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:  March 31, 2000

                                OR

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

  For the transition period from _____________ to ______________

                 Commission File Number:  0-10196

                   INDEPENDENT BANKSHARES, INC.
      (Exact name of registrant as specified in its charter)


              Texas                          75-1717279
 (State or other jurisdiction of          (I.R.S. Employer
  incorporation or organization)        Identification No.)

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

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

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.

                          YES [X] NO [ ]

       Indicate the number of shares outstanding of each of
      the issuer's classes of common stock at March 31, 2000.

          Class:  Common Stock, par value $0.25 per share
         Outstanding at March 31, 2000:  2,273,647 shares

<PAGE>


                              PART I

FINANCIAL INFORMATION


Item 1. Financial Statements.

                                 2

<PAGE>
                  INDEPENDENT BANKSHARES, INC.
                  CONSOLIDATED BALANCE SHEETS
              MARCH 31, 2000 AND DECEMBER 31, 1999
                          (Unaudited)
                                         March 31,      December 31,
ASSETS                                      2000            1999
------                                   -----------      -----------
Cash and Cash Equivalents:
   Cash and Due from Banks                17,794,000      $22,985,000
   Federal Funds Sold                     15,565,000       15,775,000
                                         -----------      -----------
     Total Cash and Cash Equivalents      33,359,000       38,760,000
                                         -----------      -----------
Securities:
Available-for-sale                        46,315,000       48,387,000
Held-to-maturity                          64,967,000       60,516,000
                                         -----------      -----------
     Total Securities                    111,282,000      108,903,000
                                         -----------      -----------
Loans:
  Total Loans                            187,614,000      187,143,000
Less:
  Unearned Income on Installment Loans
                                             372,000          517,000
  Allowance for Possible Loan Losses       1,866,000        1,833,000
                                         -----------        ---------
     Net Loans                           185,376,000      184,793,000
                                         -----------      -----------
Intangible Assets                          9,991,000       10,158,000
Premises and Equipment                     9,655,000        9,816,000
Accrued Interest Receivable                3,619,000        3,538,000
Other Real Estate and Other
Repossessed                                  291,000          272,000
   Assets
Other Assets                               2,293,000        2,022,000
                                         -----------     ------------
     Total Assets                        355,866,000     $358,262,000
                                         ===========     ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
  Noninterest-bearing Demand Deposits     59,762,000      $57,441,000
  Interest-bearing Demand Deposits       100,401,000      102,573,000
  Interest-bearing Time Deposits         155,094,000      158,285,000
                                         -----------      -----------
     Total Deposits                      315,257,000      318,299,000
Accrued Interest Payable                   1,041,000        1,074,000
Other Liabilities                            633,000          533,000
                                         -----------      -----------
     Total Liabilities                   316,931,000      319,906,000
                                         -----------      -----------
Guaranteed Preferred Beneficial
  Interests in the Company's
  Subordinated  Debentures                13,000,000       13,000,000
                                         -----------      -----------
Stockholders' Equity:
Common Stock                                 583,000          583,000
Additional Paid-in Capital                15,955,000       15,955,000
Retained Earnings                         10,467,000        9,972,000
Unrealized Gain (Loss) on Available-
for-sale Securities                         (266,000)        (343,000)
Unearned Employee Stock Ownership
Plan Stock                                  (135,000)        (142,000)
Treasury Stock (at Cost)                    (669,000)        (669,000)
                                        ------------     ------------
     Total Stockholders' Equity           25,935,000       25,356,000
                                        ------------     ------------
          Total Liabilities and         $355,866,000     $358,262,000
             Stockholders' Equity       ============     ============

   See Accompanying Notes to Consolidated Financial Statements.

                                 3

<PAGE>

                   INDEPENDENT BANKSHARES, INC.
    CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
              QUARTERS ENDED MARCH 31, 2000 AND 1999
                            (Unaudited)
                                            Quarter Ended March 31,
                                            -------------------------
                                               2000          1999
                                            ---------     -----------
Interest Income:
  Interest and Fees on Loans                $4,346,00      $4,239,000
                                                    0
  Interest on Securities                    1,558,000       1,406,000
  Interest on Federal Funds Sold              246,000         411,000
                                            ---------      ----------
     Total Interest Income                  6,150,000       6,056,000
                                            ---------      ----------
Interest Expense:
  Interest on Deposits                      2,527,000       2,543,000
                                            ---------      ----------
     Total Interest Expense                 2,527,000       2,543,000
                                            ---------      ----------
        Net Interest Income                 3,623,000       3,513,000
Provision for Loan Losses                     110,000         105,000
                                            ---------      ----------
          Net Interest Income After
  Provision for Loan Losses                 3,513,000       3,408,000
                                            ---------      ----------
Noninterest Income:
  Service Charges                             679,000         734,000
  Trust Fees                                   67,000          58,000
  Other Income                                 66,000          51,000
                                            ---------       ---------
     Total Noninterest Income                 812,000         843,000
                                            ---------       ---------
Noninterest Expenses:
  Salaries and Employee Benefits            1,501,000       1,533,000
  Net Occupancy Expense                       365,000         343,000
  Equipment Expense                           287,000         265,000
  Distributions on Guaranteed Preferred
   Beneficial Interests in the Company's
   Subordinated Debentures                    276,000         276,000
  Amortization of Intangible Assets           168,000         166,000
  Stationery, Printing and Supplies           139,000         123,000
Expense
  Professional Fees                           124,000          94,000
  Net Costs Applicable to Other Real
    Estate and Other Repossed Assets            6,000          28,000
  Other Expenses                              504,000         498,000
                                            ---------       ---------
  Total Noninterest Expenses                3,370,000       3,326,000
                                            ---------       ---------
     Income Before Federal Income Taxes       955,000         925,000
Federal Income Taxes                          324,000         296,000
                                            ---------       ---------
        Net Income                            631,000         629,000
Other Comprehensive Income, Net of Taxes:
  Unrealized Holding Gains (Losses) on
   Available-for-sale
    Securities Arising During the Period       77,000        (151,000)
                                            ---------       ---------
        Comprehensive Income                $ 708,000       $ 478,000
                                            =========       =========
Preferred Stock Dividends                   $       0       $   5,000
                                            =========       =========
Net Income Available to Common              $ 631,000       $ 624,000
Stockholders                                =========       =========
Basic Earnings Per Common Share Available   $    0.28       $    0.28
  to Common Stockholders                    =========       =========
Diluted Earnings Per Common Share           $    0.28       $    0.27
  Available to Common Stockholders          =========       =========

   See Accompanying Notes to Consolidated Financial Statements.

                                 4

<PAGE>

                   INDEPENDENT BANKSHARES, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS
              QUARTERS ENDED MARCH 31, 2000 AND 1999
                            (Unaudited)
                                                 2000             1999
                                                ------           ------
Cash Flows from Operating Activities:
  Net Income                                 $   631,000       $  629,000
Adjustments to Reconcile Net Income to Net
   Cash Provided by Operating Activities:
  Deferred Federal Income Tax Expense                  0          120,000
  Depreciation and Amortization                  350,000          357,000
  Provision for Loan Losses                      110,000          105,000
  Gains on Sales of Premises and Equipment             0           (1,000)
    Writedown of Other Real Estate and Other        2,000               0
   Repossessed Assets
  Increase in Accrued Interest Receivable        (81,000)        (228,000)
  (Increase) Decrease in Other Assets           (271,000)         104,000
  Decrease in Accrued Interest Payable           (33,000)        (160,000)
  Increase in Other Liabilities                  100,000           89,000
                                              ----------      -----------
     Net Cash Provided by Operating              808,000        1,015,000
       Activities                             ----------      -----------

Cash Flows from Investing Activities:          5,062,000        1,261,000
  Proceeds from Maturities of Available-       1,355,000       23,344,000
   for-sale Securities
  Proceeds from Maturities of Held-to-
   maturity Securities
  Proceeds from Sales of Available-for-sale    2,000,000                0
   Securities
  Purchases of Available-for-sale             (4,891,000)     (16,510,000)
   Securities
  Purchases of Held-to-maturity Securities    (5,836,000)     (19,007,000)

  Net Increase in Loans                         (828,000)        (330,000)
  Proceeds from Sales of Premises and                  0            1,000
   Equipment
  Additions to Premises and Equipment            (20,000)         (88,000)
  Proceeds from Sales of Other Real
   Estate and Other Repossessed Assets           127,000          484,000
                                              ----------      -----------
     Net Cash Used in Investing Activities    (3,031,000)     (10,845,000)
                                             -----------      -----------


Cash Flows from Financing Activities:
  Decrease in Deposits                        (3,042,000)      (6,730,000)
  Repayment of Notes Payable                           0           (1,000)
  Payment of Cash Dividends                     (136,000)        (116,000)
                                              ----------       ----------
     Net Cash Used in Financing Activities    (3,178,000)      (6,847,000)
                                              ----------      -----------
Net Decrease in Cash and Cash Equivalents     (5,401,000)     (16,677,000)
Cash and Cash Equivalents at Beginning of     38,760,000       64,737,000
   Period                                     ----------      -----------

Cash and Cash Equivalents at End of Period   $33,359,000      $48,060,000
                                              ==========      ===========

Noncash Investing Activities:
  Additions to Other Real Estate and Other
   Repossessed
     Assets Through Foreclosures             $   148,000         $204,000
  Sales of Other Real Estate and Other
   Repossessed
     Assets Financed with Loans                        0                0

   See Accompanying Notes to Consolidated Financial Statements.
                                 5
<PAGE>

                   INDEPENDENT BANKSHARES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Summary of Significant Accounting Policies

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

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

(2)  Treasury Stock

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

(3)  Unearned ESOP Shares

     The Company's Employee Stock Ownership/401(k) Plan (the
"Plan") purchased 18,750 shares of Common Stock in an underwritten
offering (the "1997 Offering") for $214,000. The funds used for the
purchase were borrowed from the Company. The note evidencing such
borrowing is due in eighty-four equal monthly installments of
$4,000, including interest, and matures on February 27, 2004. The
note bears interest at the Company's floating base rate plus 1%
(9.75% at March 31, 2000). The note is collateralized by the stock
purchased in the 1997 Offering.

     As a result of the lending arrangement between the Company and
the Plan, the shares are considered "unearned." The shares are
"earned" on a pro rata basis as principal payments are made on the
note. The shares are included in the Company's earnings per share
calculations only as they are earned. At March 31, 2000, a total of
11,837 shares with an original cost of $135,000 are considered to
be unearned.

(4)  Earnings Per Share

     Basic earnings per common share is computed by dividing net
income available to common stockholders by the weighted average
number of shares and share equivalents outstanding during the
period. Because the Company's outstanding Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") was
cumulative, the dividends allocable to such preferred stock reduced
income available to common stockholders in the basic earnings per
share calculations. In computing diluted earnings per common share
for the quarter ended March 31, 1999, the conversion of the
Series C Preferred Stock was assumed, as the effect was dilutive.
The remainder of the Series C Preferred Stock was converted to
Common Stock during the fourth quarter of 1999.  The weighted
average common shares outstanding used in computing basic earnings
per common share for the quarters

                                 6
<PAGE>

ended March 31, 2000 and 1999, was 2,262,000 and 2,202,000 shares,
respectively. The weighted average common shares outstanding used
in computing diluted earnings per common share for the quarters
ended March 31, 2000 and 1999, was 2,262,000 and 2,312,000 shares,
respectively.

(5)  Accumulated Other Comprehensive Income

     An analysis of accumulated other comprehensive income for the
quarters ended March 31, 2000 and 1999, is as follows:

                                      Unrealized Gain
                                         (Loss) on
                                    Available-for-sale
                                         Securities
                                        -------------
                                         2000    1999
                                        -----   -----
                                       (In thousands)
               Balance, at January 1    $(343) $ 161
               Current period change       77   (151)
                                        -----  -----
               Balance, at March 31     $(266) $  10
                                        =====  =====

(6)  Legal Proceedings

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

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

     The above mentioned complaint is still at an early stage and
depositions are still being taken. 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.

                                 7
<PAGE>

     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)  Potential Sale of the Company

     On March 1, 2000, the Company executed a definitive agreement
(the "Agreement") with State National Bancshares, Inc. ("State
National") for State National, to acquire all of the Company's
outstanding Common Stock for cash of approximately $45,473,000, or
$20.00 per share. The aggregate purchase price will increase if the
closing of the transaction does not occur on or before the 160th
day following the execution date of the Agreement. The Agreement
additionally calls for State National to assume the Company's
obligations on $13,000,000 of outstanding Trust Preferred
Securities. State National is a privately held bank holding company
headquartered in Lubbock, Texas. The transaction is subject to
various closing conditions, including the receipt of all necessary
approvals and the ability of State National to raise the necessary
funds to complete the transaction. If all the conditions to the
transaction are satisfied in the normal course, the transaction is
expected to be completed before the end of the third quarter of
2000.

                                 8

<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 March 31, 2000,
owned 100% of the common securities of Independent Capital Trust
("Independent Capital") and 100% of Independent Financial Corp.
("Independent Financial") which, in turn, owned 100% of First State
Bank, National Association, Abilene, Texas (the "Bank"). The Bank
currently operates full-service banking locations in the cities of
Abilene (three locations), Azle (two locations), Lubbock, Odessa
(four locations), San Angelo, Stamford and Winters.

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

General

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

Net Income

     Net income for the quarter ended March 31, 2000, amounted to
$631,000 ($0.28 basic and diluted earnings per common share)
compared to net income of $629,000 ($0.28 basic and $0.27 diluted
earnings per common share, respectively) for the quarter ended
March 31, 1999. Income before federal income taxes increased in
2000 primarily due to an increase in the Company's net interest
margin for the first quarter of 2000 compared to the first quarter
of 1999; however, the

                                 9
<PAGE>

smaller increase in net income for the first quarter of 2000
compared to the first quarter of 1999 was due to the utilization of
$17,000 in tax credit carryforwards during the first quarter of
1999.

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.

     Net interest income amounted to $3,623,000 for the first
quarter of 2000, an increase of $110,000, or 3.1%, from the first
quarter of 1999. Net interest income for the first quarter of 1999
was $3,513,000. The increase in 2000 was due to an increase in the
Company's net interest margin. The net interest margin on a fully
taxable-equivalent basis, increased from 4.47% for the first
quarter of 1999, to 4.67% for the first quarter of 2000, which was
also an increase from the 4.62% recorded during the fourth quarter
of 1999. The increase in the net interest margin from the first
quarter of 1999 to the first quarter of 2000 is due primarily to a
shift within the Company's loan portfolio to more commercial and
real estate loans and away from lower-yielding indirect installment
loans.

     At March 31, 2000, approximately $60,024,000, or 32.1%, of the
Company's total loans, net of unearned income, were loans with
floating interest rates. Approximately 41.5% of loans, excluding
loans to individuals, which are almost exclusively fixed rate in
nature, were loans with floating interest rates. Average overall
rates paid for various types of certificates of deposit increased
from March 31, 1999, to March 31, 2000. For example, the average
rate paid for certificates of deposit less than $100,000 increased
from 4.89% for the first quarter of 1999 to 5.05% for the first
quarter of 2000, while the average rate paid by the Company for
certificates of deposit of $100,000 or more also increased from
4.98% during the first quarter of 1999 to 5.27% during the first
quarter of 2000. Rates on other types of deposits, such as interest-
bearing demand, savings and money market deposits, actually
decreased from an average of 2.14% during the first quarter of 1999
to an average of 2.04% during the first quarter of 2000. These
changes caused the Company's overall cost of interest-bearing
deposits to increase from 3.79% for the first three months of 1999
to 3.90% for the first three months of 2000.

     The following table presents the average balance sheets of the
Company for the quarters ended March 31, 2000 and 1999, and
indicates the interest earned or paid on the major categories of
interest-earning assets and interest-bearing liabilities on a fully
taxable-equivalent basis and the average rates earned or paid on
each major category. This analysis details the contribution of
interest-earning assets and the impact of the cost of funds on
overall net interest income.

                                10
<PAGE>
<TABLE>
                                                     Quarter Ended March 31,
                                     --------------------------------------------------------
                                               2000                           1999
                                    --------------------------   -----------------------------
                                    Interest                                            Interes
                                                                                           t
                                    Average    Income/   Yield/   Average     Income/   Yield/
                                    Balance    Expense    Rate    Balance     Expense    Rate
                                    -------    -------   -----    -------     -------    -----
ASSETS                                                (Dollars in thousands)
<S>                                <C>         <C>       <C>       <C>        <C>       <C>
Interest-earning assets:
  Loans, net of unearned income      $186,162    $4,346     9.34%    $184,347   $4,239    9.20%
(1)
  Securities (2)                      111,493     1,616     5.80      100,485    1,463    5.82
  Federal funds sold                   17,457       246     5.64       34,475      411    4.77
                                     --------    ------    -----     --------            -----
     Total interest-earning assets    315,112     6,208     7.88      319,307    6,113    7.66
                                     --------    ------    -----     --------            -----
Noninterest-earning assets:
  Cash and due from banks              20,483                          20,271
  Intangible assets                    10,073                          10,687
  Premises and equipment                9,734                          10,203
  Accrued interest receivable
   and other assets                     5,964                           6,483
  Allowance for possible loan
   losses                             (1,803)                          (1,796)
                                     --------                        --------
     Total noninterest-earning
        assets                         44,451                          45,848
                                     --------                        --------
          Total assets               $359,563                        $365,155
                                    =========                        ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
  Demand, savings and money
   market deposits                   $103,082    $  525     2.04%   $ 109,215     $585    2.14%
  Time deposits                       156,221     2,002     5.13      159,347    1,958    4.92
                                     --------    ------   ------     --------            -----
     Total interest-bearing
       liabilities                    259,303     2,527     3.90      268,562    2,543    3.79
                                     --------    ------   ------     --------            -----
Noninterest-bearing liabilities:
  Demand deposits                      59,545                          56,855
  Accrued interest payable and
   other liabilities                    2,068                           2,110
                                     --------                        --------
     Total noninterest-bearing         61,613                          58,965
       liabilities                   --------                        --------
          Total liabilities           320,916                         327,527
Guaranteed preferred beneficial
  interests in the Company's
  subordinated debentures              13,000                          13,000
Stockholders' equity                   25,647                          24,628
                                     --------                        --------

          Total liabilities and
            stockholders' equity     $359,563                        $365,155
                                     ========                        ========
Net interest income                              $3,681                         $3,570
                                                 ======                         ======
Interest rate spread (3)                                    3.98%                         3.87%
                                                         =======                         =====
Net interest margin (4)                                     4.67%                         4.47%
                                                         =======                         =====

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

     The following table presents the changes in the components of
net interest income and identifies the part of each change due to
differences in the average volume of interest-earning assets

                                11
<PAGE>

and interest-bearing liabilities and the part of each change due to
the average rate on those assets and liabilities. The changes in
interest due to both rate and volume in the table have been
allocated to volume or rate change in proportion to the absolute
amounts of the change in each.

                                            March 31, 2000 vs 1999
                                        --------------------------
                                        Increase (Decrease) Due To
                                                  Changes In
                                        --------------------------
                                            Volume  Rate    Total
                                           -------  -----   ------
                                                (In thousands)
Interest-earning assets:
 Loans, net of unearned income (1)           $  42   $65    $ 107
 Securities (2)                                158    (5)     153
 Federal funds sold                           (240)   75     (165)
                                             -----  ----     ----
   Total interest income                       (40)  135       95
                                             -----  ----     ----

Interest-bearing liabilities:
 Deposits:
  Demand, savings and money market
    deposits                                   (32)   (28)    (60)
  Time deposits                                (40)    84      44
                                             -----   ----    ----
     Total interest expense                    (72)    56     (16)
                                             -----   ----    ----
Increase in net interest income              $  32   $ 79   $ 111
                                             =====   ====    ====
______________________________
(1)  Nonaccrual loans have been included in average assets for the
     purposes of the computations, thereby reducing yields.
(2)  Information with respect to tax-exempt securities is provided
     on a fully taxable-equivalent basis assuming a tax rate of
     34%.

Provision for Loan Losses

     The amount of the provision for loan losses is based on
periodic (not less than quarterly) evaluations of the loan
portfolio, especially nonperforming and other potential problem
loans. During these evaluations, consideration is given to such
factors as: management's evaluation of specific loans; the level
and composition of nonperforming loans; historical loss experience;
results of examinations by regulatory agencies; an internal asset
review process conducted by the Company that is independent of the
management of the Bank; expectations of future economic conditions
and their impact on particular industries and individual borrowers;
the market value of collateral; the strength of available
guarantees; concentrations of credits; and other judgmental
factors. The provision for loan losses for the quarter ended March
31, 2000 was $110,000, compared to $105,000 for the quarter ended
March 31, 1999. The provision for the first quarter of 2000 was
$5,000, or 4.8%, smaller than the first quarter of 1999. Of the
total gross charge-offs of $109,000 during the first quarter of
2000, $41,000, or 37.6%, 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

     Total noninterest income decreased $31,000, or 3.7%, from
$843,000 during the first quarter of 1999 to $812,000 during the
first quarter of 2000.

     Service charges on deposit accounts and on other types of
services are the major source of noninterest income to the Company.
This source of income decreased from $734,000 during the first
three months of 1999 to $679,000 during the first three months of
2000, a $55,000, or 7.5%, decrease. The decrease was primarily due
to an unusually high amount of charges for checks that were drawn
on insufficient funds during the first quarter of 1999.

     Trust fees from the operation of the trust department of the
Bank increased $9,000, or 15.5%, from $58,000 during the first
three months of 1999 to $67,000 during the same period in 2000, as
a result of an overall increase in the value of assets under
management of the trust department and annual administrative fees
for 1999 and one-time termination fees that were collected during
the first quarter of 2000.

     Other income is the sum of several components of noninterest
income including check printing income, commissions earned on the
sale of mutual funds and annuities, bank card royalty income,
insurance premiums earned on automobiles financed through the
Company's indirect installment loan program and other sources of
miscellaneous income. Other income increased $15,000, or 29.4%,
from $51,000 during the first quarter of 1999 to $66,000 during the
first quarter of 2000, due to increases in check printing income
and bank card royalty income.

Noninterest Expenses

     Total noninterest expenses increased $44,000, or 1.3%, from
$3,326,000 during the first quarter of 1999 to $3,370,000 during
the first quarter of 2000.

     Salaries and employee benefits decreased $32,000, or 2.1%,
from $1,533,000 for the first quarter of 1999 to $1,501,000 for the
corresponding period of 2000. The decrease was primarily a result
of the consolidation of the operations of Azle State Bank, Azle,
Texas ("Azle State"), which was acquired on September 22, 1998, and
its two locations, which became branches of the Bank effective
March 12, 1999. This decrease was partially offset by overall
salary increases. During 1999, the Company also began to give
annual evaluations to non-officer employees on their respective
anniversary dates as opposed to all of such evaluations being done
on January 1 every year.

     Net occupancy expense was $365,000 for the first three months
of 2000, an increase of $22,000, or 6.4%, from the $343,000 in
expense recorded during the first three months of 1999. The
increase was primarily a result of increases in property taxes and
utility expenses during the first quarter of 2000.

     Equipment expense increased from $265,000 for the first
quarter of 1999 to $287,000 for the corresponding period in 2000,
representing an increase of $22,000, or 8.3%. The increase was due
to the leasing of additional check processing hardware as a result
of the two Azle State locations

                                13

<PAGE>

becoming branches of the Bank, and the additional maintenance
associated therewith. These increases were somewhat offset by a
decrease in equipment repairs.

     Distributions on guaranteed preferred beneficial interests in
the Company's subordinated debentures totaled $276,000 for both the
first quarter of 2000 and the first quarter of 1999. The Company's
Trust Preferred Securities were issued in September 1998 in
conjunction with the acquisition of Azle State.

     Amortization of intangible assets increased $2,000, or 1.2%,
from $166,000 for the first quarter of 1999 to $168,000 for the
first quarter of 2000.

     Stationery, printing and supplies expense increased $16,000,
or 13.0%, from $123,000 for the first three months of 1999 to
$139,000 for the first three months of 2000. Increases in printed
forms and check printing expenses associated with the Azle State
branch conversion was partially offset by a decrease in supplies
expense.

     Professional fees, which include legal and accounting fees,
increased $30,000, or 31.9%, from $94,000 during the first quarter
of 1999 to $124,000 during the same period of 2000, due primarily
to an increase in legal fees associated with litigation described
in Note 6 to the Consolidated Financial Statements. Under its
insurance coverage, the Company has a $25,000 retention on expenses
associated with such litigation.

     Net costs applicable to other real estate and other
repossessed assets consist of expenses associated with holding and
maintaining repossessed assets, the net gain or loss on the sales
of such assets, the write-down of the carrying value of the assets
and any rental income that is credited as a reduction in expense.
The Company recorded net costs of $6,000 during the first quarter
of 2000 and $28,000 during the first quarter of 1999. The decrease
in net costs incurred in 2000 was due to a decrease in the number
of repossessed automobiles during the first quarter of 2000 as a
result of a reduction in the number of outstanding indirect
installment loans secured by automobiles.

     Other noninterest expense includes, among many other items,
postage, data processing, due from bank account charges,
advertising, travel and entertainment, insurance, loan expenses,
directors' fees, dues and subscriptions, regulatory examinations,
franchise taxes, charges and Federal Deposit Insurance Corporation
("FDIC") insurance expense. These expenses only increased $6,000,
or 1.2%, from $498,000 for the first quarter of 1999 to $504,000
for the first quarter of 2000 as a result of efforts by the Company
to manage increases in such expenses.

Federal Income Taxes

     The Company accrued $324,000 and $296,000 in federal income
taxes in the first quarter of 2000 and 1999, respectively. The
increase from an effective rate of approximately 32% in 1999 to
approximately 34% in 2000 was due to the utilization of $17,000 in
tax credit carryforwards during the first quarter of 1999.

                                14

<PAGE>

Impact of Inflation

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

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

Assets

     Total assets decreased $2,396,000, or 0.7%, from $358,262,000
at December 31, 1999, to $355,866,000 at March 31, 2000, due to
slight decreases in interest-bearing demand deposits and interest-
bearing time deposits during the first three months of 2000. These
decreases were somewhat offset by an increase in noninterest-
bearing demand deposits.

Cash and Cash Equivalents

     The amount of cash and cash equivalents decreased $5,401,000,
or 13.9%, from $38,760,000 at December 31, 1999, to $33,359,000 at
March 31, 2000, due to higher amounts of cash on hand that were
maintained at most of the Bank's branch locations at December 31, 1999,
in case of potential Y2K problems that never materialized.

Securities

     Securities increased $2,379,000, or 2.2%, from $108,903,000 at
December 31, 1999, to $111,282,000 at March 31, 2000. The increase
in 2000 is due to purchases of securities during the first quarter
of 2000 with cash that had been on hand at December 31, 1999, 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 $46,315,000 are classified
as available-for-sale and are carried at fair value at March 31,
2000. Securities totaling $64,967,000 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 March 31, 2000, the book value of U.S.
Treasury and other U.S.

                                15

<PAGE>

Government agency securities so pledged amounted to $21,791,000, or
19.6% 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>
                                      March 31, 2000          December 31, 1999
                                      --------------        --------------------
                                      Amount      %            Amount       %
                                      ------    ----        ----------     -----

                                                 (Dollars in thousands)
<S>                                   <C>       <C>          <C>            <C>
Carrying value:
 Obligations of U.S. Government
  agencies and corporations          $ 76,845   69.1%        $ 75,016       68.9%
 U.S. Treasury securities              16,959   15.2           15,982       14.7
 Obligations of states and
    political subdivisions              9,058    8.1            9,103        8.4
 Mortgage-backed securities             7,401    6.7            7,783        7.1
 Other securities                       1,019    0.9            1,019        0.9
                                      -------  -----         --------  ---------
Total carrying value of
   securities                        $111,282  100.0%        $108,903      100.0%
                                     ========  =====         ========  =========
Total fair value of securities       $109,927                $107,608
                                     ========                ========

</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 March 31, 2000. The yield has been computed by
relating the forward income stream on the securities, plus or minus
the anticipated amortization of premiums or accretion of discounts,
to the carrying value of the securities. The book value of
securities classified as held-to-maturity is their cost, adjusted
for previous amortization or accretion. The restatement of the
yields on tax-exempt securities to a fully taxable-equivalent basis
has been computed assuming a tax rate of 34%.

                                16
<PAGE>
<TABLE>
                                                             Estimated   Weighted
Type and Maturity Grouping            Principal   Carrying     Fair       Average
at March 31, 2000                       Amount      Value      Value       Yield
-----------------                       ------     ------    --------    --------
                                                 (Dollars in thousands)
<S>                                   <C>         <C>           <C>           <C>
Obligations of U.S. Government
  agencies and corporations:
  Within one year                       $23,000     $22,953     $22,873        5.39%
  After one but within five years        54,245      53,892      52,984        5.79
                                       --------    --------    --------      ------
     Total obligations of U.S.
       Government
       agencies and corporations         77,245      76,845      75,857        5.67
                                       --------    --------    --------      ------

U.S. Treasury securities:
  Within one year                         8,000       7,984       7,984        5.26
  After one but within five years         9,000       8,975       8,975        5.60
                                       --------    --------    --------      ------
     Total U.S. Treasury securities      17,000      16,959      16,959        5.44
                                       --------    --------    --------      ------

Obligations of states and political
   subdivisions:
  Within one year                           290         306         290        9.14
  After one but within five years         4,540       4,785       4,648        8.87
  After five but within ten years         3,665       3,847       3,726        8.51
  After ten years                           120         120         123        8.76
                                       --------    --------    --------      ------
     Total obligations of states and
political
        subdivisions                      8,615       9,058       8,788        8.72
                                       --------    --------    --------      ------

Mortgage-backed securities                7,356       7,401       7,304        6.36
                                       --------    --------    --------      ------

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             $111,235    $111,282     109,927        5.91%
                                       ========    ========    ========       =====
</TABLE>
Loan Portfolio

     Total loans, net of unearned income, increased $616,000, or
0.3%, from $186,626,000 at December 31, 1999, to $187,242,000 at
March 31, 2000. The increase during the first quarter of 2000 was a
result of an increase in commercial loans. This increase was
partially offset by continued net payoffs of the Company's indirect
installment loans. These payoffs resulted in a decrease of
approximately $2,700,000 in such loans.

     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 Banks'
commercial loans have floating rates of interest, are for varying
terms (generally not exceeding five

                                17
<PAGE>

years), are personally guaranteed by the borrower and are
collateralized by accounts receivable, inventory or other business
assets.

     Due to diminished loan demand during the early 1990's, the
Bank instituted an installment loan program whereby it began to
purchase automobile loans from automobile dealerships in its market
areas. Under this program, an automobile dealership will agree to
make a loan to a prospective customer to finance the purchase of a
new or used automobile. The different financial institutions that
have a pre-established relationship with the particular dealership
review the transaction, including the credit history of the
prospective borrower, and decide if they would agree to purchase
the loan from the dealership and, if so, at what rate of interest.
The dealership selects the financial institution to which it
decides to sell the loan. The financial institution purchasing the
loan has a direct loan to the borrower collateralized by the
automobile, and the dealership realizes a profit based on the
difference between the interest rate quoted to the buyer by the
dealership and the interest rate at which the loan is purchased by
the financial institution. At March 31, 2000, the Company had
approximately $11,304,000, net of unearned income, of this type of
loan outstanding compared to approximately $14,004,000 of this type
loan at December 31, 1999. The decrease is due to management's
decision to shift the loan portfolio toward more commercial and
real estate loans and less toward indirect installment loans.

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

                                         March 31, December 31,
                                           2000      1999
                                         -------   -----------
                                           (In thousands)
     Real estate loans                  $ 71,729    $ 72,268
     Commercial loans                     60,890      55,270
     Loans to individuals                 43,139      46,748
     Other loans                          11,856      12,857
                                        --------    --------
      Total loans                        187,614     187,143
     Less unearned income                    372         517
                                        --------    --------
      Loans, net of unearned income     $187,242    $186,626
                                        ========    ========

     Loan concentrations are considered to exist when there are
amounts loaned to a multiple number of borrowers engaged in similar
activities that would cause them to be similarly impacted by
economic or other conditions. The Company had no concentrations of
loans at March 31, 2000, except for those described in the above
table. The Bank had no loans outstanding to foreign countries or
borrowers headquartered in foreign countries at March 31, 2000.

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

     The following table presents the distribution of the maturity
of the Company's loans and the interest rate sensitivity of those
loans, excluding loans to individuals, at March 31, 2000. The table

                                18

<PAGE>


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        $13,512  $48,621    $9,596   $71,729
     Commercial loans          39,828   19,069     1,993    60,890
     Other loans                9,179    2,226       451    11,856
                              -------  -------   -------  --------
      Total loans             $62,519  $69,916   $12,040  $144,475
                              =======  =======   =======  ========

     With fixed interest
       rates                  $23,649  $52,762    $9,069   $85,480
     With variable interest
       rates                   38,870   17,154     2,971    58,995
                              -------  -------   -------   -------
      Total loans             $62,519  $69,916   $12,040   144,475
                              =======  =======   =======   =======

Allowance for Possible Loan Losses

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

     The amount of the allowance equals the cumulative total of the
loan loss provisions made from time to time, reduced by loan charge-
offs, and increased by recoveries of loans previously charged off.
The Company's allowance was $1,866,000, or 1.00% of loans, net of
unearned income, at March 31, 2000, compared to $1,833,000, or
0.98% of loans, net of unearned income, at December 31, 1999.

     Credit and loan decisions are made by management and the Board
of Directors of the Bank in conformity with loan policies
established by the Board of Directors of the Company. The Company's
practice is to charge off any loan or portion of a loan when it is
determined by management to be uncollectible due to the borrower's
failure to meet repayment terms, the borrower's deteriorating or
deteriorated financial condition, the depreciation of the
underlying collateral, the loan's classification as a loss by
regulatory examiners or for other reasons. The Company charged off
$109,000 in loans during the first quarter of 2000. Recoveries
during the first quarter of 2000 were $32,000.

     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 ended March 31, 2000 and
1999.

                                19
<PAGE>
                                                   March 31,
                                              -------------------
                                               2000       1999
                                              --------  ---------
                                           (Dollars in thousands)
     Analysis of allowance for possible
       loan losses:
     Balance, at January 1                    $  1,833   $ 1,842
      Provision for loan losses                    110       105
                                              -------- ---------
                                                 1,943     1,947
                                              -------- ---------
     Loans charged off:
      Real estate loans                              0         0
      Commercial loans                              29         1
      Loans to individuals                          74       141
      Other loans                                    6         0
                                              -------- ---------
       Total charge-offs                           109       142
                                              -------- ---------
     Recoveries of loans previously
        charged off:
      Real estate loans                              0         0
      Commercial loans                               5         9
      Loans to individuals                          26        35
      Other loans                                    1         0
                                              -------- ---------
       Total recoveries                             32        44
                                              -------- ---------
        Net loans charge-offs                       77        98
                                              -------- ---------
     Balance, at March 31                     $  1,866  $  1,849
                                              ========  ========

     Average loans outstanding, net
       of unearned income                     $186,162  $184,347
                                              ========  ========
     Ratio of net loan charge-offs to
        average loans outstanding, net
        of unearned income (annualized)           0.17%     0.21%
                                              ========  ========
     Ratio of allowance for possible
      loan losses to total loans,
      net of unearned income, at March 31         1.00%     1.00%
                                              ========  ========

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

     As the economies of the Company's market areas recovered and
stabilized over the past several years, there was a steady
reduction in the amount of the provisions, as a percentage of
average loans outstanding, necessary to maintain an adequate
balance in the allowance. This reflected not only the loan loss
trend, but management's assessment of the continued reduction of
credit risks associated with the loan portfolio.

     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

                                20
<PAGE>

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
March 31, 2000, and December 31, 1999

<TABLE>

                                            March 31, 2000            December 31, 1999
                                        ----------------------     -------------------------
                                                    Percent of                 Percent of
                                                     Loans by                   Loans by
                                       Amount of   Category to     Amount of   Category to
                                       Allowance  Loans, Net of    Allowance   Loans, Net of
                                       Allocated     Unearned      Allocated    Unearned
                                          to                          to
                                       Category       Income       Category      Income
                                       --------      -------       --------      --------
                                                     (Dollars in thousands)
<S>                                   <C>         <C>           <C>           <C>
Real estate loans                        $  327        38.3%        $198          38.7%
Commercial loans                            371        32.5          254           29.6
Loans to individuals                        802        22.8          672           24.8
Other loans                                  53         6.4           37            6.9
                                         ------      ------       ------         ------
     Total allocated                      1,553       100.0%       1,161          100.0%
Unallocated                                 313      ======          672         ======
                                         ------                   ------
Total allowance for possible loan
   losses                                $1,866                  $ 1,833
                                         ======                  =======

</TABLE>


Loan Review Process

     The Company follows a loan review program to evaluate the
credit risk in its loan portfolio. Through the loan review process,
the Bank maintains an internally classified loan list that, along
with the list of nonperforming loans discussed below, helps
management assess the overall quality of the loan portfolio and the
adequacy of the allowance. Loans classified as "substandard" are
those loans with clear and defined weaknesses such as highly
leveraged positions, unfavorable financial ratios, uncertain
repayment sources, involvement in bankruptcy proceedings or poor
financial condition, which may jeopardize recoverability of the
loan. Loans classified as "doubtful" are those loans that have
characteristics similar to substandard loans, but also have an
increased risk that a loss may occur or at least a portion of the
loan may require a charge-off if liquidated at present. Although
loans classified as substandard do not duplicate loans classified
as doubtful, both substandard and doubtful loans may include some
loans that are past due at least 90 days, are on nonaccrual status
or have been restructured. Loans classified as "loss" are those
loans that are usually in the process of being charged off. At
March 31, 2000, substandard loans totaled $1,578,000, of which
$178,000 were loans designated as nonaccrual, 90 days past due or
restructured. There were no doubtful loans and loss loans totaled
$124,000. Of the loans classified as loss, all are indirect
installment loans that are 120 days past due and, according to
regulatory guidelines, must be classified as a loss. Substandard,
doubtful and loss loans at December 31, 1999, were $1,765,000, $0
and $4,000, respectively.

                                21

<PAGE>

     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 March 31, 2000,
were current and paying in accordance with loan terms; however,
$54,000 of such loans were 90 days past due, but were guaranteed by
a U.S. governmental agency. At March 31, 2000, watch list loans
totaled $1,309,000 (including $697,000 of loans guaranteed by U.S.
governmental agencies). Of the total loans on the watch list,
$248,000 of the loans involved borrowers who had filed Chapter 13
bankruptcy and the Bank was awaiting finalization of the individual
borrowers' bankruptcy plans. At March 31, 2000, $76,000 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 March 31, 2000, and December 31, 1999.

                                22

<PAGE>

                                              March 31,   December 31,
                                                 2000         1999
                                               --------   -------------
                                                    (In thousands)
Nonaccrual loans                                 $55             $236
Accruing loans contractually past due
  over 90 days                                   207              203
Restructured loans                               170              186
Other real estate and other repossessed          291              272
   assets                                     ------           ------

Total nonperforming assets                      $723             $897
                                              ======           ======

     The gross interest income that would have been recorded during
the first quarter of 2000 on the Company's nonaccrual loans if such
loans had been current, in accordance with the original terms
thereof and outstanding throughout the period or, if shorter, since
origination, was approximately $5,000. Interest income totaling
$15,000 was actually recorded (received) on loans that were on
nonaccrual during the first quarter of 2000.

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

Intangible Assets

     Intangible assets decreased $167,000, or 1.6%, from
$10,158,000 at December 31, 1999, to $9,991,000 at March 31, 2000.
This decrease was due entirely to core deposit intangible and
goodwill amortization expense recorded during the first quarter of
2000.

Premises and Equipment

     Premises and equipment decreased $161,000, or 1.6%, during the
first quarter of 2000, from $9,816,000 at December 31, 1999, to
$9,655,000 at March 31, 2000. The decrease was due to depreciation
expense of $182,000, which was recorded during the first quarter of
2000. This decrease was partially offset by purchases of small
amounts of equipment during the first quarter of 2000.

Accrued Interest Receivable

     Accrued interest receivable consists of interest that has
accrued on securities and loans, but is not yet payable under the
terms of the related agreements. The balance of accrued interest
receivable increased $81,000, or 2.3%, from $3,538,000 at December
31, 1999, to $3,619,000 at March 31, 2000. The increase was
primarily a result of a small increase in loans, an increase in
securities, on which interest is normally collected semiannually,
and a small decrease in federal funds sold, on which interest is
collected daily. Of the total balance at March 31, 2000,
$2,032,000, or 56.1%, was interest accrued on loans and $1,587,000,
or 43.9%, was interest accrued on securities. The amounts of
accrued interest receivable and percentages attributable to loans
and securities

                                24
<PAGE>

at December 31, 1999, were $2,058,000, or 58.2%, and $1,480,000, or
41.8%, respectively.

Other Real Estate and Other Repossessed Assets

     Other real estate and other repossessed assets consist of real
property and other assets unrelated to banking premises or
facilities. Income derived from other real estate and other
repossessed assets, if any, is generally less than that which would
have been earned as interest at the original contract rates on the
related loans. At March 31, 2000, and December 31, 1999, other real
estate and other repossessed assets had an aggregate book value of
$291,000 and $272,000, respectively. Other real estate and other
repossessed assets increased $19,000, or 7.0%, during the first
three months of 2000, primarily due to the repossession of three
parcels of real estate. This increase was partially offset by a
decrease in the number of repossessed automobiles. Of the March 31,
2000, balance, $259,000 represented four commercial and three
residential properties and $32,000 represented eight repossessed
automobiles.

Other Assets

     The most significant component of other assets at March 31,
2000, is a net deferred tax asset of $488,000. The balance of other
assets increased $271,000, or 13.4%, to $2,293,000 at March 31,
2000, from $2,022,000 at December 31, 1999, partially as a result
of an increase in the amount of prepaid expenses during the first
quarter of 2000.

Deposits

     The Bank's lending and investing activities are funded almost
entirely by core deposits, 50.8% of which are demand, savings and
money market deposits at March 31, 2000. Total deposits decreased
$3,042,000, or 1.0%, from $318,299,000 at December 31, 1999, to
$315,257,000 at March 31, 2000. The decrease was due to decreases
in interest-bearing demand and time deposits. These decreases were
partially offset by an increase in noninterest bearing demand
deposits. The Bank does not have any brokered deposits.

     The following table presents the average amounts of, and the
average rates paid on, deposits of the Company for the quarters
ended March 31, 2000 and 1999.

                                   Quarter Ended March 31,
                           ---------------------------------------
                                  2000                 1999
                           -------------------   -----------------
                           Average     Average   Average   Average
                            Amount      Rate      Rate      Amount
                           -------     ------    ------    -------
                                   (Dollars in thousands)
Noninterest-bearing        $59,545       --%     $56,855        --%
 demand deposits
Interest-bearing demand,
  savings and money market
  deposits                 103,082      2.04     109,215      2.14
Time deposits of less
  than $100,000            104,198      5.05     111,196      4.89
Time deposits of $100,000   52,023      5.27      48,151      4.98
  or more                 --------    ------     -------    ------
Total deposits            $318,848      3.17%    325,417      3.13%
                          ========    ======     =======    ======

                                24
<PAGE>

     The maturity distribution of time deposits of $100,000 or more
at March 31, 2000, is presented below.

                                    At March 31, 2000
                                    -----------------
                                      (In thousands)
          3 months or less               $15,974
          Over 3 through 6 months         12,844
          Over 6 through 12 months        18,687
          Over 12 months                   4,202
                                         -------

             Total time deposits
              of $100,000 or more        $51,707
                                         =======

     The Bank experiences relatively limited reliance on time
deposits of $100,000 or more. Time deposits of $100,000 or more are
a more volatile and costly source of funds than other deposits and
are most likely to affect the Company's future earnings because of
interest rate sensitivity. At March 31, 2000, and December 31,
1999, deposits of $100,000 or more represented approximately 14.5%
and 14.9%, respectively, of the Company's total assets.

Accrued Interest Payable

     Accrued interest payable consists of interest that has accrued
on deposits, but is not yet payable under the terms of the related
agreements. The balance of accrued interest payable decreased
$33,000, or 3.1%, from $1,074,000 at December 31, 1999, to
$1,041,000 at March 31, 2000, due to a decrease in interest-bearing
deposits.

Other Liabilities

     The most significant components of other liabilities are
amounts accrued for various types of expenses. The balance of other
liabilities increased $100,000 or 18.8%, from $533,000 at December
31, 1999, to $633,000 at March 31, 2000, primarily due to an
increase in accrued property taxes that were paid on December 31,
1999 and an increase in unearned income on safe deposit box rental,
the vast majority of which is collected at the first of each year
and earned throughout the remainder of the year.

Interest Rate Sensitivity

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

                                 25
<PAGE>

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
65.2% at the 90-day interval, 59.6% at the 180-day interval and
58.4% at the 365-day interval at March 31, 2000. Currently, the
Company is in a liability-sensitive position at the three
intervals. During an overall rising interest rate environment, as
was evident during the first quarter of 2000, this position would
normally produce a lower net interest margin than in a falling
interest rate environment; however, because the Company had
$100,401,000 of interest-bearing demand, savings and money market
deposits at March 31, 2000, that are somewhat less rate-sensitive,
the Company's net interest margin does not necessarily decrease in
an overall rising interest rate environment. Excluding these types
of deposits, the Company's interest-sensitive assets to interest-
sensitive liabilities ratio at the 365-day interval would have been
100.6% at March 31, 2000. The interest sensitivity position is
presented as of a point in time and can be modified to some extent
by management as changing conditions dictate.

     The following table shows the interest rate sensitivity
position of the Company at March 31, 2000.

<TABLE>
                                                                       Volumes
                                                                      Subject to
                                                                      Subject to
                                                                      Repricing
                                         Cumulative Volumes            Within
                                     Subject to Repricing Within        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                $15,565     $15,565     $15,565   $     0      $15,565
  Securities                          8,042      13,330      31,243    80,039      111,282
  Loans, net of unearned income      75,173      83,902      92,934    94,308      187,242
                                    -------    --------    --------  --------     --------
     Total interest-earning          98,780     112,797     139,742   174,347      314,089
       assets                       -------    --------    --------  --------     --------
Interest-bearing liabilities:
  Demand, savings and money
   market deposits                  100,401     100,401     100,401         0      100,401
  Time deposits                      51,060      88,780     138,948    16,146      155,094
                                    -------    --------    --------  --------    ---------
     Total interest-bearing
       liabilities                  151,461     189,181     239,349    16,146      255,495
                                    -------    --------    --------  --------    ---------
Rate-sensitivity gap(1)             (52,681)   $(76,384)   $(99,607) $158,201   $  58,594
                                    =======    ========    ========  ========   =========

Rate-sensitivity ratio(2)             65.2%        59.6%       58.4%
                                    =======    ========    ========

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

                                26
<PAGE>
Selected Financial Ratios

     The following table presents selected financial ratios
(annualized) for the quarters ended March 31, 2000 and 1999.

                                               Quarter Ended
                                                March 31,  .
                                               -------------
                                                2000   1999
                                               -----   -----
Net income to:
  Average assets                                0.70%  0.69%
  Average interest-earning assets               0.80   0.79
  Average stockholders' equity                  9.84  10.22
Dividend payout (1) to:
  Net income                                   21.55  17.65
  Average stockholders' equity                  2.12   1.80
Average stockholders' equity to:
  Average total assets                          7.13   6.74
  Average loans (2)                            13.78  13.36
  Average total deposits                        8.04   7.57
Average interest-earning assets to:
  Average total assets                         87.64  87.44
  Average total deposits                       98.83  98.12
  Average total liabilities                    98.19  97.49
Ratio to total average deposits of:
  Average loans (2)                            58.39  56.65
  Average noninterest-bearing deposits         18.68  17.47
  Average interest-bearing deposits            81.32  82.53
Total interest expense to total interest
    income                                     41.09  41.99
Efficiency ratio (3)                           65.84  65.56
_________________________
(1)  Dividends on Common Stock only.
(2)  Before allowance for possible loan losses.
(3)  Calculated as a noninterest expense less distributions on
     guaranteed preferred beneficial interests in the Company's
     subordinated debentures, amortization of intangibles and
     expenses related to other real estate and other repossessed
     assets divided by the sum of net interest income before
     provision for loan losses and total noninterest income,
     excluding securities gains and losses.

Liquidity

The Bank

     Liquidity with respect to a financial institution is the
ability to meet its short-term needs for cash without suffering an
unfavorable impact on its on-going operations. The need for the
Bank to maintain funds on hand arises principally from maturities
of short-term borrowings, deposit withdrawals, customers' borrowing
needs and the maintenance of reserve requirements. Liquidity with
respect to a financial institution can be met from either assets or
liabilities. On the asset side, the primary sources of liquidity
are cash and due from banks, federal funds sold, maturities of

                                27

<PAGE>
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
$20,483,000 during the first quarter of 2000 and $20,271,000 during
the first quarter of 1999. These amounts comprised 5.7% and 5.6% of
average total assets during the first three months of 2000 and
1999, respectively. The average level of securities and federal
funds sold was $128,950,000 during the first quarter of 2000 and
$134,960,000 during the first quarter of 1999. The decrease in
average balances of securities and federal funds sold from the
first quarter of 1999 to the first quarter of 2000 was primarily
due to a decrease in total deposits during that time period.

     A total of $2,000,000 of securities classified as available-
for-sale were sold during the quarter ended March 31, 2000. No
securities were sold during the quarter ended March 31, 1999. At
March 31, 2000, $31,243,000, or 30.1%, of the Company's securities
portfolio, excluding mortgage-backed securities, matured within one
year and $67,652,000, or 65.1%, excluding mortgage-backed
securities, matured after one but within five years. The Bank's
commercial and real estate lending activities are concentrated in
loans with maturities of less than five years with both fixed and
adjustable interest rates, while its installment lending activities
are concentrated in loans with maturities of three to five years
and with primarily fixed interest rates. The Bank's experience,
however, has been that these installment loans are paid off in an
average of approximately thirty months. At March 31, 2000,
approximately $92,934,000, or 49.6%, of the Company's loans, net of
unearned income, matured within one year and/or had adjustable
interest rates. Approximately $82,644,000, or 57.2%, of the
Company's loans (excluding loans to individuals) matured within one
year and/or had adjustable interest rates. See "Analysis of
Financial Condition - Loan Portfolio" above.

     On the liability side, the principal sources of liquidity are
deposits, borrowed funds and the accessibility to money and capital
markets. Customer deposits are by far the largest source of funds.
During the first quarter of 2000, the Company's average deposits
were $318,848,000 or 88.7% of average total assets, compared to
$325,417,000, or 89.1% of average total assets, during the first
quarter of 1999. The Company attracts its deposits primarily from
individuals and businesses located within the market areas served
by the Bank. See "Analysis of Financial Condition - Deposits"
above.

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

The Company

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

                                28

<PAGE>

     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
first quarter of 2000 and 1999 were $450,000 and $475,000,
respectively; in turn, Independent Financial and Independent
Capital Trust paid dividends to the Company totaling $459,000 and
$484,000 during the same time periods of 2000 and 1999,
respectively. At March 31, 2000, there were approximately
$4,140,000 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 46.8% and 4.0%
respectively, of the Company's cash flow during the first quarter
of 2000. 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 $446,000 were paid by the Bank to the Company during the
first three months of 2000, compared to a total of $433,000 during
the first three months of 1999.

     From January 1, 1989, through December 31, 1995, the Company
collected federal income taxes from the Bank based on an effective
tax rate of approximately 34% and paid taxes to the federal
government at the rate of approximately 2% as a result of the
utilization of the Company's net operating loss carryforwards for
both regular tax and alternative minimum tax purposes. At December
31, 1995, the Company's net operating loss carryforwards for
alternative tax purposes had been fully utilized. As a result, the
Company began paying federal income taxes at the effective tax rate
of approximately 20% during the first quarter of 1996. The net
operating loss carryforwards available for regular federal income
tax purposes were fully utilized by December 31, 1997. The
Company's alternative minimum tax credit carryforwards were fully
utilized at December 31, 1999.

     The Bank pays management fees to the Company for services
performed. These services include, but are not limited to,
financial and accounting consultation, attendance at the Bank's
board meetings, audit and loan review services and related
expenses. The Bank paid a total of $38,000 and $25,000 in
management fees to the Company in the first quarter of 2000 and
1999, respectively. The Company's fees must be reasonable in
relation to the management services rendered, and the Bank is
prohibited from paying management fees to the Company if the Bank
would be undercapitalized after any such distribution or payment.

Capital Resources

     At March 31, 2000, stockholders' equity totaled $25,935,000,
or 7.3% of total assets, compared to $25,356,000, or 7.1% of total
assets, at December 31, 1999.

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

     Banking regulators also have leverage ratio requirements. The
leverage ratio requirement is measured as the ratio of Tier 1
capital to adjusted quarterly average assets. The leverage ratio
standards require all banking companies to have a minimum leverage
ratio of at least 4% and to be designated as well-capitalized, the
banking company must have a leverage ratio of at least 5%. The
following table provides a calculation of the Company's risk-based
capital and leverage ratios and a comparison of the Company's and
the Bank's risk-based capital ratios and leverage ratios to the
minimum regulatory and well-capitalized minimum requirements at
March 31, 2000.

  The Company                                   March 31, 2000
  -----------                                  ---------------
                                            (Dollars in thousands)
  Tier 1 capital:
   Common stockholders' equity, excluding
     unrealized
     loss on available-for-sale securities         $ 26,200
   Qualifying guaranteed preferred beneficial
     interests
     in the Company's subordinated debentures(1)      8,733
   Intangible assets                                 (9,991)
                                                   --------
     Total Tier 1 capital                            24,942
                                                   --------

  Tier 2 capital:
   Guaranteed preferred beneficial interests in
     the Company's subordinated debentures(1)         4,267
   Allowance for possible loan losses (2)             1,866
                                                   --------
     Total Tier 2 capital                             6,133
                                                   --------

      Total capital                                $ 31,075
                                                   ========

  Risk-weighted assets                             $203,738
                                                   ========

  Adjusted quarterly average assets                $349,492
                                                   ========

                                30


<PAGE>
<TABLE>

                                   Regulatory    Well-capitalized     Actual Ratios at
The Company                         Minimum          Minimum           March  31, 2000
-----------                        ----------    ----------------     ----------------
<S>                                <C>               <C>               <C>
Tier 1 capital to risk-weighted
  assets ratio                       4.00%             6.00%                12.24%
Total capital to risk-weighted
  assets ratio                       8.00             10.00                 15.25
Leverage ratio                       4.00              5.00                  7.14

The Bank

Tier 1 capital to risk-weighted
  assets ratio                       4.00%             6.00%                13.69%
Total capital to risk-weighted
  assets ratio                       8.00             10.00                 14.61
Leverage ratio                       4.00              5.00                  7.96

</TABLE>

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

     The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") requires each federal banking agency to revise its
risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities, as well as
reflect the actual performance and expected risk of loss on multi-
family mortgages. This law also requires each federal banking
agency to specify the levels at which an insured institution would
be considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Under the FDIC's regulations, the
Company and the Bank were both "well capitalized" at March 31,
2000.

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

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

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

     At its meeting on January 19, 2000, the Board of Directors of
the Company approved an increase in the regular quarterly cash
dividend to $0.06 per share. At its meeting on April 19, 2000, the
Board of Directors of the Company approved the payment of the
regular quarterly cash dividend

                                31

<PAGE>

of $0.06 per share on May 31, 2000, to shareholders of record of
the Common Stock on May 15, 2000.

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 Company identified all significant applications that
required modification to ensure Year 2000 Compliance. Internal and
external resources were used to make the required modifications and
test Year 2000 Compliance. The testing process of all significant
mission-critical applications was completed and all such hardware
and software tested was found to be Year 2000 compliant.

     The Company developed a contingency plan and a business
resumption plan to address issues that might not have been
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 might not have been
Year 2000 compliant. The Company prepared alternate strategies
where necessary if significant exposures were identified.

     Company personnel were at various Bank locations on the night
of December 31, 1999, and during the day on January 1, 2000, and
were prepared to address any potential Year 2000 Compliance
issues. No significant Year 2000 Compliance issues arose, nor have
any arisen subsequent to January 1, 2000.

     The total cost to the Company of Year 2000 Compliance
activities was not material to the Company's financial position or
results of operations in any given year.

Potential Sale of the Company

     On March 1, 2000, the Company executed a definitive agreement
(the "Agreement") with State National Bancshares, Inc. ("State
National") for State National, to acquire all of the Company's
outstanding Common Stock for cash of approximately $45,473,000, or
approximately $20.00 per share. The aggregate purchase price will
increase if the closing of the transaction does not occur on or
before the 160th day following the execution date of the Agreement.
The Agreement additionally calls for State National to assume the
Company's obligations on $13,000,000 of outstanding Trust Preferred
Securities. State National is a privately held bank holding company
headquartered in Lubbock, Texas. The transaction is subject to
various closing conditions, including the receipt of all necessary
approvals and the ability of State National to raise the necessary
funds to complete the transaction. If all the conditions to the
transaction are satisfied in the normal course, the transaction is
expected to be completed before the end of the third quarter of
2000.

                                32


<PAGE>

                             PART II

                        OTHER INFORMATION

Item 1.   Legal Proceedings.

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

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

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

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

Item 2.   Changes in Securities.

     None

Item 3.   Defaults upon Senior Securities.

     None

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<PAGE>

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

     At the Company's Annual Meeting of Shareholders held on
Tuesday, April 25, 2000 (the "Annual Meeting"), the following
members were elected to the Board of Directors:

                                   Votes For      Votes Withheld
                                   ---------      --------------
          Lee Caldwell              1,925,580        10,163
          Randal N. Crosswhite      1,925,180        10,563
          Marshal M. Kellar         1,923,580        12,163

     Continuing directors not standing for re-election until the
2001 and 2002 Annual Meetings of Shareholders are John L. Beckham
(2001), Nancy E. Jones (2001), Scott L. Taliaferro (2001), C.G.
Whitten (2001), Mrs. William R. (Amber) Cree (2002), Tommy
McAlister (2002), Bryan W. Stephenson (2002) and James D. Webster,
M.D. (2002).

Item 5.   Other Information.

     None

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

     (a)  Exhibits

          27.1 Financial Data Schedule

     (b)  Reports on Form 8-K

          Current Report on Form 8-K dated March 1, 2000,
          reporting the execution of a definitive Reorganization
          Agreement whereby State National Bancshares, Inc. would
          acquire the Company in an all cash merger.


                                34

<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:  May 15, 2000           Independent Bankshares, Inc.
                         (Registrant)



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


                                35