Form 10-Q

Table of Contents

Table of Contents

Table of Contents

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Table of Contents

Table of Contents

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10-Q 1 d10q.htm FORM 10-Q Form 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2009

¨	Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 000-51920

INDEPENDENT BANCSHARES, INC.

(Exact name of small business issuer as specified in its charter)

Florida

59-2869407

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

60 SW 17^th Street

Ocala, Florida 34471

(Address of Principal Executive Offices)

352-622-2377

(Issuer’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act: Yes ¨ No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:


Common stock, par value $2 per share		1,235,644 shares
(class)		At August 7, 2009

Transitional Small Business Format (check one): YES ¨ NO x

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

INDEX


		Page
Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets - at June 30, 2009 (Unaudited) and at December 31, 2008	2

	Condensed Consolidated Statements of Operations (Unaudited) - Three and Six months ended June 30, 2009 and 2008	3

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) - Six months ended June 30, 2009 and 2008	4

	Condensed Consolidated Statements of Cash Flows (Unaudited) - Six months ended June 30, 2009 and 2008	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6-9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10-16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17

Item 4T.	Controls and Procedures	17

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	18

Item 1A.	Risk Factors	18

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18

Item 3.	Defaults upon Senior Securities	18

Item 4.	Submission of Matters to a Vote of Security Holders	18-19

Item 5.	Other Information	19

Item 6.	Exhibits	19

SIGNATURES		20

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

($ in thousands, except share amounts)


	At June 30, 2009			At December 31, 2008
	(Unaudited)
Assets
Cash and due from banks	$	7,800		6,569
Interest-earning deposits		74		32
Federal funds sold		8,747		3,152


Cash and cash equivalents		16,621		9,753

Certificate of deposit		250		750
Securities available for sale		34,428		35,370
Loans, net of allowance for loan losses of $2,160 and $1,915		141,839		148,493
Accrued interest receivable		800		905
Federal Home Loan Bank stock		871		925
Federal Reserve Bank stock		237		237
Premises and equipment, net		8,615		8,175
Foreclosed real estate		968		2,021
Goodwill		1,525		1,525
Customer intangible, net		270		305
Other assets		3,554		2,169


Total assets	$	209,978		210,628


Liabilities and Stockholders’ Equity

Liabilities:
Noninterest-bearing demand deposits		16,881		16,108
NOW, money-market and savings deposits		85,235		70,367
Time deposits		79,338		92,232


Total deposits		181,454		178,707

Federal Home Loan Bank advances		10,000		10,000
Junior subordinated debenture		2,062		2,062
Other borrowings		263		1,385
Accrued interest payable and other liabilities		1,282		2,041


Total liabilities		195,061		194,195


Stockholders’ equity:
Common stock, $2 par value, 10,000,000 shares authorized, 1,235,644 shares issued and outstanding		2,471		2,471
Additional paid-in capital		8,831		8,831
Retained earnings		3,658		5,218
Accumulated other comprehensive loss		(43	)	(87	)


Total stockholders’ equity		14,917		16,433


Total liabilities and stockholders’ equity	$	209,978		210,628

See accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share amounts)


	Three Months Ended June 30,					Six Months Ended June 30,
	2009			2008		2009		2008
Interest income:
Loans	$	2,123		2,513		4,325		5,155
Securities		359		487		734		953
Other		4		42		6		87

Total interest income		2,486		3,042		5,065		6,195


Interest expense:
Deposits		1,008		1,323		2,141		2,812
Borrowings		124		143		239		293
Capitalized interest		—		(162	)	—		(164	)

Total interest expense		1,132		1,304		2,380		2,941


Net interest income		1,354		1,738		2,685		3,254

Provision for loan losses		515		238		1,880		560


Net interest income after provision for loan losses		839		1,500		805		2,694


Noninterest income:
Service charges on deposit accounts		110		115		231		238
Brokerage fees		107		201		187		329
Gain on sale of loans		21		19		97		45
Other		95		112		187		233

Total noninterest income		333		447		702		845


Noninterest expense:
Salaries and employee benefits		925		1,017		1,886		2,090
Occupancy and equipment		254		203		493		407
Data processing		73		144		137		312
Advertising and business development		20		56		51		117
Directors fees		33		40		66		80
Stationary and supplies		20		26		40		53
Other		791		548		1,602		909

Total noninterest expense		2,116		2,034		4,275		3,968


Loss before income taxes		(944	)	(87	)	(2,768	)	(429	)

Income tax benefit		(426	)	(77	)	(1,208	)	(251	)


Net loss	$	(518	)	(10	)	(1,560	)	(178	)


Loss per share - basic	$	(0.42	)	(.01	)	(1.26	)	(0.14	)

See accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2009 and 2008

($ in thousands)


	Common Stock			Additional			Accumulated Other		Total
	Shares	Par Amount		Paid-In Capital	Retained Earnings		Comprehensive Loss		Stockholders’ Equity
Balance at December 31, 2007	1,235,644	$	2,471	8,831	5,969		(63	)	17,208


Comprehensive loss:
Net loss (unaudited)	—		—	—	(178	)	—		(178	)

Change in unrealized loss on securities available for sale, net of tax benefit (unaudited)	—		—	—	—		(162	)	(162	)


Comprehensive loss (unaudited)									(340	)


Balance at June 30, 2008 (unaudited)	1,235,644	$	2,471	8,831	5,791		(225	)	16,868


Balance at December 31, 2008	1,235,644	$	2,471	8,831	5,218		(87	)	16,433


Comprehensive loss:
Net loss (unaudited)	—		—	—	(1,560	)	—		(1,560	)

Change in unrealized loss on securities available for sale, net of tax benefit (unaudited)	—		—	—	—		44		44


Comprehensive loss (unaudited)									(1,516	)


Balance at June 30, 2009 (unaudited)	1,235,644	$	2,471	8,831	3,658		(43	)	14,917

See accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Six Months Ended June 30,
	2009			2008
Cash flows from operating activities:
Net loss	$	(1,560	)	(178	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		224		182
Provision for loan losses		1,880		560
Net amortization of premiums and discounts on securities		36		(79	)
Amortization of customer intangible		35		35
Net decrease in accrued interest receivable		105		112
Net increase in other assets		(1,408	)	(169	)
Net (decrease) increase in accrued interest payable and other liabilities		(759	)	581
Loss on sale of foreclosed real estate		50		—
Writedown of foreclosed real estate		516		—


Net cash (used in) provided by operating activities		(881	)	1,044


Cash flows from investing activities:
Purchase of securities available for sale		(2,000	)	(7,642	)
Maturities, sales, and principal repayments of securities available for sale		2,973		6,233
Net repayment (originations) of loans		3,656		(721	)
Purchase of premises and equipment		(664	)	(610	)
Redemption of Federal Home Loan Bank stock		54		1
Maturities of certificates of deposit		500		—
Proceeds from sale of foreclosed real estate		1,605		—


Net cash provided by (used in) investing activities		6,124		(2,739	)


Cash flows from financing activities:
Net increase (decrease) in deposits		2,747		(10	)
Net (decrease) increase in other borrowings		(1,122	)	312


Net cash provided by financing activities		1,625		302


Net increase (decrease) in cash and cash equivalents		6,868		(1,393	)

Cash and cash equivalents at beginning of period		9,753		8,729


Cash and cash equivalents at end of period	$	16,621		7,336


Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	2,441		3,126

Taxes	$	—		—


Noncash transactions:
Accumulated other comprehensive loss, net change in unrealized loss on securities available for sale, net of tax	$	44		(162	)


Transfer of loans to foreclosed real estate	$	1,118		1,776

See accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Basis of Presentation. In the opinion of the management of Independent BancShares, Inc. (the “Holding Company”), the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position at June 30, 2009, the results of operations for the three- and six-month periods ended June 30, 2009 and 2008 and the cash flows for the six-month periods ended June 30, 2009 and 2008. The results of operations for the three- and six-month periods ended June 30, 2009, are not necessarily indicative of results that may be expected for the year ending December 31, 2009.

The Holding Company owns 100% of the outstanding common stock of Independent National Bank (the “Bank”) and HKH Financial Center, Inc. (“HKH”) doing business as Independent Financial Partners (“IFP”) (collectively, the “Company”). The Holding Company’s primary business activity is the operation of the Bank and IFP. The Bank is a nationally-chartered commercial bank and its deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of financial services to individual and corporate customers through its five banking offices located in Marion and Sumter Counties, Florida. IFP is a financial services company registered with the National Association of Securities Dealers (“NASD”). IFP has an established product and brokering agreement with Raymond James Financial Services, Inc.

2.	*Loans.* The components of loans are summarized as follows (in thousands):


	At June 30, 2009			At December 31, 2008
Commercial real estate	$	64,573		68,036
Residential real estate and home equity		56,910		54,092
Construction and land development		13,276		17,520
Commercial		6,636		8,004
Consumer		2,640		2,842


Total loans		144,035		150,494

Deduct:
Allowance for loan losses		(2,160	)	(1,915	)
Deferred loan costs, net		(36	)	(86	)


Loans, net	$	141,839		148,493

(continued)

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

3.	*Loan Impairment and Loan Losses*. An analysis of the change in the allowance for loan losses follows (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2009			2008		2009		2008
Beginning balance	$	2,255		1,755		1,915		1,887
Provision for loan losses		515		238		1,880		560
Net, charge-offs		(610	)	(55	)	(1,635	)	(509	)


Ending balance	$	2,160		1,938		2,160		1,938

Nonaccrual and past due loans are as follows (in thousands):


	At June 30, 2009		At December 31, 2008
Nonaccrual loans	$	7,674	3,213
Past due ninety days or more, still accruing		—	—


	$	7,674	3,213

Collateral dependent impaired loans are as follows (in thousands):


	At June 30, 2009		At December 31, 2008
Gross loans with a related allowance for loan loss recorded	$	—	—
Less: Allowance on these loans		—	—
Gross loans for which there is no related allowance for loan loss		7,163	3,095


Net investment in impaired loans	$	7,163	3,095

There was no interest collected or recognized on impaired loans during the three- or six-months ended June 30, 2009 or 2008.

Loss Per Share. Basic loss per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the periods, which was 1,235,644 during the three-and six-month periods ended June 30, 2009 and 2008. There is no dilution to basic loss per share because the Company does not have any common stock equivalents.

5.	*Regulatory Capital*. The Bank is required to maintain certain minimum regulatory capital requirements. At June 30, 2009 and December 31, 2008, the Bank’s capital exceeded regulatory capital requirements.

(continued)

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

6.	*Fair Value Measurements.* Financial assets subject to fair value measurements on a recurring basis are as follows (in thousands):


	Fair Value Measurements at Reporting Date Using
	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
*As of June 30, 2009:*
Available for sale securities	$	34,428	—	33,912	516

The table below presents a reconciliation for all available-for-sale securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six-months ended June 30, 2009. These instruments were valued using pricing models and discounted cash flow methodologies incorporating assumptions that, in management’s judgment, reflect the assumptions a marketplace participant would use at June 30, 2009 (in thousands).


Balance, January 1, 2009	$	564
Total gains or losses (realized/unrealized):
Included in operations		—
Included in other comprehensive income		(46	)
Purchases, net of repayments		—
Transfers out of Level 3		(1	)
Non trading activity		(1	)


Balance, June 30, 2009	$	516

Financial assets subject to fair value measurements on a nonrecurring basis are as follows (in thousands):


				Fair Value Measurements at Reporting Date Using				Total Losses in Operations During the Six Months
	Carrying Value			(Level 1)	(Level 2)	(Level 3)	Total Losses	Ended June 30, 2009
*As of June 30, 2009:*
Impaired loans	$	3,631	⁽¹⁾	—	—	3,631	2,910	1,627


Foreclosed real estate	$	968		—	—	968	1,050	516

⁽¹⁾

Loans with a carrying value of $3,532 at June 30, 2009 were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value.

(continued)

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

7.	*Fair Value of Financial Instruments.* The estimated fair values of the Company’s financial instruments are as follows (in thousands):


	At June 30, 2009			At December 31, 2008
	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial assets:
Cash and cash equivalents	$	16,621	16,621	9,753	9,753
Certificates of deposit		250	250	750	750
Securities available for sale		34,428	34,428	35,370	35,370
Loans		141,839	140,578	148,493	145,225
Accrued interest receivable		800	800	905	905
Federal Home Loan Bank stock		871	871	925	925
Federal Reserve Bank stock		237	237	237	237

Financial liabilities:
Deposits		181,454	181,972	178,707	178,887
Federal Home Loan Bank advances		10,000	10,634	10,000	10,370
Junior subordinated debentures		2,062	2,062	2,062	2,062
Other borrowings		263	263	1,385	1,385

Off-balance-sheet instruments		—	—	—	—

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

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

Forward Looking Statements

Certain statements made in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the words “may,” “will,” “should,” “would,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “intend,” and similar expressions identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) the impact of current economic conditions, including disruptions in the housing and credit markets, either national or in the markets in which the Company does business; (2) changes in the interest rate environment that reduce net interest margin; (3) charge-offs and loan loss provisions; (4) the ability of the Bank to maintain required capital levels and adequate sources of funding and liquidity; (5) the impact of problems affecting issuers of investment securities the Bank holds (6) changes and trends in capital markets; (7) competitive pressures among depository institutions that increase significantly; (8) effects of critical accounting policies and judgments; (9) changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies; (10) legislative or regulatory changes or actions, or significant litigation that adversely affect the Company or the business in which the Company is engaged; (11) ability to attract and retain key personnel; (12) ability to secure confidential information through the use of computer systems and telecommunications network; and (13) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity, and other factors described in our periodic reports filed with the SEC. We may update that discussion in this or another periodic report we file with the SEC thereafter. We undertake no obligation to release revisions to these forward-looking statements or to reflect events or conditions occurring after the date of this report, except as required in our periodic reports.

General

The Holding Company owns 100% of the outstanding common stock of Independent National Bank (the “Bank”) and HKH Financial Center, Inc., doing business as Independent Financial Partners (“IFP”) (collectively, the “Company”). The Holding Company’s primary business activity is the operation of the Bank and IFP. The Bank is a nationally-chartered commercial bank and its deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of financial services to individual and corporate customers through its five banking offices located in Marion and Sumter Counties, Florida. IFP is a financial services company registered with the National Association of Securities Dealers (“NASD”). IFP has an established product and brokering agreement with Raymond James Financial Services, Inc.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Liquidity and Capital Resources

The Company’s primary source of cash during the six-months ended June 30, 2009 was from maturities and principal repayments of securities available for sale of $3.0 million, a net increase in loan principal repayments of $3.7 million, and an increase in deposits of $2.7 million. Cash was used primarily to purchase securities available for sale of $2 million. At June 30, 2009, the Bank exceeded its regulatory liquidity requirements.

Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include undisbursed lines of credit and construction loans, commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet. The contract or notional amounts of those instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit, including undisbursed lines of credit and construction loans, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management’s credit evaluation of the counterparty.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support third-party borrowing arrangements and generally have expiration dates within one year of issuance. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company generally holds collateral supporting these commitments.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

A summary of the amounts of the Company’s financial instruments, with off-balance-sheet risk at June 30, 2009 follows (in thousands):


	Contract Amount
Undisbursed lines of credit and construction loans	$	3,465


Commitments to extend credit	$	8,925


Standby letters of credit	$	152

Management believes that the Company has adequate resources to fund all its commitments, that a majority of all of its existing commitments will be funded within twelve months and, if so desired, that the Company can adjust the rates and terms on time deposits and other deposit accounts to retain or obtain new deposits in a changing interest rate environment.

Selected Ratios

The following table shows selected ratios for the periods ended or at the dates indicated:


	Six Months Ended June 30, 2009		Year Ended December 31, 2008		Six Months Ended June 30, 2008
Average equity as a percentage of average assets	7.44	%	7.86	%	7.84	%

Total equity to total assets at end of period	7.10	%	7.81	%	7.80	%

Return on average assets (1)	(1.47	)%	(0.36	)%	(0.16	)%

Return on average equity (1)	(19.73	)%	(4.57	)%	(2.08	)%

Noninterest expense to average assets (1)	4.02	%	3.82	%	3.64	%

Nonperforming loans to total loans at end of period (2)	5.33	%	2.14	%	0.74	%

(1)

Annualized for the six-months ended June 30, 2009 and 2008.

(2)

Nonperforming loans consist of nonaccrual loans. There are no loans contractually past due ninety days or more that are still accruing interest.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Results of Operations

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest/dividend income; (iv) interest-rate spread; and (v) net interest margin. Yields and costs were derived by dividing annualized income or expense by the average balance of assets or liabilities, respectively, for the periods shown. The yields and costs include certain fees which are considered to constitute adjustments to yields (dollars in thousands).


	Three Months Ended June 30,
	2009						2008
	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends			Average Yield/ Rate
Interest-earning assets:
Loans	$	143,284		2,123	5.93	%	$	149,482		2,513		6.72	%
Securities		35,897		359	4.01			43,193		487		4.50
Other interest-earning assets (1)		8,423		4	0.17			7,001		42		2.40


Total interest-earning assets		187,604		2,486	5.30			199,676		3,042		6.09


Noninterest-earning assets		25,371						19,489


Total assets	$	212,975					$	219,165


Interest-bearing liabilities:
Savings, NOW and money-market deposits		77,537		246	1.28			75,456		288		1.53
Time deposits		88,467		762	3.49			92,162		1,035		4.49


Total interest-bearing deposits		166,004		1,008	2.46			167,618		1,323		3.16

Borrowed funds		12,580		124	3.98			14,698		143		3.89

Capitalized interest				—						(162	)


Total interest-bearing liabilities		178,584		1,132	2.57			182,316		1,304		2.86


Noninterest-bearing demand deposits		17,803						18,526
Noninterest-bearing liabilities		593						1,335
Stockholders’ equity		15,995						16,988


Total liabilities and stockholders’ equity	$	212,975					$	219,165


Net interest income			$	1,354					$	1,738


Interest-rate spread					2.73	%						3.23	%


Net interest margin (2)					2.90	%						3.48	%


Ratio of interest-earning assets to interest-bearing liabilities		1.05						1.10

(1)	Includes interest-earning deposits, federal funds sold and Federal Home Loan Bank and Federal Reserve Bank stock.

(2)	Net interest margin is annualized net interest income divided by average interest-earning assets.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES


	Six Months Ended June 30,
	2009						2008
	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends			Average Yield/ Rate
Interest-earning assets:
Loans	$	141,943		4,325	6.09	%	$	150,235		5,155		6.86	%
Securities		35,736		734	4.11			42,354		953		4.50
Other interest-earning assets (1)		8,828		6	0.14			6,281		87		2.77


Total interest-earning assets		186,507		5,065	5.43			198,870		6,195		6.23


Noninterest-earning assets		26,169						19,299


Total assets	$	212,676					$	218,169


Interest-bearing liabilities:
Savings, NOW and money-market deposits		79,454		507	1.29			76,901		706		1.84
Time deposits		86,313		1,634	3.84			90,040		2,106		4.68


Total interest-bearing deposits		165,767		2,141	2.62			166,941		2,812		3.37

Borrowed funds		12,588		239	3.86			14,421		293		1.79

Capitalized interest				—						(164	)


Total interest-bearing liabilities		178,355		2,380	2.71			181,362		2,941		3.24


Noninterest-bearing demand deposits		17,885						18,560
Noninterest-bearing liabilities		623						1,144
Stockholders’ equity		15,813						17,103


Total liabilities and stockholders’ equity	$	212,676					$	218,169


Net interest income			$	2,685					$	3,254


Interest-rate spread					2.72	%						2.99	%


Net interest margin (2)					2.91	%						3.27	%


Ratio of interest-earning assets to interest-bearing liabilities		1.05						1.10

(1)	Includes interest-earning deposits, federal funds sold and Federal Home Loan Bank and Federal Reserve Bank stock.

(2)	Net interest margin is annualized net interest income divided by average interest-earning assets.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Comparison of the Three-Month Periods Ended June 30, 2009 and 2008

General Operating Results. Net loss for the quarter ended June 30, 2009 was $518,000 or $0.42 per basic share compared to net loss of $10,000 or $0.01 per basic share for the quarter ended June 30, 2008. The second quarter 2009 loss was caused by credit-related expenses of $135,000 for foreclosed real estate write downs, $65,000 for foreclosed real estate expenses and loss on sale of foreclosed real estate included in other expenses, and a $515,000 provision for loan losses.

The Company does not have any sub-prime securities in its investment portfolio. The sustained level of liquidity and conservative nature of investments helps offset the increased level of risk in the loan portfolio. The Company does not use brokered deposits and its loan to deposit ratio is 79.36%.

Interest Income. Interest income declined $556,000 to $2.5 million for the three-month period ended June 30, 2009, compared to $3.0 million for the three-month period ended June 30, 2008. The decline was due to a decrease in the average yield of earning assets from 6.09% to 5.30%, a decrease in average loans outstanding of $6.2 million, and the reversal of interest on nonaccrual loans of $33,000.

Interest Expense. Interest expense decreased $172,000 from $1.3 million for the three-month period ended June 30, 2008, compared to $1.1 million for the three-month period ended June 30, 2009. The decrease was due to repricing of deposits, which lowered the average rate paid to 2.46% from 3.16%.

Provision for Loan Losses. The provision for loan loss is a current period expense charged to operations to bring total loan loss allowance to a level deemed appropriate by management. The provision is based upon the volume and type of lending conducted by the Company, general economic conditions, particularly as they relate to the Company’s market area, and other factors related to the collectability of the Company’s loan portfolio. The Company recorded provisions of $515,000 and $238,000, for the three-month periods ended June 30, 2009 and 2008, respectively. During the three-month period ending June 30, 2009, the Company posted net charge offs of $610,000 to the allowance for loan losses, due primarily to loans that were written down to the market value of the collateral. At June 30, 2009, the allowance for loan losses was $2.2 million or 1.50% of gross loans. In response to market conditions, the Company’s allowance for loan losses has increased from 1.27% of loans at June 30, 2008, to 1.50% of loans at June 30, 2009. Management continues aggressively working on its collection efforts and continues to increase the level of monitoring for the loan portfolio. The Company has never participated in any type of sub-prime lending. Management believes the allowance for loan losses of $2.2 million at June 30, 2009, is adequate. However, if market conditions continued to deteriorate, additional provisions for loan losses may be necessary.

Noninterest Income. Noninterest income declined $ 114,000 to $333,000 for the three-month period ended June 30, 2009, compared to $447,000 for the three-month period ended June 30, 2008. The decline was due primarily to a $94,000 decrease in brokerage fee income.

Noninterest Expense. Noninterest expense increased $82,000, from $2.0 million for the three-month period ended June 30, 2008, to $2.1 million for the three-month period ended June 30, 2009. The increase was attributable to expenses related to foreclosed real estate of $200,000, and the FDIC special assessment of $98,000. The balance of noninterest expense to operate the Company decreased $216,000 for the three-month period ended June 30, 2009, as compared to the same period in 2008.

Income Taxes. The Company benefited from an income tax credit of $426,000 for the three-month period ended June 30, 2009, compared to a benefit of $77,000 for the three-month period ended June 30, 2008.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Comparison of the Six-Month Periods Ended June 30, 2009 and 2008

General Operating Results. Net losses for the six-month period ended June 30, 2009 was $1.6 million or $1.26 per basic share, compared to net losses of $178,000 or $0.14 per basic share for the comparable period in 2008. The net loss was a result of a provision for loan loss of $1.9 million, and the expense to carry foreclosed real estate of $596,000.

Interest Income. Interest income decreased $1.1 million to $5.1 million for the six-month period ended June 30, 2009, compared to $6.2 million for the six-month period ended June 30, 2008. The decrease was due to a drop in the average yield of earning assets from 6.23% to 5.43%, a decrease in average loans outstanding of $8.3 million, and the reversal of interest on nonaccrual loans of $115,000.

Interest Expense. Interest expense decreased $561,000 to $2.4 million for the six-month period ended June 30, 2009, compared to $2.9 million for the six-month period ended June 30, 2008. The decrease was due to repricing of deposits, which lowered the average rate paid to 2.62% from 3.37%.

Provision for Loan Losses. The provision for loan losses is charged to operations to bring the total loan loss allowance to a level deemed appropriate by management. The provision is based upon the volume and type of lending conducted by the Company, industry standards, general economic conditions, particularly as they relate to the Company’s market area, and other factors related to the Company’s loan portfolio. The Company recorded provisions for loan losses for the six-month periods ended June 30, 2009 and 2008 of $1.9 million and $560,000, respectively. During the six-month period ending June 30, 2009, the Company posted net charge offs of $1.6 million to the allowance for loan losses, due primarily to charge-offs on loans transferred to foreclosed real estate. At June 30, 2009, the allowance for loan losses was $2.2 million or 1.50% of gross loans. In response to market conditions the Company’s allowance for loan losses has increased form 1.27% of loans at June 30, 2008 to 1.50% at June 30, 2009. Management is aggressively working on its collection effort and continues to increase the level of monitoring of the loan portfolio. The Company has never participated in any type of sub-prime lending. Management believes that the allowance for loan losses of $2.2 million at June 30, 2009 is adequate. However, if market conditions continue to deteriorate, additional provisions for loan losses may be necessary.

Noninterest Income. Noninterest income decreased $143,000 during the six-month period ended June 30, 2009. The decrease was due to a decline in brokerage fees of $142,000.

Noninterest Expense. Noninterest expense increased $306,000 to $4.3 million for the six-month period ended June 30, 2009, as compared to $4.0 million for the same period in 2008. The increase in expenses can be attributed to foreclosed real estate expenses of $596,000, and FDIC special assessment of $98,000. Expenses of core operations decreased $290,000 for the period ended June 30, 2009 compared to the same period in 2008.

Income Taxes. The Company benefited from an income tax credit of $1.2 million for the six-month period ended June 30, 2009, compared to an income tax credit of $251,000 for the six-month period ended June 30, 2008.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

None applicable

Item 4T.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon management’s evaluation of those controls and procedures performed within the 90 days preceding the filing of this Report, the Chief Executive Officer and Chief Financial Officer of the Company concluded that, subject to the limitations noted below, the Company’s disclosure controls and procedures (as defined in Rule 13a-14 under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Controls Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the first six months of 2009 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management (including our Chief Executive Officer and Chief Financial Officer) does not expect that our financial reporting, disclosure controls and other internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override or the control.

The design of the system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Part II - OTHER INFORMATION

Item 1.

Legal Proceedings

There are no material pending legal proceeding to which the Holding Company or any of its subsidiaries is a party or to which any of their property is subject.

Item 1A.

Risk Factors

None applicable

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None applicable

Item 3.

Defaults upon Senior Securities

None applicable

Item 4.

Submission of Matters to a Vote of Security Holders

The Annual Meeting of Shareholders (the “Annual Meeting”) of the Holding Company was held on June 17, 2009, to elect eleven directors of the Company to serve in such capacity for the next year, and to ratify the appointment of Hacker, Johnson & Smith PA, as the Company’s independent auditors for the year ending December 31, 2009. At the Annual Meeting, 1,172,878 shares were present, in person or by proxy, out of a total of 1,235,644 issued and outstanding as of the record date. Listed below are the results of the matters subject to a vote of security holders:

Proposal 1: Election of Directors


Name of Nominee	For	Against	Withhold
Charles H. Deters	1,170,119	—	2,759
Jeremy J. Deters	1,170,119	—	2,759
David A. Dizney	1,170,119	—	2,759
Robert A. Ellinor	1,170,119	—	2,759
Billy G. Gadd	1,170,119	—	2,759
Digvijay L. Gaekwad	1,170,119	—	2,759
Mark A. Imes	1,170,119	—	2,759
Deborah A. Klugger	1,170,119	—	2,759
John L. Peterson, D.V.M.	1,170,119	—	2,759
Lanford T. Slaughter, D.D.S.	1,170,119	—	2,759
Frank E. Stafford, Jr., C.P.A.	1,170,119	—	2,759

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Proposal 2: Ratification of Hacker, Johnson & Smith PA


		Voting Results
For		1,170,569
Against		652
Abstain		1,657

Item 5.

Other Information

None applicable

Item 6.

Exhibits


Exhibit No.		Description of Exhibit
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - President and Chief Executive Officer

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer

32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - President and Chief Executive Officer, and Chief Financial Officer

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

SIGNATURES

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 hereunto duly authorized.

Date: August 7, 2009


INDEPENDENT BANCSHARES, INC.
(Registrant)

By:		/s/ Mark A. Imes
Name:		Mark A. Imes, President and Chief Executive Officer
		(Principal Executive Officer)

By:		/s/ Nicholas J. Panicaro
Name:		Nicholas J. Panicaro, Chief Financial Officer
		(Principal Financial and Accounting Officer)

Large accelerated filer

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