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:  September 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 September 30, 1999.

          Class:  Common Stock, par value $0.25 per share
       Outstanding at September 30, 1999:  2,170,617 shares

<PAGE>


                              PART I

                       FINANCIAL INFORMATION


Item 1. Financial Statements.


                                -2-
<PAGE>



                   INDEPENDENT BANKSHARES, INC.
                    CONSOLIDATED BALANCE SHEETS
             SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
                            (Unaudited)
<TABLE>
<CAPTION>

                                            September 30,           December 31,
                                                1999                  1998
                                             ------------        ----------------
<S>                                         <C>                  <C>
ASSETS
Cash and Cash Equivalents:
 Cash and Due from Banks                     $ 18,398,000        $     22,562,000
 Federal Funds Sold                            19,450,000              42,175,000
                                             ------------        ----------------
   Total Cash and Cash Equivalents             37,848,000              64,737,000
Securities:                                  ------------        ----------------
 Available-for-sale                            48,697,000              30,370,000
 Held-to-maturity                              59,182,000              64,838,000
                                             ------------        ----------------
   Total Securities                           107,879,000              95,208,000
Loans:                                       ------------        ----------------
 Total Loans                                  188,157,000             186,326,000
 Less:
  Unearned Income on Installment Loans            703,000               1,766,000
  Allowance for Possible Loan Losses            1,821,000               1,842,000
                                             ------------        ----------------
   Net Loans                                  185,633,000             182,718,000
                                             ------------        ----------------
Intangible Assets                              10,328,000              10,831,000
Premises and Equipment                          9,872,000              10,294,000
Accrued Interest Receivable                     3,518,000               3,254,000
Other Real Estate and Other Repossessed
  Assets                                          308,000                 630,000
Other Assets                                    2,102,000               2,506,000
                                             ------------        ----------------
      Total Assets                           $357,488,000        $    370,178,000
                                             ============        ================
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Liabilities:
Deposits:
 Noninterest-bearing Demand Deposits         $ 58,606,000       $      60,086,000
 Interest-bearing Demand Deposits             102,466,000             110,485,000
 Interest-bearing Time Deposits               156,783,000             160,233,000
                                             ------------        ----------------
   Total Deposits                             317,855,000             330,804,000
Accrued Interest Payable                          906,000               1,163,000
Other Liabilities                                 698,000                 706,000
                                             ------------        ----------------
     Total Liabilities                        319,459,000             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                               9,520,000               7,975,000
Unrealized Gain (Loss) on
  Available-for-sale Securities                  (212,000)                161,000
Treasury Stock                                   (669,000)                      0
Unearned ESOP Stock                              (149,000)               (169,000)
                                             ------------        ----------------
     Total Stockholders' Equity                25,029,000              24,505,000
      Total Liabilities and                  ------------        ----------------
        Stockholders' Equity                 $357,488,000       $     370,178,000
                                             ============        ================

</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

                                       -3-

<PAGE>

                   INDEPENDENT BANKSHARES, INC.
    CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
                            (Unaudited)

<TABLE>
                                             Quarter Ended              Nine-month Period
                                            September   30,            Ended September 30,
                                        ------------------------    ---------------------------
                                           1999          1998             1999        1998
                                        ------------   ----------   --------------  -----------
  <S>                                     <C>          <C>          <C>             <C>
Interest Income:
  Interest  and Fees on Loans             $4,254,000   $3,391,000   $   12,691,000  $ 9,725,000
  Interest  on Securities                  1,485,000    1,056,000        4,391,000    3,029,000
  Interest  on Federal Funds Sold            303,000      425,000        1,002,000    1,343,000
                                         -----------   ----------    -------------  -----------
   Total  Interest Income                  6,042,000    4,872,000        8,084,000   14,097,000
                                         -----------   ----------    -------------  -----------
Interest Expense:
  Interest  on Deposits                    2,412,000    2,196,000        7,389,000    6,484,000
                                         -----------    ---------    -------------  -----------
   Total  Interest Expense                 2,412,000    2,196,000        7,389,000    6,484,000
                                         -----------    ---------    -------------  -----------
    Net  Interest Income                   3,630,000    2,676,000       10,695,000    7,613,000
  Provision for Loan Losses                  150,000      135,000          320,000      435,000
                                         -----------    ---------    -------------  -----------
     Net Interest Income After
       Provision  for Loan Losses          3,480,000    2,541,000       10,375,000    7,178,000
                                         -----------    ---------    -------------  -----------
Noninterest Income:
  Service  Charges                           725,000      534,000        2,164,000    1,508,000
  Trust  Fees                                 48,000       49,000          157,000      153,000
  Other  Income                               44,000       38,000          172,000      297,000
                                         -----------    ---------    -------------  -----------
   Total  Noninterest Income                 817,000      621,000        2,493,000    1,958,000
                                         -----------    ---------    -------------  -----------
Noninterest Expenses:
  Salaries  and Employee Benefits          1,512,000    1,102,000        4,541,000    3,247,000
  Net  Occupancy Expense                     360,000      286,000        1,066,000      754,000
  Distributions on Guaranteed Preferred
   Beneficial Interests in the Company's
   Subordinated Debentures                   277,000       28,000          829,000       28,000
  Equipment Expense                          277,000      222,000          796,000      624,000
  Amortization of Intangible Assets          169,000       67,000          503,000      180,000
  Stationery, Printing and Supplies
    Expense                                  158,000      118,000          420,000      324,000
  Professional Fees                          120,000       70,000          328,000      336,000
  Net Costs Applicable to Other
    Real Estate and Other Repossessed
    Assets                                    18,000       24,000           74,000       71,000
  Other Expenses                             499,000      355,000        1,515,000    1,145,000
                                          ----------   ----------   --------------  -----------
   Total  Noninterest Expenses             3,390,000    2,272,000       10,072,000    6,709,000
                                          ----------   ----------   --------------  -----------
      Income Before Federal
         Income  Taxes                       907,000      890,000        2,796,000    2,427,000
  Federal  Income Taxes                      276,000      322,000          908,000      885,000
                                          ----------   ----------    -------------  -----------
        Net  Income                          631,000      568,000        1,888,000    1,542,000
Other Comprehensive Income,
  Net of Tax:
   Unrealized Holding Gains (Losses) on
     Available-for-sale Securities
       Arising
    During  the Period                       (33,000)      86,000         (373,000)      94,000
                                         -----------  -----------    -------------  -----------
         Comprehensive  Income           $   598,000  $   654,000    $   1,515,000  $ 1,636,000
                                         ===========  ===========    =============  ===========
Preferred Stock Dividends                $     5,000  $     5,000    $      15,000  $    17,000
                                         ===========  ===========    =============  ===========
Net Income Available to Common
Stockholders                             $   626,000  $   563,000    $   1,873,000  $ 1,525,000
                                         ===========  ===========    =============  ===========
Basic Earnings Per Common Share
 Available to Common Stockholders        $      0.29  $      0.28    $        0.86  $      0.77
                                         ===========  ===========    =============  ===========
Diluted Earnings Per Common Share
 Available to Common Stockholders        $      0.28  $      0.27    $        0.83  $      0.74
                                         ===========  ===========    =============  ===========

</TABLE>

   See Accompanying Notes to Consolidated Financial Statements.

                                -4-

<PAGE>
                   INDEPENDENT BANKSHARES, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS
       NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
                            (Unaudited)
<TABLE>
<CAPTION>
                                                                     1999          1998
                                                                  ------------  -----------
   <S>                                                            <C>           <C>
Cash Flows from Operating Activities:
   Net Income                                                     $  1,888,000  $ 1,542,000
Adjustments to Reconcile Net Income to Net Cash Provided by
 Operating Activities:
   Deferred  Federal Income Tax Expense                                255,000      365,000
   Depreciation  and Amortization                                    1,067,000      443,000
   Provision  for Loan Losses                                          320,000      435,000
   Writedown  of Other Real Estate and Other Repossessed Assets          3,000            0
   Gains  on Sales of Premises and Equipment                            (1,000)           0
   Gains  on Sales of Other Real Estate and Other Repossessed Assets    (1,000)      (3,000)
   Increase  in Accrued Interest Receivable                           (264,000)    (100,000)
   Decrease  (Increase) in Other Assets                                149,000      (65,000)
   Decrease  in Accrued Interest Payable                              (257,000)    (188,000)
   Increase  (Decrease) in Other Liabilities                           247,000     (158,000)
                                                                  ------------   ----------
    Net  Cash  Provided by Operating Activities                      3,406,000    2,271,000
                                                                  ------------   ----------
Cash Flows from Investing Activities:
   Proceeds  from Maturities of Available-for-sale Securities        4,707,000    8,083,000
   Proceeds  from Maturities of Held-to-maturity Securities         33,462,000   24,033,000
   Purchases  of Available-for-sale Securities                     (23,685,000)  (9,019,000)
   Purchases of Held-to-maturity Securities                        (27,971,000) (15,770,000)
   Net Increase in Loans                                            (3,752,000)  (3,293,000)
   Additions  to  Premises and  Equipment                             (142,000)    (422,000)
   Proceeds  from Sales of Premises and Equipment                        1,000            0
   Proceeds from Sales of Other Real Estate and Other Repossessed
     Assets                                                          1,047,000    1,346,000
   Net  Cash and Cash Equivalents Paid in Acquisition                        0  (10,133,000)
                                                                  ------------  -----------

    Net  Cash Used in Investing Activities                         (16,333,000)  (5,175,000)
                                                                  ------------  -----------
Cash Flows from Financing Activities:
   Increase  (Decrease) in Deposits                                (12,949,000)   5,138,000
   Proceeds  from Note Payable                                               0    4,300,000
   Repayment of Notes Payable                                           (1,000)  (4,354,000)
   Net  Proceeds from Issuance of Equity Securities                          0    2,135,000
   Net  Proceeds from Issuance of Trust Preferred Securities                 0   12,480,000
   Payment  of Cash Dividends                                         (343,000)    (315,000)
   Purchase  of Treasury Stock                                        (669,000)           0
                                                                  ------------  -----------
    Net  Cash Provided by (Used in) Financing Activities           (13,962,000)  19,384,000
                                                                  ------------  -----------
Net  Increase  (Decrease) in Cash and Cash Equivalents             (26,889,000)  16,480,000
Cash  and  Cash Equivalents at Beginning of Period                  64,737,000   39,418,000
                                                                  ------------  -----------
Cash  and Cash Equivalents at End of Period                       $ 37,848,000  $55,898,000
                                                                  ============  ===========
Noncash Investing Activities:
  Additions to Other Real Estate and Other Repossessed Assets
    Through Foreclosures                                          $    728,000  $   935,000
  Sales of 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. The Azle
Bank was subsequently merged with and into First State Bank, N.A.,
Abilene, Texas, the Company's indirectly owned subsidiary bank (the
"Bank")

(3)  Treasury Stock

     During the first half 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 September 30, 1999, the Company had
repurchased a total of 60,000 shares of its Common Stock at an
average price of $11.15 per share. The repurchased shares are
currently 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%
(9.25% at September 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 September 30, 1999, a
total of 13,088 shares with an original cost of $149,000 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 September 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
September 30, 1999 and 1998, was 2,158,000 and 1,994,000 shares,
respectively. The weighted average common shares outstanding used
in computing basic earnings per share for the nine-month periods
ended September 30, 1999 and 1998, was 2,174,000 and 1,974,000
shares, respectively. The weighted average common shares
outstanding used in computing diluted earnings per common share for
the quarters ended September 30, 1999 and 1998, was 2,261,000 and
2,111,000 shares, respectively. The weighted average common shares
outstanding used in computing diluted earnings per common share for
the nine-month periods ended September 30, 1999 and 1998, was
2,280,000 and 2,095,000 shares, respectively.

(6)  Legal Proceedings.

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

     The Bank has trust errors and omissions liability insurance
to cover certian risk associated with claims filed against the Bank
as trustee. The Bank has notified the insurance company of the
complaint filed against the Bank. The insurance company has
neither admitted nor denied coverage.

     The above mentioned complaint is at an early stage and
discovery has not yet begun. Consequently, at this time it is not
possible to predict whether the Bank will incur any liability or
to estimate the damages, or the range of damages, if any, that the
Bank might incur in connection with such action. The Bank is also
not able to estimate the amount, if any, of reimbursements that it
would receive from insurance should damages with respect to the
above action be incurred.

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

                                   -7-

<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 September 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
September 30, 1999, and December 31, 1998, and results of
operations for each of the quarters and nine-month periods ended
September 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 September 30, 1999, amounted
to $631,000 ($0.29 basic and $0.28 diluted earnings per common
share, respectively) compared to net income of $568,000 ($0.28
basic and $0.27 diluted earnings per common share, respectively)
for the quarter ended September 30, 1998. Net income for the nine-
month period ended September 30, 1999, was $1,888,000 ($0.86 basic
and $0.83 diluted earnings per common share, respectively) compared
to net income of $1,542,000 ($0.77 basic and $0.74 diluted earnings
per common share, respectively) for the nine-month period ended
September 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 nine months of
1999 compared to the first nine months 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 $3,630,000 for the third
quarter of 1999, an increase of $954,000, or 35.7%, from the third
quarter of 1998. Net interest income for the third quarter of 1998
was $2,676,000. Net interest income for the first nine months of
1999 was $10,695,000, an increase of $3,082,000, or 40.5%, from net
interest income of $7,613,000 for the first nine 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 4.65% and 4.55% for the third
quarter and first nine months of 1999, respectively, compared to
4.39% and 4.24% for the third quarter and first nine months of
1998, respectively. The primary reasons for the increases in the
net interest margin during the first nine months 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 September 30, 1999, approximately $56,390,000, or 30.1%, 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 nine
months of 1998 to the first nine months of 1999. For example, the
average rate paid for certificates of deposit less than $100,000
decreased from 5.32% for the first nine months of 1998 to 4.79% for
the first nine months of 1999, while the average rate paid by the
Company for certificates of deposit of $100,000 or more also
decreased from 5.41% during the first nine months of 1998 to 4.91%
during the first nine months of 1999. Rates on other types of
deposits, such as interest-bearing demand, savings and money market
deposits, decreased from an average of 2.59% during the first nine
months of 1998 to an average of 2.10% during the first nine months
of 1999. These changes caused the Company's overall cost of
interest-bearing deposits to decrease from 4.28% for the first nine
months of 1998 to 3.73% for the first nine months of 1999.

     The following table presents the average balance sheets of the
Company for the quarters and nine-month periods ended September 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 September 30,
                                   ---------------------------------------------------------
                                              1999                       1998(1)
                                   --------------------------    ---------------------------
                                              Interest                     Interest
                                    Average   Income/   Yield/   Average   Income/   Yield/
                                    Balance   Expense   Rate     Balance   Expense    Rate
                                   ---------  -------  ------   ---------   -------  -------
                                                       (Dollars in thousands)
 <S>                               <C>       <C>       <C>      <C>        <C>        <C>
ASSETS
Interest-earning assets:

 Loans, net of unearned income(2)  $ 184,572  $ 4,254   9.22%   $ 146,014   $ 3,391    9.29%
 Securities (3)                      109,026    1,542   5.66       68,234     1,064    6.24
 Federal funds sold                   23,595      303   5.14       30,165       425    5.64
                                   ---------  -------   ----    ---------   -------    ----
   Total interest-earning assets     317,193    6,099   7.69      244,413     4,880    7.99
                                   ---------  -------   ----    ---------   -------    ----
Noninterest-earning assets:
 Cash and due from banks              18,233                       14,023
 Premises and equipment                9,957                        7,846
 Intangible assets                    10,410                        3,817
 Accrued interest receivable
   and other assets                    5,913                        4,671
 Allowance for possible loan
   losses                             (1,776)                      (1,144)
                                    --------                     ---------
   Total noninterest-earning
    assets                            42,737                       29,213
                                   ---------                    ---------
       Total assets                $ 359,930                    $ 273,626
                                   =========                    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
 Demand, savings and money
   market deposits                 $ 105,467   $  548   2.08%   $  79,022   $   493    2.50%
 Time deposits                       155,748    1,864   4.79      125,916     1,696    5.39
                                   --------- --------   ----    ---------   -------    ----
   Total interest-bearing
     deposits                        261,215    2,412             204,938     2,189    4.27
     Notes payable                         0        0     --          385         7    7.27
                                   --------- --------   ----    ---------   -------    ----
   Total interest-bearing
     liabilities                     261,215    2,412   3.69      205,323     2,196    4.28
                                   --------- --------   ----    ---------   -------    ----
Noninterest-bearing liabilities:
   Demand deposits                    58,751                       43,474
   Accrued interest payable and
     other liabilities                 2,027                        1,727
                                   ---------                     --------
     Total noninterest-bearing
      liabilities                     60,778                       45,201
                                  ----------                     --------
Guaranteed preferred beneficial      321,993                      250,524
     interests in the Company's
     subordinated debentures          13,000                        1,300
Stockholders' equity                  24,937                       21,802
                                  ----------                     --------
     Total liabilities and
       stockholders' equity       $  359,930                    $ 273,626
                                  ==========                    =========
Net interest income                          $  3,687                       $ 2,684
                                             ========                       =======
Interest rate spread (4)                                4.00%                          3.71%
                                                        ====                           ====
Net interest margin (5)                                 4.65%                          4.39%
                                                        ====                           ====
______________________________
(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 acquisition date 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.

</TABLE>

                                        -10-


<TABLE>
                                             Nine-month Period Ended September 30,
                                        ----------------------------------------------------
                                                  1999                       1998(1)
                                        ------------------------    -------------------------
                                                  Interest                   Interest
                                        Average   Income/  Yield/   Average  Income/  Yield/
                                        Balance   Expense   Rate    Balance  Expense   Rate
                                        -------   -------- -----    -------- --------  ------
<S>                                    <C>        <C>       <C>     <C>       <C>       <C>
ASSETS                                                      (Dollars in thousands)
Interest-earning assets:
 Loans, net of unearned income (2)     $183,785   $ 12,691  9.21%   $141,715   $ 9,725   9.15%
 Securities (3)                         106,782      4,559  5.69      65,849     3,044   6.16
 Federal funds sold                      27,468      1,002  4.86      32,346     1,343   5.54
                                      ---------   --------  ----    --------   -------   ----
   Total interest-earning assets        318,035     18,252  7.65     239,910    14,112   7.84
                                      ---------   --------  ----    --------   -------   ----
Noninterest-earning assets:
 Cash and due from banks                 19,103                       13,783
 Premises and equipment                  10,096                        7,604
 Intangible assets                       10,559                        3,341
 Accrued interest receivable
   and other assets                       6,154                        4,676
 Allowance for possible loan losses      (1,791)                      (1,107)
                                      ---------                     --------
   Total noninterest-earning assets      44,121                       28,297
                                      ---------                     --------
                    Total assets      $ 362,156                     $268,207
                                      =========                     ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
  Demand, savings and money
    market deposits                   $ 107,074   $  1,690  2.10%   $ 77,980   $ 1,514   2.59%
  Time deposits                         157,380      5,699  4.83     123,649     4,962   5.35
                                      ---------   --------  ----    --------   -------   ----
   Total interest-bearing deposits      264,454      7,389  3.73     201,629     6,476   4.28
  Notes payable                               0          0    --         132         8   8.08
                                      ---------   --------  ----    --------   -------   ----
   Total interest-bearing
     liabilities                        264,454      7,389  3.73     201,761     6,484   4.28

Noninterest-bearing liabilities:
  Demand deposits                        57,921                       43,154
  Accrued interest payable and
    other liabilities                     2,067                        1,559
                                     ----------                     --------
     Total noninterest-bearing
       liabilities                       59,988                       44,713
                                     ----------                     --------
        Total liabilities               324,442                      246,474
Guaranteed preferred beneficial
  interests in the Company's
  subordinated debentures                13,000                          433
Stockholders' equity                     24,714                       21,300
                                     ----------                     --------
     Total liabilities and
        stockholders' equity         $  362,156                     $268,207
                                     ==========                     ========
Net interest income                                $10,863                     $ 7,628
                                                   =======                     =======
Interest rate spread (4)                                    3.92%                        3.56%
                                                            ====                         ====
Net interest margin (5)                                     4.55%                        4.24%
                                                            ====                         ====
______________________________
(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
    acquisition date 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.

</TABLE>

     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

                              -11-

<PAGE>

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.

<TABLE>
                                  Quarters Ended                   Nine-month Periods Ended
                           September 30, 1999 vs. 1998(1)        September 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)              $   890    $ (27)     $  863      $  2,883      $   83       $   2,966
 Securities (3)                636     (158)        478         1,891        (376)          1,515
 Federal funds sold            (93)     (29)       (122)         (202)       (139)           (341)
                           -------    -----      ------      --------     -------       ---------
  Total interest
    income                   1,433     (214)      1,219         4,572        (432)          4,140
                           -------    -----      ------      --------     -------       ---------

Interest-bearing liabilities:
 Deposits:
  Demand, savings and money
    market deposits            165     (110)         55           567        (391)            176
  Time deposits                402     (234)        168         1,351        (614)            737
                           -------    -----     -------       -------     -------       ---------
   Total interest-bearing
     deposits                  567     (344)        223         1,918      (1,005)            913
 Notes payable                  (7)      --          (7)           (8)         --              (8)
                           -------    -----     -------       -------     -------       ---------
   Total interest expense      560     (344)        216         1,910      (1,005)            905
                           -------   ------     -------       -------     -------       ---------
Increase (decrease) in net
    interest income        $   873   $  130     $ 1,003       $ 2,662     $   573       $   3,235
                           -------   ------     -------       -------     -------       ---------
______________________
(1)  Income statement items include the income statement accounts of Azle State
     beginning September 22, 1998, the acquisition date 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%.

</TABLE>

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; 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 nine-month period ended September 30, 1999, were
$150,000 and $320,000, respectively, compared to $135,000 and
$435,000 for the quarter and nine-month period ended September 30,
1998, respectively. These represent an increase of $15,000, or
11.1% for the quarter to quarter comparison, but a decrease of
$115,000, or 26.4%, for the year-to-date period. The decreased
provision for the nine-month period ended September 30, 1999, was
due to decreased charge-offs during the first nine months of 1999,
particularly in the area of indirect installment loans. Of the
total gross charge-offs of $505,000 during the first nine months of
1999, $349,000, or 69.1%, were indirect installment loans. Total
gross charge-offs for the first nine months of 1998 were $542,000,
$452,000, or 83.4%, of which 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.

                                        -12-
<PAGE>

Noninterest Income

     Noninterest income increased $196,000, or 31.6%, from $621,000
during the third quarter of 1998 to $817,000 during the third
quarter of 1999. Noninterest income also increased $535,000, or
27.3%, from $1,958,000 for the first nine months of 1998 to
$2,493,000 for the first nine 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 $534,000 during the third
quarter of 1998 to $725,000 during the third quarter of 1999, a
35.8% increase, and increased $656,000, or 43.5%, from $1,508,000
for the first nine months of 1998 to $2,164,000 for the first nine
months of 1999. The increase was primarily due to the acquisition
of Azle State during September 1998, which accounted for $476,000,
or 72.6%, of the increase.

     Trust fees from the operation of the trust department of the
Bank decreased $1,000, or 2.0%, from $49,000 during the third
quarter of 1998 to $48,000 during the same period in 1999, but
increased $4,000, or 2.6%, from $153,000 for the first nine months
of 1998 to $157,000 for the first nine months of 1999, primarily as
a result of an overall increase in the value of assets under
management of the trust department.

     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 by the Company, bankcard royalty income and
other sources of miscellaneous income. Other income increased
$6,000, or 15.8%, from $38,000 during the third quarter of 1998 to
$44,000 during the third quarter of 1999, but decreased $125,000,
or 42.1%, from $297,000 for the first nine months of 1998 to
$172,000 for the corresponding period in 1999 primarily due to a
significant decrease in insurance premiums received during the
first nine months of 1999 on automobiles financed by the Company,
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 $1,118,000, or 49.2%, from
$2,272,000 during the third quarter of 1998 to $3,390,000 during
the third quarter of 1999 and increased $3,363,000, or 50.1%, from
$6,709,000 during the first nine months of 1998 to $10,072,000
during the first nine months of 1999. Noninterest expenses for the
nine-month period ended September 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 $2,322,000, or
69.0%, of the increase. An additional $829,000, or 24.7%, 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 $410,000, or 37.2%, from
$1,102,000 for the third quarter of 1998 to $1,512,000 for the
corresponding period of 1999, and increased $1,294,000, or 39.9%,
from $3,247,000 for the nine-month period ended September 30, 1998,
to $4,541,000 for the corresponding period of 1999. Approximately
88.3% of the increase was a result of the acquisition of Azle State
in September 1998.

     Net occupancy expense increased $74,000, or 25.9%, from
$286,000 for the third quarter of 1998 to $360,000 for the same
period in 1999, and increased $312,000, or 41.4%, from $754,000 for
the first nine months of 1998 to $1,066,000 for the first nine
months of 1999. Approximately $257,000, or 82.4%, 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 $277,000 and $829,000
for the quarter and nine-month period ended September 30, 1999,
respectively, compared to $28,000 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 $222,000 for the third
quarter of 1998 to $277,000 for the corresponding period in 1999,
representing an increase of $55,000, or 24.8%. These expenses also
increased $172,000, or 27.6%, from $624,000 for the first nine
months of 1998 to $796,000 for the first nine months of 1999.
Approximately $144,000, or 83.7%, of the year-to-date increase was
due to the acquisition of Azle State.

                              -13-

<PAGE>

     Amortization of intangible assets increased $102,000, or
152.2%, from $67,000 during the third quarter of 1998 to $169,000
during the third quarter of 1999, and increased $323,000, or
179.4%, from $180,000 for the first nine months of 1998 to $503,000
for the first nine 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.

     Stationery, printing and supplies expense increased $40,000,
or 33.9%, from $118,000 for the third quarter of 1998 to $158,000
for the third quarter of 1999, and increased $96,000, or 29.6%,
from $324,000 for the first nine months of 1998 to $420,000 for the
first nine months of 1999. Over 82% of the increase during the
first nine months of 1999 was due to the Azle State acquisition.

     Professional fees, which include legal and accounting fees,
increased $50,000, or 71.4%, from $70,000 during the third quarter
of 1998 to $120,000 during the third quarter of 1999, but decreased
$8,000, or 2.4%, from $336,000 during the first nine months of 1998
to $328,000 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 $69,000 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 $18,000 and $74,000 for the third
quarter and first nine months of 1999, respectively, compared to
net costs of $24,000 and $71,000 for the third quarter and first
nine months of 1998, respectively. Of the $74,000 in net costs
incurred in 1999, $57,000 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 $144,000, or 40.6%,
from $355,000 during the third quarter of 1998 to $499,000 during
the third quarter of 1999, and increased $370,000, or 32.3%, from
$1,145,000 for the first nine months of 1998 to $1,515,000 for the
first nine months of 1999. Approximately 82.7% of the increase
during 1999 was due to the acquisition of Azle State.

Federal Income Taxes

     The Company accrued $276,000 and $322,000 in federal income
taxes in the third quarter of 1999 and 1998, respectively, and
accrued $908,000 and $885,000 in federal income taxes for the first
nine months of 1999 and 1998, respectively. The effective tax rates
for the first nine months of 1999 and 1998 were 32.5% and 36.5%,
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 $12,690,000, or 3.4%, from $370,178,000
at December 31, 1998, to $357,488,000 at September 30, 1999, due
primarily to a decrease in interest-bearing demand and time
deposits during the first nine months of 1999 at most of the Bank's
larger branches.

                                   -14-

<PAGE>

Cash and Cash Equivalents

     The amount of cash and cash equivalents decreased $26,889,000,
or 41.5%, from $64,737,000 at December 31, 1998, to $37,848,000 at
September 30, 1999, due to purchases of securities during the first
nine months of 1999 with funds that were invested temporarily in
federal funds sold at December 31, 1998, and as a result of a
decrease in deposits during the first nine months of 1999.

Securities

     Securities increased $12,671,000, or 13.3%, from $95,208,000
at December 31, 1998, to $107,879,000 at September 30, 1999. The
increase in 1999 is due to purchases of securities during the first
nine months 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 $48,697,000 are classified
as available-for-sale and are carried at fair value at September
30, 1999. Securities totaling $59,182,000 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 September 30, 1999, the book value of U.S.
Treasury and other U.S. Government agency securities so pledged
amounted to $18,050,000, or 16.7% 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>
                                           September 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                $ 71,242      66.0%         $ 61,669    64.8%
 U.S. Treasury securities                    18,069      16.7            11,573    12.2
 Obligations of states and political
   subdivisions                               9,118       8.5             9,262     9.7
 Mortgage-backed securities                   8,431       7.8            12,121    12.7
 Other securities                             1,019       0.9               583     0.6
                                           --------     -----          --------   -----
Total carrying value of securities         $107,879     100.0%         $ 95,208   100.0%
                                           ========     =====          ========   =====
Total fair value of securities             $106,959                    $ 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 September 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 September 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                   $   13,000     $ 13,021   $  12,999    5.56%
 After one but within five years       58,245       58,221      57,515    5.45
                                   ----------     --------   ---------   -----
  Total obligations of U.S.
   Government agencies and
   corporations                        71,245       71,242      70,514    5.47
                                   ----------     --------    --------    ----
U.S. Treasury securities:
 Within one year                       10,000       10,035      10,040    5.55
 After one but within five years        8,000        8,034       8,034    5.06
                                   ----------    ---------    --------    ----
  Total U.S. Treasury securities       18,000       18,069      18,074    5.33
                                   ----------    ---------    --------    ----

Obligations of states and political
   subdivisions:
 Within one year                            0            0           0      --
 After one but within five years        2,430        2,571       2,502    8.91
 After five but within ten years        3,265        3,421       3,376    9.32
 After ten years                        2,950        3,126       3,099    9.73
                                   ----------    ---------    --------    ----
  Total obligations of states
  and political subdivisions            8,645        9,118       8,977    9.35
                                   ----------    ---------    --------    ----
Mortgage-backed securities              8,370        8,431       8,375    5.90
                                   ----------    ---------    --------    ----
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                $  107,279   $  107,879    $106,959    5.79%
                                   ==========   ==========    ========    ====
</TABLE>


Loan Portfolio

     Total loans, net of unearned income, increased $2,894,000, or
1.6%, from $184,560,000 at December 31, 1998, to $187,454,000 at
September 30, 1999. The small increase during the first nine 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 $12,826,000, or 42.9%, in such loans during the first
three quarters of 1999. This decrease was offset by an aggregate
increase in other types of loans, including commercial and real
estate loans, during the first nine 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


                         -16-
<PAGE>

purchase the loan from the dealership and, if so, at what rate of
interest. The dealership selects the financial institution to which
it decides to sell the loan. The financial institution purchasing
the loan has a direct loan to the borrower collateralized by the
automobile, and the dealership realizes a profit based on the
difference between the interest rate quoted to the buyer by the
dealership and the interest rate at which the loan is purchased by
the financial institution. At September 30, 1999, the Company had
approximately $17,064,000, 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.

                                        September 30,  December 31,
                                            1999              1998
                                        -------------  --------------
                                                (In thousands)
     Real estate loans                   $   73,424       $  71,901
     Loans to individuals                    51,143          57,564
     Commercial loans                        50,460          47,551
     Other loans                             13,130           9,310
                                        -----------       ---------
      Total loans                           188,157         186,326
     Less unearned income                       703           1,766
                                        -----------       ---------
      Loans, net of unearned income     $   187,454       $ 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 September 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 September 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 September 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        $17,507   $46,535  $ 9,382 $ 73,424
     Commercial loans          30,186    18,384    1,890   50,460
     Other loans               10,523     1,988      619   13,130
                              -------   -------  ------- --------
      Total loans             $58,216   $66,907  $11,891 $137,014
                              =======   =======  ======= ========
     With fixed interest
       rates                  $24,777   $48,946  $ 7,674 $ 81,397
     With variable interest
      rates                    33,439    17,961    4,217   55,617
                              -------   -------  ------- --------
      Total loans             $58,216   $66,907  $11,891 $137,014
                              =======   =======  ======= ========

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

                                   -17-

<PAGE>

Company's allowance for possible loan losses (the "allowance"). The
allowance is created by direct charges against income (the
"provision" for loan losses), and the allowance is available to
absorb possible loan losses. See "Results of Operations-Provision
for Loan Losses" above.

     The amount of the allowance equals the cumulative total of the
loan loss provisions made from time to time, reduced by loan charge-
offs, and increased by recoveries of loans previously charged off.
The Company's allowance was $1,821,000, or 0.97% of loans, net of
unearned income, at September 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
$197,000 and $506,000 in loans during the third quarter and first
nine months of 1999, respectively. Recoveries during the third
quarter and first nine months of 1999 were $31,000 and $165,000,
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 nine-month periods
ended September 30, 1999 and 1998.

<TABLE>
<CAPTION>
                                           Quarter Ended              Nine-month  Period
                                           September 30,              Ended September 30,
                                        ---------------------         --------------------
                                         1999           1998             1999       1998
                                        ----------   --------         --------   ---------
                                                       (Dollars in thousands)
     <S>                               <C>           <C>              <C>        <C>
     Analysis of allowance for
      possible loan losses:
     Balance, beginning of period       $    1,837   $  1,121         $   1,842   $  1,173
      Provision for loan losses                150        135               320        435
      Acquisition of subsidiary bank             0        726                 0        726
                                        ----------   --------         ---------   --------
                                             1,987      1,982             2,162      2,334
                                        ----------   --------         ---------   --------
     Loans charged off:
      Real estate loans                          2          0                 3         40
      Loans to individuals                     138        142               414        497
      Commercial loans                          57          2                89          5
      Other loans                                0          0                 0          0
                                        ----------   --------        ----------   --------
       Total charge-offs                       197        144               506        542
                                        ----------   --------        ----------   --------
     Recoveries of loans previously
      charged off:
       Real estate loans                         0          1                46         16
       Loans to individuals                     25         19                92         40
       Commercial loans                          6         27                27         37
       Other loans                               0          0                 0          0
                                        ----------   --------         ---------   --------
        Total recoveries                        31         47               165         93
                                        ----------   --------         ---------   --------
          Net loan charge-offs                 166         97               341        449
                                        -----------  --------         ---------   --------
     Balance, end of period             $    1,821   $  1,885         $    1,82   $  1,885
                                        ==========   ========         =========   ========
     Average loans outstanding,
      net of unearned income(1)         $  184,572   $146,014         $ 183,785   $141,715
                                        ==========   ========         =========   ========
     Ratio of net loan charge-offs to
      average loans outstanding, net
      of unearned income (annualized)         0.36%      0.27%             0.25%      0.42%
                                        ==========   ========         =========   ========
     Ratio of allowance for possible
      loan losses to total loans, net
      of unearned income, at
      September 30                            0.97%      1.00%             0.97%      1.00%
                                        ==========   ========         =========   ========
______________________________
(1)  Average loans, net of unearned income, include the average loans, net of
     unearned income, of Azle State from September 22, 1998, the date of
     acquisition of such bank.

</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

                                   -18-

<PAGE>

repossessed assets, in maintaining, insuring and selling such
assets. The Company attempts to convert nonperforming loans into
interest-earning assets, although usually at a lower dollar amount
than the face value of such loans, either through liquidation of
the collateral securing the loan or through intensified collection
efforts.

     As the economies of the Company's market areas recovered and
stabilized over the past several years, there was a steady
reduction in the amount of the provisions, as a percentage of
average loans outstanding, necessary to maintain an adequate
balance in the allowance. This reflected not only the loan loss
trend, but management's assessment of the continued reduction of
credit risks associated with the loan portfolio. The Company
increased the provision in the first nine 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 three quarters of 1999 due to decreased net 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
September 30, 1999, and December 31, 1998.

<TABLE>

<CAPTION>
                               September 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           $  203        39.2%           $    106               39.0%
Loans to individuals           729        26.9                 577               30.2
Commercial loans               234        26.9                 164               25.8
Other loans                     32         7.0                   9                5.0
                            ------      ------            --------              -----
 Total allocated             1,198       100.0%                856              100.0%
                                        ======                                  =====
Unallocated                    623                             986
                            ------                        --------
Total allowance for
 possible loan losses       $1,821                        $  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 may be in the process of being
charged off, depending on the reason for the loss classification. At
September 30, 1999, substandard loans totaled $1,772,000, of which $605,000 were
loans designated as nonaccrual, 90 days past due or restructured. There were no
doubtful loans

                                        -19-

<PAGE>

and loss loans totaled $20,000. Of the $20,000 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
September 30, 1999, was the classification of $430,000 in loans to individuals
as substandard at September 30, 1999. These loans were in bankruptcy and had not
yet established a nine-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 September 30,
1999, were current and paying in accordance with loan terms. At September 30,
1999, watch list loans totaled $1,198,000 (including $714,000 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 September 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 September 30, 1999, $100,000 of loans
not classified and not on the watch list were designated as nonaccrual, 90 days
past due 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 September 30, 1999, and
December 31, 1998.

                                        September 30,  December 31,
                                           1999            1998
                                        -----------    -------------
                                           (In thousands)
     Nonaccrual loans                   $     258       $    238
     Accruing loans contractually
       past due over 90 days                  331            198
     Restructured loans                       136            110
     Other real estate and other
      repossessed assets                      308            630
                                        ---------       --------
     Total nonperforming assets         $   1,033       $  1,176
                                        =========       ========


                                   -20-

<PAGE>

     The gross interest income that would have been recorded during the third
quarter and first nine 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 $7,000 and $16,000, respectively. Interest income totaling $1,000
was actually recorded (received) on loans that were on nonaccrual during the
first nine months of 1999.

     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 $503,000, or 4.6%, from $10,831,000 at December
31, 1998, to $10,328,000 at September 30, 1999. This decrease was due entirely
to core deposit intangible and goodwill amortization expense recorded during the
first nine months of 1999.

Premises and Equipment

     Premises and equipment decreased $422,000, or 4.1%, during the first nine
months of 1999, from $10,294,000 at December 31, 1998, to $9,872,000 at
September 30, 1999. The decrease was due to depreciation expense of $563,000,
which was recorded during the first nine months of 1999. This decrease was
partially offset by purchases of small amounts of equipment during the first
three quarters 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 $264,000, or
8.1%, from $3,254,000 at December 31, 1998, to $3,518,000 at September 30, 1999.
The increase was primarily a result of the increase in commercial and real
estate loans and securities, and a decrease in federal funds sold, on which
interest is collected daily. Of the total balance at September 30, 1999,
$2,067,000, or 58.8%, was interest accrued on loans and $1,451,000, or 41.2%,
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 September 30, 1999, and December 31, 1998, other real
estate and other repossessed assets had an aggregate book value of $308,000 and
$630,000, respectively. Other real estate and other repossessed assets decreased
$322,000, or 51.1%, during the first nine months of 1999, primarily due to the
sale of repossessed automobiles. Of the September 30, 1999, balance, $184,000
represented three commercial and two residential properties, and $124,000
represented twenty-one (21) repossessed automobiles.

Other Assets

     The most significant component of other assets at September 30, 1999, is a
net deferred tax asset of $377,000. The balance of other assets decreased
$404,000, or 16.1%, to $2,102,000 at September 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.

                                   -21-

<PAGE>


Deposits

     The Bank's lending and investing activities are funded almost entirely by
core deposits, 50.7% of which are demand, savings and money market deposits at
September 30, 1999. Total deposits decreased $12,949,000, or 3.9%, from
$330,804,000 at December 31, 1998, to $317,855,000 at September 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.

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


<TABLE>
<CAPTION>

                                        Quarter Ended September 30,         Nine-month Period Ended September 30,
                              ---------------------------------------      ----------------------------------------
                                        1999               1998(1)               1999              1998(1)
                              --------------------     ---------------     ------------------   -------------------
                                 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             $  58,751       --%    $  43,474      --%    $ 57,921        --%  $ 43,154        --%
Interest-bearing demand,
  savings and money
  market deposits               105,467     2.08        79,022    2.50      107,074      2.10     77,980      2.59
Time deposits of less
  than $100,000                 108,383     4.75        86,189    5.36      109,806      4.79     84,081      5.32
Time deposits of
  $100,000 or more               47,365     4.88        39,727    5.46       47,574      4.91     39,568      5.41
                              ---------  -------     ---------    ----     --------      ----   --------      ----
 Total deposits               $ 319,966     3.02%    $ 248,412    3.53%    $322,375      3.05%  $244,783      3.53%
                              =========  =======     =========    ====     ========      ====   ========      ====

______________________________
(1)  The average amounts of, and average rates paid on, deposits include the
     averages for Azle State from September 22, 1998, the date of acquisition
     of such bank.


</TABLE>
The maturity distribution of time deposits of $100,000 or more at
September 30, 1999, is presented below.

                                                    At September 30, 1999
                                                    ----------------------
                                                       (In thousands)
          3 months or less                                 $16,657
          Over 3 through 6 months                           13,301
          Over 6 through 12 months                          14,769
          Over 12 months                                     3,782
                                                       -----------
             Total time deposits of $100,000 or more   $    48,509
                                                       ===========

     The Bank places 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 September 30,
1999, and December 31, 1998, deposits of $100,000 or more
represented approximately 13.6% 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
$257,000, or 22.1%, from $1,163,000 at December 31, 1998, to
$906,000 at September 30, 1999, due to a decrease in overall
interest rates that were being paid on deposits during 1999
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 $8,000 or 1.1%, from $706,000 at December 31,
1998, to $698,000 at September 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.

                                   -22-


<PAGE>


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 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
64.6% at the 90-day interval, 57.2% at the 180-day interval and
55.7% at the 365-day interval at September 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 nine 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
$102,466,000 of interest-bearing demand, savings and money market
deposits at September 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 96.9% at September 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 September 30, 1999.

<TABLE>
<CAPTION>

                                                                        Volumes
                                    Cumulative Volumes                 Subject to
                                    Subject to Repricing Within        Repricing
                               --------------------------------------    After
                                 90 Days     180 Days      365 Days      1 Year      Total
                               ----------    ---------    -----------  --------     --------
<S>                            <C>           <C>          <C>          <C>          <C>
Interest-earning assets:                          (Dollars in thousands)
 Federal funds sold            $  19,450     $ 19,450     $   19,450   $      0     $ 19,450
 Securities                       11,627       18,007         24,868      3,011      107,879
 Loans, net of unearned income    68,635       75,501         90,158     97,296      187,454
                               ---------     --------     ----------   --------     --------
  Total interest-earning assets   99,712      112,958        134,476    180,307      314,783
                               ---------     --------     ----------   --------     --------
Interest-bearing liabilities:
 Demand, savings and money
  market deposits                102,466      102,466        102,466          0      102,466
 Time deposits                    52,001       94,875        138,766     18,017      156,783
                               ---------     --------     ----------   --------     --------
  Total interest-bearing
   liabilities                   154,467      197,341        241,232     18,017      259,249
                               ---------     --------     ----------   --------     --------
Rate-sensitivity gap(1)        $ (54,755)    $(84,383)    $ (106,756)  $162,290     $ 55,534
                               =========     ========     ==========   ========     ========

Rate-sensitivity ratio(2)           64.6%        57.2%          55.7%
                               =========     ========     ==========

______________________________
(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.
</TABLE>
                                        -23-

<PAGE>

Selected Financial Ratios

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

<TABLE>
<CAPTION>

                                      Quarter Ended             Nine-month Period
                                      September 30,          Ended September 30,
                                   -------------------      ---------------------
                                    1999        1998(1)       1999       1998(1)
                                   ------   ----------      ---------    --------
  <S>                              <C>         <C>          <C>           <C>
Net income to:
  Average assets                    0.70%       0.83%        0.70%         0.77%
  Average interest-earning assets   0.80        0.93         0.79          0.86
  Average stockholders' equity     10.12       10.42        10.19          9.65
Dividend payout (2) to:
  Net income                       17.27       17.49        17.37         19.30
  Average stockholders' equity      1.75        1.82         1.77          1.86
Average stockholders' equity to:
  Average total assets              6.93        7.97         6.82          7.94
  Average loans (3)                13.51       14.93        13.45         15.03
  Average total deposits            7.79        8.78         7.67          8.70
Average interest-earning assets to:
  Average total assets             88.13       89.32        87.82         89.45
  Average total deposits           99.13       98.39        98.65         98.01
  Average total liabilities        98.51       97.56        98.03         97.34
Ratio to total average deposits of:
  Average loans (3)                57.68       58.78        57.01         57.89
  Average noninterest-bearing
   deposits                        18.36       17.50        17.97         17.63
  Average interest-bearing
   deposits                        81.64       82.50        82.03         82.37
Total interest expense to total
  interest income                  39.92       45.07        40.86         46.00
Efficiency ratio (4)               65.80       66.15        65.71         67.47
___________________________
(1)  Average balance sheet and income statement items include the accounts for
     Azle State from September 22, 1998, the date of acquisition of such bank.
(2)  Dividends on Common Stock only.
(3)  Before allowance for possible loan losses.
(4)  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.

</TABLE>

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
$18,233,000 and $19,103,000 during the third quarter and first nine
months of 1999, respectively, and $14,023,000 and $13,783,000
during the third quarter and first nine months of 1998,
respectively. These amounts comprised 5.1% and 5.3% of average
total assets during both the third quarter and first nine months of
1999, respectively, and 5.1% of average total assets during both
the third quarter and first nine months of 1998, respectively. The
average level of securities and federal funds sold was $132,621,000
and $134,250,000 during the third quarter and first nine months of
1999, respectively, and $98,399,000

                              -24-

<PAGE>

and $98,195,000 during the third quarter and first nine months of
1998, respectively. The increases in average balances from of 1998
to 1999 were primarily due to the acquisition of Azle State in
September 1998.

     There were no sales of securities during the quarters or nine-
month periods ended September 30, 1999 and 1998. At September 30,
1999, $23,056,000, or 23.2%, of the Company's securities portfolio,
excluding mortgage-backed securities, matured within one year and
$68,826,000, or 69.2%, 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 September 30, 1999,
approximately $97,296,000, or 51.9%, of the Company's loans, net of
unearned income, matured within one year and/or had adjustable
interest rates. Approximately $80,394,000, or 58.7%, 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 third quarter and first nine months of 1999, the
Company's average deposits were $319,966,000 and $322,375,000, or
88.9% or 89.0% of average total assets, respectively, compared to
$248,412,000 and $244,783,000, or 90.8% and 91.3% of average total
assets, during the third quarter and first nine 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
third quarter and first nine months of 1999 were $400,000 and
$1,275,000, respectively; in turn, Independent Financial and
Independent Capital Trust paid dividends to the Company totaling
$409,000 and $1,302,000, respectively, during the same time periods
of 1999. Dividends paid by the Bank to Independent Financial during
the third quarter and first nine months of 1998 totaled $4,750,000
and $5,000,000, respectively; in turn, Independent Financial paid
dividends to the Company of $4,750,000 and $5,000,000,
respectively, during the same time periods. At September 30, 1999,
there were approximately $4,818,000 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 2.6%
respectively, of the Company's total cash flow during the third
quarter of 1999. These percentages were 47.9% and 3.4%,
respectively, for the first nine 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 $1,362,000
were paid by the Bank to the Company during the first nine months
of 1999, compared to a total of $1,033,000 during the first nine
months of 1998.

                              -25-

<PAGE>

     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 minimum
tax credit carryforwards available which should not be fully
utilized before December 31, 1999.

     The Bank pays management fees to the Company for services
performed. These services include, but are not limited to,
financial and accounting consultation, attendance at the Bank's
board meetings, audit and loan review services and related
expenses. The Bank paid a total of $25,000 and $98,000 in
management fees to the Company in the third quarter and first nine
months of 1999, respectively. The Bank paid a total of $24,000 and
$97,000 in management fees to the Company during the third quarter
and first nine 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 September 30, 1999, stockholders' equity totaled
$25,029,000, or 7.0% 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
September 30, 1999.


                              -26-


<PAGE>


  The Company                                 September 30, 1999
  -----------                               ----------------------
                                            (Dollars in thousands)
  Tier 1 capital:
   Common stockholders' equity, excluding
     unrealized loss on available-for-sale
     securities                                    $ 25,052
   Qualifying Series C Preferred Stock and
    guaranteed preferred beneficial interests in
    the Company's subordinated debentures(1)          8,350
                                                   --------
    Total core capital elements                      33,402
   Intangible assets                                (10,328)
                                                   --------
   Total Tier 1 capital                              23,074
                                                   --------
  Tier 2 capital:
   Guaranteed preferred beneficial interests in
    the Company's subordinated debentures(1)          4,838
   Allowance for possible loan losses (2)             1,821
                                                   --------
   Total Tier 2 capital                               6,659
                                                   --------
   Total capital                                   $ 29,733
  Risk-weighted assets                             $200,743
                                                   ========
  Adjusted quarterly average assets                $349,520
                                                   ========


<TABLE>
                                   Regulatory    Well-capitalized     Actual Ratios at
The Company                          Minimum         Minimum         September 30,1999
-----------                        ----------    ----------------    -----------------
   <S>                                  <C>             <C>              <C>
Tier 1 capital to risk- weighted
   assets ratio                         4.00%           6.00%            11.49%
Total capital to risk-weighted
   assets ratio                         8.00           10.00             14.81
Leverage ratio                          4.00            5.00              6.60

The Bank
--------

Tier 1 capital to risk-weighted
   assets ratio                         4.00%           6.00%            13.25%
Total capital to risk-weighted
   assets ratio                         8.00           10.00             14.16
Leverage ratio                          4.00            5.00              7.59
___________________________
(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.

</TABLE>

     The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") requires each federal banking agency to revise its
risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities, as well as
reflect the actual performance and expected risk of loss on multi-
family mortgages. 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 September 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 October 20, 1999, the Board of Directors of
the Company approved the payment of the regular quarterly cash
dividend of $0.05 per share on November 30, 1999, to shareholders
of record of the Common Stock on November 15, 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. Testing on most
nonmission-critical systems has already taken place, also.
Management currently anticipates that testing of all remaining
nonmission-critical applications will take place before December
31, 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 Estate of Harry V. Howard, Deceased, filed a lawsuit
against the Bank (as successor to First State Bank of Odessa,
N.A.), (The Estate of Harry V. Howard, Deceased v. First State
Bank of Odessa, N.A., Odessa, Texas, Cause No. 1268) on July 9,
1999, in the County Court of Upton County, Texas. This case was
subsequently refiled in the 104th District Court for Taylor
County, Texas as Cause No. 22080-B. The plaintiffs' lawsuit
relates to the Banks' management of the Harry V. Howard Trust. The
lawsuit alleges that the Bank, in its capacity as trustee of this
testamentary trust, failed to adequately oversee the trust assets
and allowed waste to occur to the trust principal. Additionally,
the lawsuit alleges that the Bank made inappropriate distributions
to the current beneficiary of the trust. The lawsuit also alleges,
among other things, other general acts of mismanagement and breach
of fiduciary duty. The lawsuit seeks actual and exemplary damages
in excess of $10,000,000, as well as pre- and post-judgment
interest and attorneys' fees. The Bank denies any allegations made
in the petition and intends to vigorously defend this suit.

     The Bank has trust errors and omissions liability insurance
to cover certain risk associated with claims filed against the Bank
as trustee. The Bank has notified the insurance company of the
complaint filed against the Bank. The insurance company has
neither admitted nor denied coverage.

     The above mentioned complaint is at an early stage and
discovery has not yet begun. Consequently, at this time it is not
possible to predict whether the Bank will incur any liability or
to estimate the damages, or the range of damages, if any, that the
Bank might incur in connection with such action. The Bank is also
not able to estimate the amount, if any, of reimbursements that it
would receive from insurance should damages with respect to the
above action be incurred.

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

Item 2.   Changes in Securities.
     None
Item 3.   Defaults upon Senior Securities.
     None
Item 4.   Submission of Matters to a Vote of Security Holders.
     None
Item 5.   Other Information.
     None
Item 6.   Exhibits and Reports on Form 8-K.
     (a)  Exhibits
          10.1 Form of Employee Retention Agreements
          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:  November 15, 1999           Independent Bankshares, Inc.
                                   (Registrant)



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


                                   -30-