Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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 March 31, 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 34474

(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 May 1, 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 March 31, 2009 (Unaudited) and at December 31, 2008		2

Condensed Consolidated Statements of Operations (Unaudited) - Three months ended March 31, 2009 and 2008		3

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) - Three months ended March 31, 2009 and 2008		4

Condensed Consolidated Statements of Cash Flows (Unaudited) - Three months ended March 31, 2009 and 2008		5-6

Notes to Condensed Consolidated Financial Statements (Unaudited)		7-9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10-14

Item 3. Quantitative and Qualitative Disclosures about Market Risk		15

Item 4T. Controls and Procedures		15

Part II. OTHER INFORMATION

Item 1. Legal Proceedings		16

Item 1A. Risk Factors		16

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		16

Item 3. Defaults upon Senior Securities		16

Item 4. Submission of Matters to a Vote of Security Holders		16

Item 5. Other Information		16

Item 6. Exhibits		16

SIGNATURES		17

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Part I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets

($ in thousands, except share amounts)


	At March 31, 2009			At December 31, 2008
	(Unaudited)
Assets
Cash and due from banks	$	4,005		6,569
Interest-earning deposits		87		32
Federal funds sold		9,918		3,152


Cash and cash equivalents		14,010		9,753

Certificate of deposit		350		750
Securities available for sale		35,714		35,370
Loans, net of allowance for loan losses of $2,255 and $1,915		147,520		148,493
Accrued interest receivable		852		905
Federal Home Loan Bank stock		916		925
Federal Reserve Bank stock		237		237
Premises and equipment, net		8,388		8,175
Foreclosed real estate		1,466		2,021
Goodwill		1,525		1,525
Customer intangible, net		287		305
Other assets		2,997		2,169


Total assets	$	214,262		210,628


Liabilities and Stockholders’ Equity

Liabilities:
Noninterest-bearing demand deposits		17,979		16,108
NOW, money-market and savings deposits		81,120		70,367
Time deposits		86,186		92,232


Total deposits		185,285		178,707

Federal Home Loan Bank advances		10,000		10,000
Junior subordinated debenture		2,062		2,062
Other borrowings		450		1,385
Accrued interest payable and other liabilities		1,061		2,041


Total liabilities		198,858		194,195


Stockholders’ equity:
Common stock, $2 par value, 2,000,000 shares authorized, 1,235,644 shares issued and outstanding		2,471		2,471
Additional paid-in capital		8,831		8,831
Retained earnings		4,176		5,218
Accumulated other comprehensive loss		(74	)	(87	)


Total stockholders’ equity		15,404		16,433


Total liabilities and stockholders’ equity	$	214,262		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 March 31,
	2009			2008
Interest income:
Loans	$	2,202		2,642
Securities		340		466
Other		38		45

Total interest income		2,580		3,153


Interest expense:
Deposits		1,133		1,489
Borrowings		116		149

Total interest expense		1,249		1,638


Net interest income		1,331		1,515

Provision for loan losses		1,365		322


Net interest (expense) income after provision for loan losses		(34	)	1,193

Noninterest income:
Service charges on deposit accounts		120		123
Brokerage fees		80		128
Other		174		147

Total noninterest income		374		398


Noninterest expense:
Salaries and employee benefits		961		1,073
Occupancy and equipment		245		204
Data processing		64		168
Advertising and business development		31		60
Directors fees		33		40
Stationary and supplies		20		27
Other		810		362

Total noninterest expense		2,164		1,934


Loss before income tax benefit		(1,824	)	(343	)

Income tax benefit		(782	)	(175	)


Net loss		(1,042	)	(168	)


Loss per share - basic		(0.84	)	(0.14	)


Dividends per share		—		—

See accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2009 and 2008

($ in thousands)


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


Comprehensive loss:
Net loss (unaudited)	—		—	—	(168	)	—		(168	)

Change in unrealized loss on securities available for sale, net of tax (unaudited)	—		—	—	—		51		51

Comprehensive loss (unaudited)									(117	)


Balance at March 31, 2008 (unaudited)	1,235,644	$	2,471	8,831	5,801		(12	)	17,091


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

Comprehensive loss:
Net loss (unaudited)	—		—	—	(1,042	)	—		(1,042	)

Change in unrealized loss on securities available for sale, net of tax (unaudited)	—		—	—	—		13		13

Comprehensive loss (unaudited)									(1,029	)


Balance at March 31, 2009 (unaudited)	1,235,644	$	2,471	8,831	4,176		(74	)	15,404

See accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Three Months Ended March 31,
	2009			2008
Cash flows from operating activities:
Net loss	$	(1,042	)	(168	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		112		89
Provision for loan losses		1,365		322
Net amortization of premiums and discounts on securities		15		(43	)
Amortization of customer intangible		18		18
Net decrease in accrued interest receivable		53		71
Net increase in other assets		(822	)	(65	)
Net (decrease) increase in accrued interest payable and other liabilities		(980	)	411
Loss on sale of foreclosed real estate		9		—
Writedown of foreclosed real estate		369		—


Net cash (used in) provided by operating activities		(903	)	635


Cash flows from investing activities:
Purchase of securities available for sale		(2,000	)	(3,970	)
Maturities, sales, and principal repayments of securities available for sale		1,661		2,330
Loan originations, net of principal repayments		(639	)	32
Purchase of premises and equipment		(325	)	(216	)
Redemption of Federal Home Loan Bank stock		9		1
Maturities of certificates of deposit		400		—
Proceeds from sale of foreclosed real estate		411		—


Net cash used in investing activities		(483	)	(1,823	)


Cash flows from financing activities:
Net increase in deposits		6,578		4,114
Net (decrease) increase in other borrowings		(935	)	340


Net cash provided by financing activities		5,643		4,454


Net increase in cash and cash equivalents		4,257		3,266

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


Cash and cash equivalents at end of period	$	14,010		11,995

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)


	Three Months Ended March 31,
	2009		2008
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1,248	1,600

Taxes	$	—	—


Noncash transactions:
Accumulated other comprehensive loss, net change in unrealized loss on securities available for sale, net of tax	$	13	51


Transfer of loan to foreclosed real estate	$	247	200

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 March 31, 2009, the results of operations and cash flows for the three-month periods ended March 31, 2009 and 2008. The results of operations for the three-month period ended March 31, 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 March 31, 2009			At December 31, 2008
Commercial real estate	$	67,405		68,036
Residential real estate and home equity		55,062		54,092
Construction and land development		16,020		17,520
Commercial		8,463		8,004
Consumer		2,903		2,842


Total loans		149,853		150,494

Deduct: Allowance for loan losses		(2,255	)	(1,915	)
Deferred loan costs, net		(78	)	(86	)

Loans, net	$	147,520		148,493

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 March 31,
	2009			2008
Beginning balance	$	1,915		1,888
Provision for loan losses		1,365		322
Net, (charge-offs) and recoveries		(1,025	)	(455	)


Ending balance	$	2,255		1,755

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


	At March 31, 2009		At December 31, 2008
Nonaccrual loans	$	7,189	3,213
Past due ninety days or more, still accruing		—	—

	$	7,189	3,213

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


	At March 31, 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		7,134	3,095


Net investment in impaired loans	$	7,134	3,095

There was no interest collected or recognized on impaired loans during the three months ended March 31, 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-month periods ended March 31, 2009 and 2008. There is no dilution to basic loss per share because the Company does not have any common stock equivalents.

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5. Regulatory Capital. The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at March 31, 2009 and December 31, 2008 of the Bank’s actual capital and related capital ratios.


	Actual				Minimum Amount and Ratio to Remain Well Capitalized
	Amount		Ratio		Amount		Ratio
	(Thousands)				(Thousands)
*As of March 31, 2009:*
Total Capital (to Risk-Weighted Assets) Bank	$	17,498	11.48	%	$	15,255	10.0	%

Tier 1 Capital (to Risk-Weighted Assets) Bank	$	15,588	10.22	%	$	9,154	6.0	%

Tier 1 Capital (to Average Assets) Bank	$	15,588	7.37	%	$	10,569	5.0	%


*As of December 31, 2008:*
Total Capital (to Risk-Weighted Assets) Bank	$	18,434	12.41	%	$	14,858	10.0	%

Tier 1 Capital (to Risk-Weighted Assets) Bank	$	16,577	11.16	%	$	8,915	6.0	%

Tier 1 Capital (to Average Assets) Bank	$	16,577	7.81	%	$	10,613	5.0	%

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 March 31, 2009:*
Available for sale securities	$	35,718	—	35,154	564

Financial assets and liabilities 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 Three Months Ended March 31, 2009
	Carrying Value			(Level 1)	(Level 2)	(Level 3)	Total Losses
*As of March 31, 2009:*
Impaired loans	$	3,644	⁽¹⁾	—	—	3,644	2,704	1,421

Foreclosed real estate	$	1,466		—	—	1,466	534	369

⁽¹⁾

Loans with a carrying value of $3,460,000 at March 31, 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

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 three months ended March 31, 2009 was from maturities, sales and principal repayments of securities available for sale of $1.7 million, and an increase in deposits of $6.6 million. Cash was used primarily to purchase securities available for sale of $2 million. At March 31, 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 March 31, 2009 follows (in thousands):


	Contract Amount
Undisbursed lines of credit and construction loans	$	6,491


Commitments to extend credit	$	5,089


Standby letters of credit	$	155

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 12 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:


	Three Months Ended March 31, 2009		Year Ended December 31, 2008		Three Months Ended March 31, 2008
Average equity as a percentage of average assets	7.60	%	9.12	%	7.91	%

Total equity to total assets at end of period	7.19	%	7.81	%	7.75	%

Return on average assets (1)	(1.95	)%	(0.36	)%	(.31	)%

Return on average equity (1)	(25.68	)%	(4.57	)%	(3.90	)%

Noninterest expense to average assets (1)	4.04	%	3.82	%	3.55	%

Nonperforming loans to total loans at end of period (2)	4.80	%	2.14	%	.76	%

(1)

Annualized for the three months ended March 31, 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 March 31,
	2009						2008
	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends		Average Yield/ Rate
Interest-earning assets:
Loans (1)	$	144,624		2,202	6.09	%	$	150,934		2,642	7.00	%
Securities		35,907		340	3.79			41,740		466	4.47
Other interest-earning assets (2)		8,122		38	0.19			6,033		45	2.98


Total interest-earning assets		188,653		2,580	5.47			198,707		3,153	6.35


Noninterest-earning assets		24,848						19,043


Total assets	$	213,501					$	217,750


Interest-bearing liabilities:
NOW, money-market and savings deposits		75,619		262	1.40			78,168		416	2.13
Time deposits		90,621		871	3.90			88,344		1,073	4.86


Total interest-bearing deposits		166,240		1,133	2.76			166,512		1,489	3.58

Borrowed funds (3)		12,723		116	3.69			14,224		149	4.19


Total interest-bearing liabilities		178,963		1,249	2.83			180,736		1,638	3.63


Noninterest-bearing demand deposits		17,720						18,792
Noninterest-bearing liabilities		583						1,006
Stockholders’ equity		16,235						17,216


Total liabilities and stockholders’ equity	$	213,501					$	217,750


Net interest income			$	1,331					$	1,515


Interest-rate spread					2.64	%					2.72	%


Net interest margin (3)					2.54	%					3.05	%


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

(1)	Includes non-accrual loans.

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

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

(4)	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 March 31, 2009 and 2008

General Operating Results. Net loss for the quarter ended March 31, 2009 was $1,042,000 or $0.84 per basic share compared to net loss of $168,000 or $0.14 per basic share for the quarter ended March 31, 2008. The first quarter 2009 loss was caused by credit – related expenses including a $1.4 million provision for loan losses, and write downs of foreclosed real estate in the amount of $369,000 included in other expenses.

The Company does not have any sub-prime securities in its investment portfolio. The sustained level of liquidity and conservative nature of investments help offset the increased level of risk in the loan portfolio. The Company does not use brokered deposits and its loan to deposit ratio is 79.70%.

Interest Income. Interest income declined $573,000 to $2.6 million for the three month period ended March 31, 2009, compared to $3.2 million for the three month period ended March 31, 2008. The decline in interest income is primarily due to a decrease in earning assets, and a decline in average yields over the past year.

Interest Expense. Interest expense decreased $389,000 from $1.6 million for the three month period ended March 31, 2008, to $1.2 million for the three month period ended March 31, 2009. The decrease was due to the lower average yields paid on interest bearing liabilities.

Provision for Loan Losses. The provision for loan loss is a current period expense 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, general economic conditions, particularly as they relate to the Company’s market area, and other factors related to the collectibility of the Company’s loan portfolio. The Company recorded provisions of $1.4 million and $322,000 for the three month periods ending March 31, 2009 and 2008, respectively. During the three month period ending March 31, 2009, the Company posted net charge offs of $1 million to the allowance for loan losses, due primarily to loans that were written down to the market value of the collateral. At March 31, 2009, the allowance for loan losses was $2,255,000 or 1.50% of gross loans. Management is aggressively working on its collection efforts and continues to increase the level of monitoring for commercial real estate and investment real estate. The Company has never participated in any type of subprime lending. Management believes the allowance for loan losses of $2,255,000 at March 31, 2009, is adequate.

Noninterest Income. Noninterest income decreased $24,000, from $398,000 for the three month period ended March 31, 2008, to $374,000, for the three month period ended March 31, 2009. The decrease was primarily related to reductions in brokerage fees.

Noninterest Expense. Noninterest expense increased $230,000, from $1.9 million for the three month period ended March 31, 2008, to $2.2 million for the three month period ended March 31, 2009. The increase was attributable to an increase in expenses related to writedowns of foreclosed property included in other expense of $369,000.

Income Tax Benefit. The Company benefited from an income tax benefit of $782,000 for the period ended March 31, 2009, compared to an income tax benefit of $175,000 for the period ended March 31, 2008. The benefit is a direct result of a loss on operations.

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 three 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: May 14, 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

Accelerated filer

Non-accelerated filer

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Smaller reporting company

Independent BancShares, Inc. 10-Q