Form 10-Q

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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 September 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 ¨ *The registrant has not yet been phased into the interactive data requirements.

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 $1 per share		1,235,644 shares
(class)		At November 9, 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 September 30, 2009 (Unaudited) and at December 31, 2008		2

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

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

Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 2009 and 2008		5-6

Notes to Condensed Consolidated Financial Statements (Unaudited)		7-11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22

Item 4T.	Controls and Procedures	22

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3.	Defaults upon Senior Securities	23

Item 4.	Submission of Matters to a Vote of Security Holders	23

Item 5.	Other Information	23

Item 6.	Exhibits	23

SIGNATURES		24

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

($ in thousands, except share amounts)


	At September 30, 2009		At December 31, 2008
	(Unaudited)
Assets

Cash and due from banks	$	9,646	6,569
Interest-earning deposits		85	32
Federal funds sold		3,368	3,152


Cash and cash equivalents		13,099	9,753

Certificate of deposit		250	750
Securities available for sale		31,383	35,370
Loans, net of allowance for loan losses of $2,099 and $1,915		138,675	148,493
Accrued interest receivable		822	905
Federal Home Loan Bank stock		871	925
Federal Reserve Bank stock		237	237
Premises and equipment, net		8,598	8,175
Foreclosed real estate		1,590	2,021
Goodwill		1,525	1,525
Customer intangible, net		252	305
Other assets		3,854	2,169


Total assets	$	201,156	210,628


Liabilities and Stockholders’ Equity

Liabilities:
Noninterest-bearing demand deposits		14,799	16,108
NOW, money-market and savings deposits		86,392	70,367
Time deposits		69,301	92,232

Total deposits		170,492	178,707
Federal Home Loan Bank advances		10,000	10,000
Junior subordinated debenture		2,062	2,062
Other borrowings		104	1,385
Accrued interest payable and other liabilities		3,619	2,041


Total liabilities		186,277	194,195


Stockholders’ equity:
Common stock, $1 par value, 10,000,000 shares authorized, 1,235,644 shares issued and outstanding		1,236	1,236
Additional paid-in capital		10,066	10,066
Retained earnings		3,271	5,218
Accumulated other comprehensive income (loss)		306	(87	)


Total stockholders’ equity		14,879	16,433


Total liabilities and stockholders’ equity	$	201,156	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 September 30,					Nine Months Ended September 30,
	2009			2008		2009		2008
Interest income:
Loans	$	1,996		2,508		6,321		7,663
Securities		331		407		1,065		1,225
Other		8		75		14		297

Total interest income		2,335		2,990		7,400		9,185


Interest expense:
Deposits		864		1,218		3,005		4,030
Borrowings		120		137		359		432
Capitalized interest		-		(19	)	-		(181	)

Total interest expense		984		1,336		3,364		4,281


Net interest income		1,351		1,654		4,036		4,904

Provision for loan losses		471		366		2,351		925


Net interest income after provision for loan losses		880		1,288		1,685		3,979


Noninterest income:
Service charges on deposit accounts		101		114		332		357
Brokerage fees		149		133		336		462
Gain on sale of securities		54		-		54		-
Other		145		125		429		399

Total noninterest income		449		372		1,151		1,218


Noninterest expense:
Salaries and employee benefits		992		1,111		2,878		3,201
Occupancy and equipment		277		226		770		632
Data processing		87		115		224		426
Advertising and business development		13		46		64		163
Directors fees		33		40		99		120
Stationary and supplies		29		28		69		81
Other		567		549		2,169		1,458

Total noninterest expense		1,998		2,115		6,273		6,081


Loss before income taxes		(669	)	(455	)	(3,437	)	(884	)

Income tax benefit		(282	)	(137	)	(1,490	)	(388	)


Net loss	$	(387	)	(318	)	(1,947	)	(496	)


Loss per share - basic	$	(0.31	)	(0.26	)	(1.58	)	(0.40	)


Dividends per share	$	-		-		-		-

See accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

Nine Months Ended September 30, 2009 and 2008

($ in thousands)


	Common Stock			Additional Paid-In Capital	Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Par Amount		Additional Paid-In Capital	Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
Balance at December 31, 2007	1,235,644	$	1,236	10,066	5,969		(63	)	17,208


Comprehensive loss:
Net loss (unaudited)	-		-	-	(496	)	-		(496	)

Change in unrealized loss on securities available for sale, net of taxes (unaudited)	-		-	-	-		(366	)	(366	)


Comprehensive loss (unaudited)									(862	)


Balance at September 30, 2008 (unaudited)	1,235,644	$	1,236	10,066	5,473		(429	)	16,346


Balance at December 31, 2008	1,235,644	$	1,236	10,066	5,218		(87	)	16,433


Comprehensive loss:
Net loss (unaudited)	-		-	-	(1,947	)	-		(1,947	)

Change in unrealized loss on securities available for sale, net of taxes (unaudited)	-		-	-	-		393		393


Comprehensive loss (unaudited)									(1,554	)


Balance at September 30, 2009 (unaudited)	1,235,644	$	1,236	10,066	3,271		306		14,879

See accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2009			2008
Cash flows from operating activities:
Net loss	$	(1,947	)	(496	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		341		279
Provision for loan losses		2,351		925
Gain on sale of securities available for sale		(54	)	-
Net amortization of premiums and discounts on securities		(75	)	105
Amortization of customer intangible		53		52
Net decrease in accrued interest receivable		83		106
Net increase in other assets		(1,886	)	(374	)
Net increase in accrued interest payable and other liabilities		1,578		77
Loss on sale of foreclosed real estate		76		-
Writedown on foreclosed real estate		561		-


Net cash provided by operating activities		1,081		674


Cash flows from investing activities:
Purchase of securities available for sale		(2,500	)	(7,844	)
Maturities and principal repayments of securities available for sale		5,225		9,412
Sales of securities available for sale		1,985		-
Net decrease (increase) in loans, net of principal repayments		5,378		(118	)
Purchase of premises and equipment		(764	)	(638	)
Redemption of Federal Home Loan Bank stock		54		1
Maturities of certificates of deposit		500		-
Proceeds from sale of foreclosed real estate		1,883		-


Net cash provided by investing activities		11,761		813


Cash flows from financing activities:
Net decrease in deposits		(8,215	)	(2,379	)
Net (decrease) increase in other borrowings		(1,281	)	217


Net cash used in financing activities		(9,496	)	(2,162	)


Net increase (decrease) in cash and cash equivalents		3,346		(675	)

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


Cash and cash equivalents at end of period	$	13,099		8,054

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)


	Nine Months Ended September 30,
	2009		2008
Cash paid during the period for:
Interest	$	3,280	3,126

Taxes	$	-	-


Noncash transactions:
Accumulated other comprehensive income (loss), net change in unrealized loss on securities available for sale, net of tax	$	393	(366	)


Transfer of loan to foreclosed real estate	$	2,089	1,776

See accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. 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 September 30, 2009, the results of operations for the three- and nine-month periods ended September 30, 2009 and 2008 and the cash flows for the nine-month periods ended September 30, 2009 and 2008. The results of operations for the three- and nine-month periods ended September 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”). On July 7, 2009 the Holding Company’s directors approved a plan of corporate reorganization where the par value of the Holding Company was reduced to $1 from $2. 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.

The Bank’s operating and capital requirements, the losses due to recent increases in nonperforming loans and declining net interest margin are factors Management considered when evaluating the Bank’s ability to continue as a going concern.

Management is evaluating all potential sources of capital to meet the Banks capital requirements, including debt financing, issuing equity securities, entering into other financing arrangements and/or strategic alliances, and seeking recapitalization opportunities. There can be no assurance, however, that additional financing or recapitalization plans will be available or forthcoming and, if available, can be obtained or undertaken on terms favorable to the Holding Company or its existing shareholders. Further there is no assurance that any acceptable financing alternative or recapitalization plan would be successfully implemented, or receive regulatory approval. However, even if no additional capital is obtained, Management expects the Bank to be adequately capitalized at September 30, 2010, based on detailed financial projections.

Management has evaluated events occurring subsequent to the balance sheet date through November 13, 2009 (the financial statement issuance date), determining no events require additional disclosure in these consolidated condensed financial statements.

(continued)

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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


	At September 30, 2009			At December 31, 2008
Commercial real estate	$	65,493		68,036
Residential real estate and home equity		55,154		54,092
Construction and land development		12,298		17,520
Commercial		5,416		8,004
Consumer		2,435		2,842


Total loans		140,796		150,494

Deduct:
Allowance for loan losses		(2,099	)	(1,915	)
Deferred loan costs, net		(22	)	(86	)


Loans, net	$	138,675		148,493

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


	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009		2008
Beginning balance	$	2,160		1,938		1,915		1,887
Provision for loan losses		471		366		2,351		925
Net charge-offs		(532	)	(378	)	(2,167	)	(886	)


Ending balance	$	2,099		1,926		2,099		1,926

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


	At September 30, 2009		At December 31, 2008
Nonaccrual loans	$	10,428	3,213
Past due ninety days or more, still accruing		-	-


	$	10,428	3,213

(continued)

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

3. Loan Impairment and Loan Losses, Continued. Collateral dependent impaired loans are as follows (in thousands):


	At September 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		10,477	3,095


Net investment in impaired loans	$	10,477	3,095

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

4. 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 nine-month periods ended September 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 September 30, 2009 and December 31, 2008, the Bank’s capital exceeded regulatory capital requirements.

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 September 30, 2009:*
Available for sale securities	$	31,383	-	31,383	-

(continued)

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

6. Fair Value Measurements, Continued. 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 nine-months ended September 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 September 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		(517	)
Non trading activity		(1	)


Balance, September 30, 2009	$	-

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


								Total Losses in Operations During the Nine Months Ended September 30, 2009
	Carrying Value			Fair Value Measurements at Reporting Date Using			Total Losses
	Carrying Value			(Level 1)	(Level 2)	(Level 3)	Total Losses
*As of September 30, 2009:*
Impaired loans	$	3,479	⁽¹⁾	-	-	3,479	3,015	1,732


Foreclosed real estate	$	1,590		-	-	1,590	1,077	561

⁽¹⁾	Loans with a carrying value of $6,998 at September 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 September 30,			At December 31,
	2009			2008
	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial assets:
Cash and cash equivalents	$	13,099	13,099	9,753	9,753
Certificates of deposit		250	250	750	750
Securities available for sale		31,383	31,383	35,370	35,370
Loans		138,675	136,867	148,493	145,225
Accrued interest receivable		822	822	905	905
Federal Home Loan Bank stock		871	871	925	925
Federal Reserve Bank stock		237	237	237	237

Financial liabilities:
Deposits		170,492	171,859	178,707	178,887
Federal Home Loan Bank advances		10,000	10,287	10,000	10,370
Junior subordinated debentures		2,062	2,062	2,062	2,062
Other borrowings		104	104	1,385	1,385

Off-balance-sheet instruments		-	-	-	-

8. Subsequent Events. On November 3, 2009, the Bank entered into a consent order (the “Order”) with the OCC. The Bank has agreed to take certain steps to enhance the operations of the Bank.

On October 9, 2009, the Company filed a proxy statement on Schedule 14A, and a Schedule 13E-3 Transaction Statement on Schedule 13E-3 also has been filed, with the Securities and Exchange Commission in connection with a proposal by the Company that its shareholders adopt an amendment to its Articles of Incorporation that will result in the reclassification of certain shares of common stock into newly authorized shares of preferred stock. The effect of the transaction will be to reduce the number of shareholders of record of Company common stock to less than 300, which will allow the Company to terminate its reporting obligations under the Securities Exchange Act of 1934, as amended.

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 nine months ended September 30, 2009 was from maturities, sales, and principal repayments of securities available for sale of $6.7 million, and a net increase in loan principal repayments (net of originations) of $5.4 million. Cash was used primarily to purchase securities available for sale of $2.5 million, and to fund a decrease in deposits of $8.2 million. At September 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 September 30, 2009 follows (in thousands):


	Contract Amount
Undisbursed lines of credit and construction loans	$	2,028


Commitments to extend credit	$	6,602


Standby letters of credit	$	68

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:


	Nine Months Ended September 30, 2009		Year Ended December 31, 2008		Nine Months Ended September 30, 2008
Average equity as a percentage of average assets	7.34	%	9.12	%	7.84	%

Total equity to total assets at end of period	7.40	%	7.81	%	7.68	%

Return on average assets (1)	(1.23	)%	(0.36	)%	(0.31	)%

Return on average equity (1)	(16.77	)%	(4.57	)%	(3.89	)%

Noninterest expense to average assets (1)	3.97	%	3.82	%	3.79	%

Nonperforming loans to total loans at end of period (2)	7.41	%	2.13	%	0.98	%

(1)

Annualized for the nine-months ended September 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 September 30,
	2009						2008
	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends			Average Yield/ Rate
Interest-earning assets:
Loans	$	139,682		1,996	5.59	%	$	149,764		2,508		6.70	%
Securities		35,283		331	3.67			37,719		407		4.32
Other interest-earning assets (1)		6,075		8	0.51			7,639		75		3.93


Total interest-earning assets		181,040		2,335	5.05			195,122		2,990		6.13


Noninterest-earning assets		25,590						18,829


Total assets	$	206,630					$	213,951


Interest-bearing liabilities:
NOW, money-market and savings deposits		86,423		213	0.98			70,354		248		1.41
Time deposits		73,881		651	3.50			94,009		970		4.13


Total interest-bearing deposits		160,304		864	2.14			164,363		1,218		2.96

Borrowed funds (2)		12,434		120	3.83			14,745		137		3.72

Capitalized interest				-						(19	)


Total interest-bearing liabilities		172,738		984	2.23			179,108		1,336		2.98


Noninterest-bearing demand deposits		17,423						16,820
Noninterest-bearing liabilities		1,632						1,269
Stockholders’ equity		14,837						16,754


Total liabilities and stockholders’ equity	$	206,630					$	213,951


Net interest income			$	1,351					$	1,654


Interest-rate spread					2.82	%						3.15	%


Net interest margin (3)					2.92	%						3.39	%


Ratio of interest-earning assets to interest-bearing liabilities		1.05						1.09

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

(2)	Includes Federal Home Loan Bank advances, junior subordinated debentures and other borrowings.

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

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES


	Nine Months Ended September 30,
	2009						2008
	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends			Average Yield/ Rate
Interest-earning assets:
Loans	$	144,230		6,321	5.84	%	$	151,194		7,663		6.76	%
Securities		36,437		1,065	3.90			38,885		1,225		4.28
Other interest-earning assets (1)		7,047		14	0.26			8,517		297		3.39


Total interest-earning assets		187,714		7,400	5.26			198,596		9,185		6.16


Noninterest-earning assets		23,041						18,075


Total assets	$	210,755					$	216,671


Interest-bearing liabilities:
NOW, money-market and savings deposits		81,802		721	1.18			74,510		952		1.70
Time deposits		82,123		2,284	3.72			91,484		3,078		4.49


Total interest-bearing deposits		163,925		3,005	2.48			165,994		4,030		3.24

Borrowed funds (2)		12,520		359	3.88			14,521		432		3.97

Capitalized interest				-						(181	)


Total interest-bearing liabilities		176,445		3,364	2.58			180,515		4,281		3.16


Noninterest-bearing demand deposits		17,729						18,013
Noninterest-bearing liabilities		1,099						1,156
Stockholders’ equity		15,482						16,987


Total liabilities and stockholders’ equity	$	210,755					$	216,671


Net interest income			$	4,036					$	4,904


Interest-rate spread					2.68	%						3.00	%


Net interest margin (3)					2.87	%						3.29	%


Ratio of interest-earning assets to interest-bearing liabilities		1.06						1.10

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

(2)	Includes Federal Home Loan Bank advances, junior subordinated debentures and other borrowings.

(3)	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 September 30, 2009 and 2008

General Operating Results. Net loss for the quarter ended September 30, 2009 was $387,000 or $0.31 per basic share compared to net loss of $318,000 or $0.26 per basic share for the quarter ended September 30, 2008. The increase in the net loss for the third quarter 2009 was caused by credit-related expenses of $39,000 for foreclosed property write downs, $59,000 for OREO expenses and loss on sale of OREO property included in other expenses, and a $471,000 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 82.57%.

Interest Income. Interest income declined $655,000 to $2.3 million for the three-month period ended September 30, 2009, compared to $3.0 million for the three-month period ended September 30, 2008. The decline was due to a decrease in average yield of earning assets from 6.13% to 5.05%, a decrease in average loans outstanding of $10.1 million, and the reversal of interest on non accrual loans of $47,000.

Interest Expense. Interest expense decreased $352,000 from $1.3 million for the three-month period ended September 30, 2008, to $984 thousand for the three-month period ended September 30, 2009. The decrease was due to repricing of deposits, which lowered the average rate paid to 2.14% from 2.96%, and the reduction in average interest bearing deposits from $164.4 million to $160.3 million.

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 $471,000 and $366,000, for the three-month periods ended September 30, 2009 and 2008, respectively. During the three-month period ending September 30, 2009, the Company posted net charge offs of $532,000 to the allowance for loan losses, due primarily to impaired loans that were written down to the market value of the collateral. At September 30, 2009, the allowance for loan losses was $2,099,000 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 September 30, 2008, to 1.50% of loans at September 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 $2.1 million at September 30, 2009, is adequate. However, if market conditions continue to deteriorate, additional provisions for loan losses may be necessary.

Noninterest Income. Noninterest income increased $77,000 to $449,000 for the three month period ended September 30, 2009, compared to $372,000 for the three-month period ended September 30, 2008. The increase was due primarily to a $54,000 gain on sale of securities.

Noninterest Expense. Noninterest expense decreased $117,000, from $2.1 million for the three month period ended September 30, 2008, to $2.0 million for the three-month period ended September 30, 2009. The decrease was attributable to a reduction in salaries expense of $119,000.

Income Taxes. The Company benefited from an income tax credit of $282,000 for the three-month period ended September 30, 2009, compared to a benefit of $137,000 for the three-month period ended September 30, 2008.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Comparison of the Nine-Month Periods Ended September 30, 2009 and 2008

General Operating Results. Net losses for the nine-month period ended September 30, 2009 was $1.9 million or $1.58 per basic share, compared to net losses of $496,000 or $0.40 per basic share for the comparable period in 2008. The net loss was a result of a provision for loan loss of $2.4 million, and the expense to carry foreclosed real estate of $630,000 included in other non interest expense.

Interest Income. Interest income decreased $1.8 million to $7.4 million for the nine-month period ended September 30, 2009, compared to $9.2 million for the nine-month period ended September 30, 2008. The decrease was due to a drop in the average yield of earning assets from 6.16% to 5.26%, a decrease in average loans outstanding of $7.0 million, and the reversal of interest on nonaccrual loans of $162,000.

Interest Expense. Interest expense decreased $917,000 to $3.4 million for the nine-month period ended September 30, 2009, compared to $4.3 million for the nine-month period ended September 30, 2008. The decrease was due to repricing of deposits, which lowered the average rate paid to 2.48% from 3.24%, and a reduction in average interest bearing deposits from $166.0 million to $163.9 million.

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 nine-month periods ended September 30, 2009 and 2008 of $2,351,000 and $925,000, respectively. During the nine-month period ending September 30, 2009, the Company posted net charge offs of $2.2 million to the allowance for loan losses, due primarily to charge-offs on impaired loans. At September 30, 2009, the allowance for loan losses was $2,099,000 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 September 30, 2008 to 1.50% at September 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 $2.1 million at September 30, 2009 is adequate. However, if market conditions continue to deteriorate, additional provisions for loan losses may be necessary.

Noninterest Income. Noninterest income decreased $67,000 during the nine-month period ended September 30, 2009. The decrease was due to a decline in brokerage fees of $126,000.

Noninterest Expense. Noninterest expense increased $192,000 to $6.3 million for the nine-month period ended September 30, 2009, as compared to $6.1 million for the same period in 2008. The increase in expenses can be attributed to foreclosed real estate expenses of $630,000, and FDIC special assessment of $98,000. Expenses of core operations decreased $404,000 for the period ended September 30, 2009 compared to the same period in 2008.

Income Taxes. The Company benefited from an income tax credit of $1.5 million for the nine-month period ended September 30, 2009, compared to an income tax credit of $388,000 for the nine-month period ended September 30, 2008.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Regulatory Order

On November 3, 2009, the Bank entered into a consent order (the “Order”) with the OCC. The Bank has agreed to take the following steps to enhance the operations of the Bank (with the time periods below corresponding with the effectiveness of the Order):

1. Compliance Committee. The Board of Directors (the “Board”) will appoint a compliance committee to monitor and coordinate the Bank’s adherence to the Order, which will meet at least monthly, and submit monthly written progress reports to the Board. The Board also will insure that the Bank has sufficient processes, personnel, and control systems to effectively implement the Order.

2. Strategic Plan. Within 60 days, the Bank will send to the OCC a three-year strategic plan to include a mission statement, targeted markets, strategic goals, actions to improve earnings, risk assessment of product lines, description of control systems, evaluation of Bank’s operations, and management employment and succession program, and systems to monitor the Bank’s progress in meeting goals. At least monthly, the Board will review financial reports and analyses that evaluate the Bank’s performance against the goals and objectives of the strategic plan. At least quarterly, the Bank will prepare a written evaluation of the Bank’s performance against the strategic plan and describe actions the Board will require to address any shortcomings. The Board will give the OCC advance, written notice of its intent to deviate significantly from the strategic plan.

3. Capital Plan and Higher Minimums. Within 90 days, the Bank will maintain a total risk-weighted capital ratio of at least 12%, and a leverage capital ratio of at least 9%. Within 60 days, the Bank will forward to the OCC a written capital plan to include plans for achieving adequate capital, projections for growth and capital requirements, sources and timing of additional capital, and contingency plans. The Bank may only pay a dividend if in compliance with the approved capital plan, in compliance with applicable law, and provided no objection is received from the OCC. If the Bank fails to submit an acceptable capital plan or to achieve or maintain the minimum capital ratios required by the Order, then in the OCC’s direction it can request that the Bank submit to the OCC a disposition plan that details the Board’s proposal to sell or merge the Bank, or liquidate the Bank. If a disposition plan is submitted by the Board that outlines the sale or merger of the Bank, it must describe actions that will be taken to insure that a definitive agreement for such sale or merger is signed within 90 days after the receipt of OCC non-objection to the plan. If the disposition plan outlines the liquidation of the Bank, the plan must detail actions and steps necessary to accomplish the liquidation in accordance with applicable law. Failure to submit a timely acceptable disposition plan, or to implement and adhere to the disposition plan may be deemed a violation of the Order.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

4. Loan Policy and Credit Administration. Within 60 days, the Bank will implement a revised written loan policy to improve the Bank’s credit administration and loan portfolio management, including improving credit underwriting, describing the types of credit information required from borrowers, requiring that any extension of credit is made only after obtaining and validating current credit information, requiring that any extension of credit is made only after obtaining and documenting the current valuation of any supporting collateral, requiring that borrowers and/or guarantors maintain any collateral margins established in the credit approval process, prohibit the capitalization of accrued interest, insure that all exceptions to credit policy are clearly documented, implement a process for early problem loan identification, requiring that loans be placed on non-accrual pursuant to applicable regulatory guidelines, assigning accountability for risk rating credits, and establishing prudent lending and approval limits. Where the Bank deviates from the revised loan policy and procedures, exceptions will be clearly documented and approved by the Board. The Bank may grant, extend, renew, alter or restructure any loan or other extension of credit only after documenting the specific purpose for the extension, identifying expected sources of repayments, structuring repayment terms to coincide with sources of repayment, documenting the value of collateral, and obtaining complete credit information.

5. Concentrations of Credit. Within 60 days, the Bank will adopt and insure adherence to a revised written CRE concentration management program to include a written description of risk tolerance for CRE concentrations, prudent underwriting and credit administration guidelines, concentration limits, procedures for monitoring compliance with Board review of risk limits, policies to manage concentration risks, strategies to reduce or mitigate concentrations, management information systems that stratify the loan portfolio into various segments, portfolio stress testing and sensitivity, periodic analysis of market conditions, and an action plan to control future CRE growth.

6. Criticized Assets. Within 30 days, the Bank will implement a written program designed to protect the Bank’s interest in assets criticized in its most recent examination report, and develop a program for all relationships and assets aggregating $250,000 or more. The Bank will not extend any credit to a borrower whose loans are criticized in the recent examination report unless certain conditions set forth in the Order are met. On a monthly basis, management will provide the Board with written reports identifying problem and delinquent loans, credit exceptions, credit related violations of law, responsible loan officer, and loans not in conformance with the Bank’s policies.

7. Credit and Collateral Exceptions. The Bank will obtain current and complete credit information on all loans lacking such information. The Bank will insure proper collateral documentation is maintained on all loans and correct each collateral exception.

8. Independent Loan Review. Within 30 days, the Board will establish an effective independent and ongoing loan review program to provide for a written report to be filed with the Board promptly after each review, and to include conclusions on the overall quality of the loan portfolio, identification of problem and delinquent loans, credit documentation exceptions, non-accrual loan status, loan officer responsibility, credit-related violations of law, concentrations of credit, loans to insiders, and loans not in conformance with the Bank’s policies.

9. Allowance for Loan and Lease Losses. The Bank will implement and adhere to a program for the maintenance of an adequate allowance for loan and lease losses, to include compliance with applicable regulatory guidelines.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

10. Appraisals of Real Property. The Bank will obtain a current independent appraisal or update its appraisal on any loan that is secured by real property which was criticized in its most recent examination report or where the borrower has failed to comply with the terms of the loan agreement, and also on each parcel of other real estate owned (“OREO”) or needed to bring an existing appraisal in conformity with applicable laws. Within 30 days, the Bank will develop and implement an independent review and analysis process to insure appraisals conform to appraisal standards and regulations.

11. Other Real Estate Owned – Action Plans. Within 60 days, the Bank will adhere to action plans for each parcel of OREO to assure that the assets are managed in accordance with applicable law and to include identification of responsible Bank officers, analysis of each OREO property, marketing strategies, time frames for disposition, targeted write-downs at periodic intervals, procedures to require periodic market valuations, and periodic reports to the Board.

12. Within 60 days, the Board will revise and maintain a comprehensive liquidity risk management program which will assess the Bank’s funding needs and insure access to funds to meet those needs. The program will include strategies to maintain sufficient liquidity at reasonable costs, the preparation of liquidity reports to be reviewed monthly by the Board, and a contingency funding plan.

13. Administrative Appeals and Extensions of Time. If the Bank requires an extension of any time frame within the Order, the Board will submit a written request to the OCC asking for relief, accompanied by relevant supporting documentation.

Going Private Transaction

The Company has filed a proxy statement on Schedule 14A, and a Schedule 13E-3 Transaction Statement on Schedule 13E-3 also has been filed, with the Securities and Exchange Commission in connection with a proposal by the Company that its shareholders adopt an amendment to its Articles of Incorporation that will result in the reclassification of certain shares of common stock into newly authorized shares of preferred stock. If the transaction is completed, shareholders of record who hold less than 400 shares of common stock will receive shares of preferred stock on the basis of one share of preferred stock for each share of common stock, by such shareholders. As a result, shareholders of record who hold 400 or more shares of common stock prior to the transaction will continue to hold the same number of shares following the reclassification transaction. The effect of the transaction will be to reduce the number of shareholders of record of Company common stock to less than 300, which will allow the Company to terminate its reporting obligations under the Securities Exchange Act of 1934, as amended.

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 nine 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

None applicable

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: November 13, 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)

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