loan.  Loans classified as
"doubtful" are those loans that have characteristics similar to
substandard loans, but also have an increased risk that a loss may
occur or at least a portion of the loan may require a charge-off if
liquidated at present.  Although loans classified as substandard do
not duplicate loans classified as doubtful,both substandard and doubtful
loans may include some loans that are past due at least 90 days, are on
nonaccrual status or have been restructured.  Loans classified as "loss"
are those loans that are in the process of being charged off.  At
June 30, 1999, substandard loans totaled $1,274,000, of which $291,000
were loans designated as nonaccrual, 90 days past due or restructured.
There were no doubtful loans and loss loans totaled $9,000.
Of the $9,000 in loans classified as loss, all are installment loans
that are 120 days past due and, according to regulatory guidelines, must be
classified as loss. Substandard, doubtful and loss loans at
December 31, 1998, were $880,000, $5,000 and $10,000, respectively.
The primary reason for the increase in substandard loans from
December 31, 1998, to June 30, 1999, was the classification of
$311,000 in loans to individuals as substandard at June 30, 1999.
These loans were in bankruptcy and

                          -19-

<PAGE>

had not yet established a six-
month satisfactory payment history. According to new regulatory
guidelines, such loans should be classified as substandard. Such
loans at December 31, 1998, totaled $535,000 and were included on
the Bank's internal "watch list."

     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, 1999, were current and paying in accordance with loan
terms.  At June 30, 1999, watch list loans totaled $895,000
(including $302,000 of loans guaranteed by U.S. governmental
agencies). Watch list loans at December 31, 1998, totaled
$1,423,000.  The primary reason for the decrease from December 31,
1998, to June 30, 1999, was the reclassification of certain loans
involved in bankruptcy proceedings from watch to substandard due to
a change in the regulatory guidelines as noted above. At June 30,
1999, $114,000 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, 1999, and December 31, 1998.

                                          June 30,   December 31,
                                           1999         1998
                                         ---------   ----------
                                              (In thousands)
     Nonaccrual loans                    $   216        $   238
     Accruing loans contractually past
       due over 90 days                       45            198

     Restructured loans                      158            110
     Other real estate and other
       repossessed assets                    307            630
                                         -------       --------
     Total nonperforming assets          $   726       $  1,176
                                         =======       ========

     The gross interest income that would have been recorded during
the second quarter and first six months of 1999 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
$9,000, respectively.  Interest income totaling $1,000 was actually
recorded (received) on loans that were on nonaccrual during the
first six months of 1999.

                          -20-


<PAGE>

     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.

Intangible Assets

     Intangible assets decreased $333,000, or 3.1%, from
$10,831,000 at December 31, 1998, to $10,498,000 at June 30, 1999.
This decrease was due entirely to core deposit intangible and
goodwill amortization expense recorded during the first half of
1999.

Premises and Equipment

     Premises and equipment decreased $241,000, or 2.3%, during the
first six months of 1999, from $10,294,000 at December 31, 1998, to
$10,053,000 at June 30, 1999.  The decrease was due to depreciation
expense of $379,000, which was recorded during the first six months
of 1999.  This decrease was partially offset by purchases of small
amounts of equipment during the first half of 1999.

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 increased $28,000, or 0.9%, from $3,254,000 at December
31, 1998, to $3,282,000 at June 30, 1999.  The increase was
primarily a result of the increase in securities, on which interest
is normally collected semiannually, and a decrease in federal funds
sold, on which interest is collected daily.  Of the total balance
at June 30, 1999, $1,777,000, or 54.1%, was interest accrued on
loans and $1,505,000, or 45.9%, was interest accrued on securities.
The amounts of accrued interest receivable and percentages
attributable to loans and securities at December 31, 1998, were
$1,819,000, or 55.9%, and $1,435,000, or 44.1%, 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, 1999, and December 31, 1998, other real
estate and other repossessed assets had an aggregate book value of
$307,000 and $630,000, respectively.  Other real estate and other
repossessed assets decreased $323,000, or 51.3%, during the first
six months of 1999, primarily due to the sale of repossessed
automobiles.  Of the June 30, 1999, balance, $229,000 represented
three commercial and two residential properties, and $78,000
represented seventeen (17) repossessed automobiles.

Other Assets

     The most significant component of other assets at June 30,
1999, is a net deferred tax asset of $415,000. The balance of other
assets decreased $291,000, or 11.6%, to $2,215,000 at June 30,
1999, from $2,506,000 at December 31, 1998, partially as a result
of a decrease in the Company's net deferred tax asset due to the
utilization of a portion of the Company's tax credit carryforwards.

Deposits

     The Bank's lending and investing activities are funded almost
entirely by core deposits, 51.2% of which are demand, savings and
money market deposits at June 30, 1999. Total deposits decreased
$10,870,000, or 3.3%, from $330,804,000 at December 31, 1998, to
$319,934,000 at June 30, 1999. The decrease was due to a decrease
in interest-bearing demand and time deposits at most of the Bank's
larger branches.  The Bank does not have any brokered deposits.

                         -21-

<PAGE>

     The following table presents the average amounts of, and the
average rates paid on, deposits of the Company for the quarters and
six-month periods ended June 30, 1999 and 1998.


<TABLE>
<CAPTION>


                                        Quarter Ended June 30,                  Six-month Period Ended June 30,
                                   --------------------------------------       ------------------------------------------
                                        1999                 1998                     1999                    1998
                                   -----------------     -----------------      ------------------    --------------------
                                   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                  $  58,157     --%    $  43,857      --%      $  57,506     --%     $  42,996        --%
Interest-bearing demand,
  savings and money
  market deposits                    106,538   2.09        76,660    2.56         107,878   2.12         77,458      2.63
Time deposits of less
  than $100,000                      109,837   4.74        83,150    5.33         110,517   4.82         83,027      5.31
Time deposits of
  $100,000 or more                    47,208   4.88        39,561    5.42          47,680   4.93         39,488      5.39
                                   ---------  -----     ---------    ----       ---------   ----      ---------      ----
     Total deposits                $ 321,740   3.03%    $ 243,228    3.51%      $ 323,579   3.08%     $ 242,969      3.53%
                                   =========  =====     =========    ====       =========   ====      =========      ====
</TABLE>


     The maturity distribution of time deposits of $100,000 or more
at June 30, 1999, is presented below.

                                                  At June 30, 1999
                                                  ----------------
                                                  (In thousands)
          3 months or less                        $    16,148
          Over 3 through 6 months                      12,423
          Over 6 through 12 months                     15,523
          Over 12 months                                3,014
                                                  -----------
             Total time deposits of $100,000
                or more                           $    47,108
                                                  ===========

     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, 1999, and December 31,
1998, deposits of $100,000 or more represented approximately 12.3%
and 13.4%, 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 decreased
$239,000, or 20.6%, from $1,163,000 at December 31, 1998, to
$924,000 at June 30, 1999, due to a decrease in overall interest
rates that were being paid on deposits compared to rates that were
paid during 1998.

Other Liabilities

     The most significant components of other liabilities are
amounts accrued for various types of expenses.  The balance of
other liabilities decreased $135,000 or 19.1%, from $706,000 at
December 31, 1998, to $571,000 at June 30, 1999, due primarily to a
decrease in the amount of insurance premiums on indirect automobile
loans that had been collected from loan customers and were payable
to the insurance company.

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 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

                           -22-

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
58.5% at the 90-day interval, 56.0% at the 180-day interval and
52.9% at the 365-day interval at June 30, 1999.  Currently, the
Company is in a liability-sensitive position at the three
intervals.  During an overall declining interest rate environment,
as was the case in the first six months of 1999, this position
would normally produce a higher net interest margin than in a
rising interest rate environment; however, because the Company had
$103,299,000 of interest-bearing demand, savings and money market
deposits at June 30, 1999, that are somewhat less rate-sensitive,
the Company's net interest margin does not necessarily increase
significantly in an overall declining 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 92.3 % at June 30, 1999.  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, 1999.

<TABLE>
<CAPTION>


                                                                       Volumes
                                    Cumulative Volumes                Subject to
                                    Subject to Repricing Within       Repricing
                                    ------------------------------      After
                                     90 Days   180 Days   365 Days       1 Year        Total
                                    --------   --------  ---------    ----------   ---------
                                                  (Dollars in thousands)
<S>                                <C>         <C>       <C>          <C>          <C>
Interest-earning assets:
 Federal funds sold                $  22,975   $ 22,975   $  22,975    $      0      $ 22,975
 Securities                            7,564     17,433      24,851      86,696       111,547
 Loans, net of unearned income        61,524     67,791      80,363     102,272       182,635
                                   ---------   --------   ---------    --------      --------
  Total interest-earning assets       92,063    108,199     128,189     188,968       317,157
                                   ---------   --------   ---------    --------      --------
Interest-bearing liabilities:
 Demand, savings and money market
  deposits                           103,299    103,299     103,299           0       103,299
 Time deposits                        54,126     89,970     138,820      17,174       155,994
                                   ---------   --------   ---------    --------      --------
  Total interest-bearing
    liabilities                      157,425    193,269     242,119      17,174       259,293
                                   ---------   --------   ---------    --------      --------
Rate-sensitivity gap(1)            $ (65,362)  $(85,070)  $(113,930)   $171,794      $ 57,864
                                   =========  =========   =========    ========      ========
Rate-sensitivity ratio(2)               58.5%      56.0%       52.9%
                                   =========  =========   =========

</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.

                           -23-

<PAGE>

Selected Financial Ratios

     The following table presents selected financial ratios
(annualized) for the quarters and six-month periods ended June 30,
1999 and 1998.

                                   Quarter Ended    Six-month Period
                                      June 30,        Ended June 30,
                                   ---------------    ----------------
                                    1999     1998      1999      1998
                                   ------   ------    -------   ------
Net income to:
  Average assets                    0.70%   0.78%      0.69%   0.73%
  Average interest-earning assets   0.79    0.87       0.79    0.82
  Average stockholders' equity     10.22    9.79      10.22    9.26
Dividend payout (1) to:
  Net income                       17.36   19.15      17.50   20.35
  Average stockholders' equity      1.77    1.87       1.79    1.88
Average stockholders' equity to:
  Average total assets              6.80    7.98       6.77    7.92
  Average loans (2)                13.47   15.21      13.42   15.06
  Average total deposits            7.64    8.72       7.60    8.65
Average interest-earning assets to:
  Average total assets             87.89   89.78      87.66   89.52
  Average total deposits           98.72   98.16      98.42   97.81
  Average total liabilities        98.09   97.56      97.79   97.22
Ratio to total average deposits of:
  Average loans (2)                56.70   57.35      56.68   57.44
  Average noninterest-bearing
    deposits                       18.08   18.03      17.77   17.70
  Average interest-bearing
    deposits                       81.92   81.97      82.23   82.30
Total interest expense to total
    interest income                40.66   45.90      41.33   46.48
Efficiency ratio (3)               65.47   68.15      65.67   68.17
_________________________
(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
$18,804,000 and $19,537,000 during the second quarter and first six
months of 1999, respectively, and $13,309,000 and $13,664,000
during the second quarter and first six months of 1998,
respectively.  These amounts comprised 5.2% and 5.4% of average
total assets during the second quarter and first six months of
1999, respectively, and 5.0% and 5.1% of average total assets
during the second quarter and first six months of 1998,
respectively.  The average level of securities and federal funds
sold was $135,172,000 and $135,066,000 during the second quarter
and first six months of 1999, respectively, and $99,273,000 and
$98,091,000 during the second quarter and first six months of 1998,
respectively. The increases in average balances from of 1998 to 1999 was
primarily due to the acquisition of Azle State in September 1998.

                            -24-

<PAGE>

     There were no sales of securities during the quarters or six-
month periods ended June 30, 1999 and 1998.  At June 30, 1999,
$21,111,000, or 20.8%, of the Company's securities portfolio,
excluding mortgage-backed securities, matured within one year and
$71,288,000, or 70.2%, 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
primarily with 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, 1999,
approximately $80,363,000, or 44.0%, of the Company's loans, net of
unearned income, matured within one year and/or had adjustable
interest rates. Approximately $69,083,000, or 54.2.%, 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 1999, the
Company's average deposits were $321,740,000 and $323,581,000, or
89.0% or 89.1% of average total assets, respectively, compared to
$243,233,000 and $242,974,000, or 91.5% and 91.5% of average total
assets, during the second quarter and first six months of 1998,
respectively.  The Company attracts its deposits primarily from
individuals and businesses located within the market areas served
by the Bank.  See "Analysis of Financial Condition - Deposits"
above.

     The 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 1999 were $400,000 and
$875,000, respectively; in turn, Independent Financial and
Independent Capital Trust paid dividends to the Company totaling
$409,000 and $893,000, respectively, during the same time periods
of 1999.  Dividends paid by the Bank to Independent Financial
during both the second quarter and first six months of 1998 totaled
$250,000; in turn, Independent Financial paid dividends to the
Company of $250,000 during the same time periods. At June 30, 1999,
there were approximately $4,357,000 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 50.1% and 5.3%
respectively, of the Company's cash flow from the Bank during the
second quarter of 1999. These percentages were 48.2% and 4.0%,
respectively, for the first six months of 1999. Pursuant to a tax-
sharing agreement, the Bank pays to the Company an amount equal to
its individual tax liability on the accrual method of federal
income tax reporting.  The accrual method generates more timely
payments of current tax liabilities by the Bank to the Company,
increasing the regularity of cash flow and shifting the time value
of such funds to the Company.  In the event that the Bank incurs
losses, the Company may be required to refund tax liabilities
previously collected.  Current tax liabilities totaling $885,000
were paid by the Bank to the Company during the first six months of
1999, compared to a total of $657,000 during the first six months
of 1998.

     All of the Company's net operating loss carryforwards
available for regular federal income tax purposes were fully
utilized by December 31, 1997. The Company has alternative minumum
tax credit carryforwards available which should not be fully
utilized before December 31, 1999.

                           -25-


<PAGE>

     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 $48,000 and $73,000 in
management fees to the Company in the second quarter and first six
months of 1999, respectively.  The Bank paid a total of $33,000 and
$73,000 in management fees to the Company during the second quarter
and first six months of 1998, 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, 1999, stockholders' equity totaled $24,566,000, or
6.8% of total assets, compared to $24,505,000, or 6.6% of total
assets, at December 31, 1998.

     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, qualifying Series C Cumulative Convertible
Preferred Stock (the "Series C Preferred Stock") and qualifying
guaranteed preferred beneficial interest 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, 1999.

                               -26-


<PAGE>




  The Company                                   June 30, 1999
                                            ----------------------
                                            (Dollars in thousands)
  Tier 1 capital:
   Common stockholders' equity, excluding
    unrealized loss on
    available-for-sale securities                  $   24,557
   Qualifying Series C Preferred Stock and
    guaranteed preferred beneficial interests in
    the Company's subordinated debentures(1)            8,185
                                                   ----------
    Total core capital elements                        32,742
    Intangible assets                                 (10,498)
                                                   ----------
       Total Tier 1 capital                            22,244
                                                   ----------
  Tier 2 capital:
   Guaranteed preferred beneficial interests in
    the Company's subordinated debentures(1)            5,003
   Allowance for possible loan losses (2)               1,837
                                                   ----------
       Total Tier 2 capital                             6,840
                                                   ----------
              Total capital                        $   29,084
                                                   ==========
  Risk-weighted assets                             $  200,462
                                                   ==========
  Adjusted quarterly average assets                $  350,805
                                                   ==========


<TABLE>
<CAPTION>


                                                Regulatory   Well-capitalized  Actual Ratios at
The Company                                       Minimum        Minimum        June 30, 1999
----------                                      ---------   -----------------  ----------------
<S>                                             <C>            <C>               <C>
Tier 1 capital to risk-weighted assets ratio        4.00%           6.00%         11.10%
Total capital to risk-weighted assets ratio         8.00           10.00          14.51
Leverage ratio                                      4.00            5.00           6.34

The Bank
--------
Tier 1 capital to risk-weighted assets ratio        4.00%           6.00%         13.05%
Total capital to risk-weighted assets ratio         8.00           10.00          13.97
Leverage ratio                                      4.00            5.00           7.45

</TABLE>



___________________________

(1)  Limited to 25% of total core capital elements, 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, 1999.

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

     The payment of dividends on the Common Stock and the Series
C Preferred 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

                         -27-

<PAGE>

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.  Holders of the Series C Preferred Stock are
entitled to receive, if, as and when declared by the Company's
Board Of Directors, out of funds legally available therefor,
quarterly cumulative cash dividends at the annual rate of 10%.
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 Federal Reserve Board has asserted that
this policy is also applicable to payment of dividends on
preferred stock.  Such an interpretation may limit the ability
of the Company to pay dividends on the Series C Preferred Stock.

     The Company began paying quarterly cash dividends of $0.03
per share on the Common Stock during the second quarter of 1994.
The Company also paid a 4-for-3 stock split, effected in the
form of a 33% stock dividend, on May 31, 1995. 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.  In addition, the Company paid a 5-for-4 stock split,
effected in the form of a 25% stock dividend, on May 30, 1997.

     At its meeting on July 21, 1999, the Board of Directors of
the Company approved the payment of the regular quarterly cash
dividend of $0.05 per share on August 31, 1999, to shareholders
of record of the Common Stock on August 16, 1999.

YEAR 2000 READINESS DISCLOSURE

     The inability of computers, software and other equipment
utilizing microprocessors to recognize and properly process data
fields containing a four digit year is commonly referred to as
the Year 2000 Compliance issue. The Year 2000 will have a broad
impact on the business environment in which the Company operates
due to the possibility that many computerized systems across all
industries will be unable to process information containing the
dates beginning in the Year 2000.

     The Company believes it has identified all significant
applications that will require modification to ensure Year 2000
Compliance.  Internal and external resources are being used to
make the required modifications and test Year 2000 Compliance.
The Company leased virtually all of its computer hardware under
leases that expired during 1998.  The Company replaced this
hardware, as well as the software used for its main operating
system and major banking applications, during this same time
period. The modification process of all significant mission-
critical applications by outside hardware and software suppliers
is complete.  The testing process of all significant mission-
critical applications has been completed and all such hardware
and software tested was found to be Year 2000 compliant.
Management currently anticipates that testing of all nonmission-
critical applications will take place by the end of the third
quarter of 1999.

     In addition, the Company has had formal communications with
other vendors with which it does significant business and with
significant loan and deposit customers to determine their Year
2000 readiness and the extent to which the Company appears
vulnerable to any third party Year 2000 issues. The Company will
continue to seek information from nonresponsive vendors and
customers. There can be no assurance, however, that the systems
of other companies will be compliant, or that a failure to become
compliant by another company, that is incompatible with the
Company's systems, would not have a material adverse effect on
the Company.

     As a result of the timing of the replacement and upgrade of
the Company's hardware and software, the total cost to the
Company of Year 2000 Compliance activities has not been, and is
not anticipated to be, material to the Company's financial
position or results of operations in any given year.  Year 2000
compliance costs and the date on which the Company plans to
complete the remaining nonmission-critical Year 2000 testing
processes are based on management's best estimates, which were
derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third
party modification plans and other factors. There can be no
assurance, however, that these estimates will be achieved and
actual results could differ from those plans.

     The Company has developed a contingency plan and a business
resumption plan to address issues that may not be corrected in a
timely manner by implementation of the Company's own Year 2000
Compliance plan and to address the possibilities that third
party vendor or supplier systems may not be Year 2000 compliant.
The Company has prepared alternate strategies where necessary if
significant exposures are identified.

                              -28-


<PAGE>


     PART II

     OTHER INFORMATION

Item 1.   Legal Proceedings.

     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 Annual Meeting of Shareholders held on
Tuesday, April 27, 1999 (the "Annual Meeting"), the following
members were elected to the Board of Directors:

                                   Votes For      Votes Withheld
                                   ----------     --------------
          Mrs. William R.
          (Amber) Cree              1,765,002          40,702
          Tommy McAlister           1,765,018          40,686
          Bryan W. Stephenson       1,765,068          40,636
          James D. Webster, M.D.    1,765,018          40,686

     Continuing directors not standing for re-election until the
2000 and 2001 Annual Meetings of Shareholders are Lee Caldwell
(2000), Randal N. Crosswhite (2000), Louis S. Gee (2000),
Marshal M. Kellar (2000), John L. Beckham (2001), Nancy E. Jones
(2001), Scott L. Taliaferro (2001) and C.G. Whitten (2001).

     At the Annual Meeting, the Company's shareholders also
voted on a proposal to approve the 1999 Stock Option Plan, which
plan provides for the grant of incentive and nonqualified stock
options to the employees of the Company and its subsidiaries. A
maximum of 60,000 shares are subject to the granting of options
under the Plan.

The proposal to approve the 1999 Stock Option Plan passed. The
tabulation of the voting was as follows:

               Votes For      Votes Against  Abstentions
               ---------      -------------  -----------
               1,590,259          193,130       22,315

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


                              -29-

<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 16, 1999        Independent Bankshares,Inc.
                              (Registrant)



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


                              -30-


<PAGE>