U.S. Securities and Exchange CommissionWashington, D.C.  20549

Form 10-QSB

|[X] | Quarterly Report Pursuant To Section 13 or 15 (d) of the Securities Exchange Act of 1934
|--- | ----------------------------------------------------------------------------------------

For the Quarterly Period Ended September 30, 2006

Or

|[   ] | 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 registrant as specified in its charter)

|Florida
(State or Other Jurisdiction of
Incorporation or Organization) | 59-2869407
(IRS Employer
Identification No.)
|---------------------------------------------------------------------- | --------------------------------------------

60 SW 17th StreetOcala, Florida 34474
(Address of Principal Executive Offices)352-622-2377
(Registrant'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 registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No

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

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

Common stock outstanding as of September 30, 2006:

Common stock, $2.00 par value . . . . . . . . . . . . . . . . . . . . . .1,176,975 shares

Transitional Small Business Disclosure Format: Yes  No X



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

INDEX

|Part I.  FINANCIAL INFORMATION                                                                                                   |                                                                                                                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                 | Item 1.  Financial Statements                                                                                                                                                                         
|                                                                                                                                 |                                                                                                                                                                                                       
|                                                                                                                                 |                                                                                                                                                                                                       
|                                                                                                                                 |                                                                                                                                                                                                       
|                                                                                                                                 |                                                                                                                                                                                                       
|                                                                                                                                 |                                                                                                                                                                                                       
|                                                                                                                                 |                                                                                                                                                                                                       
|                                                                                                                                 |                                                                                                                                                                                                       
|                                                                                                                                 | Item 2.  Management's Discussion and Analysis of Financial Condition and
  Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|                                                                                                                                 | Item 3.  Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                                    
|Part II.  OTHER INFORMATION                                                                                                      |                                                                                                                                                                                                       
|                                                                                                                                 | Item 1.  Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                            
|                                                                                                                                 | Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds . . . . . . . . . . . . .                                                                                                        
|                                                                                                                                 | Item 3.  Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                                    
|                                                                                                                                 | Item 5.  Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                              
|                                                                                                                                 | Item 6.  Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                     
|SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 21                                                                                                                                                                                                    



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets($ in thousands, except per share amounts)



|                                                                                                                     |              |       |            | At
September 30, 2006
(unaudited) |         | At
December 31, 2005
|-------------------------------------------------------------------------------------------------------------------- | ------------ | ----- | ---------- | --------------------------------- | ------- | --------------------
|Assets                                                                                                               |              |       |            |                                   |        
|Cash and due from banks                                                                                              |              |       | $   5,346  |                                   | 4,814  
|Interest-earning deposits                                                                                            |              |       | 185        |                                   | 193    
|Federal funds sold                                                                                                   |              |       | 3,682      |                                   | 3,261  
|Cash and cash equivalents                                                                                            |              |       | 9,213      |                                   | 8,268  
|Securities available for sale                                                                                        |              |       | 41,241     |                                   | 34,652 
|Loans, net of allowance for loan losses of $1,911 and $1,877                                                         |              |       | 149,036    |                                   | 144,532
|Accrued interest receivable                                                                                          |              |       | 933        |                                   | 836    
|Premises and equipment, net                                                                                          |              |       | 7,924      |                                   | 7,145  
|Federal Home Loan Bank stock                                                                                         |              |       | 935        |                                   | 889    
|Federal Reserve Bank stock                                                                                           |              |       | 237        |                                   | 234    
|Deferred tax asset                                                                                                   |              |       | 859        |                                   | 915    
|Other assets                                                                                                         |              |       | 331        |                                   | 277    
|                                                                                                                     | Total assets |       |            | $210,709                          |         | 197,748             
|Liabilities and Stockholders' Equity                                                                                 |              |       |            |                                   |        
|Liabilities:                                                                                                         |              |       |            |                                   |        
|Noninterest-bearing demand deposits                                                                                  |              |       | $   23,503 |                                   | 24,414 
|NOW, money-market and savings deposits                                                                               |              |       | 79,386     |                                   | 78,290 
|Time deposits                                                                                                        |              |       | 74,176     |                                   | 61,923 
|Total deposits                                                                                                       |              |       | 177,065    |                                   | 164,627
|Federal Home Loan Bank advances                                                                                      |              |       | 12,000     |                                   | 12,000 
|Notes payable                                                                                                        |              |       | -          |                                   | 1,783  
|Other borrowings                                                                                                     |              |       | 4,677      |                                   | 3,225  
|Accrued interest payable                                                                                             |              |       | 258        |                                   | 244    
|Other liabilities                                                                                                    |              |       | 829        |                                   | 1387   
|Total liabilities                                                                                                    |              |       | 194,829    |                                   | 183,266
|Stockholders' equity:                                                                                                |              |       |            |                                   |        
|Common stock, $2 par value, 2,000,000 shares authorized, 
     1,176,975 and 1,119,791 shares issued and outstanding |              |       |            |                                  
|                                                                                                                     | 2,354        |       | 2,240     
|Additional paid in capital                                                                                           |              |       | 7,516      |                                   | 5,936  
|Retained earnings                                                                                                    |              |       | 6,325      |                                   | 6,782  
|Accumulated other comprehensive loss                                                                                 |              | (315) |            | (476)                            
|Total stockholders' equity                                                                                           |              |       | 15,880     |                                   | 14,482 
|Total liabilities and stockholders' equity                                                                           |              |       | $ 210,709  |                                   | 197,748



See accompanying Notes to Condensed Consolidated Financial Statements

2



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Earnings (Unaudited)(In thousands, except per share amounts)



|                                                             | Three Months Ended 
September 30, |  | Nine Months Ended 
September 30,
|------------------------------------------------------------ | --------------------------------- |  | --------------------------------
|                                                             | 2006                              |  | 2005                            
|Interest income:                                             |                                   |  |                                 
|Loans                                                        | $ 2,843                           |  | 2,572                           
|Securities                                                   | 367                               |  | 270                             
|Other                                                        | 136                               |  | 70                              
|Total interest income                                        | 3,346                             |  | 2,912                           
|Interest expense:                                            |                                   |  |                                 
|Deposits                                                     | 1,322                             |  | 751                             
|Borrowings                                                   | 239                               |  | 187                             
|Total interest expense                                       | 1,561                             |  | 938                             
|Net interest income                                          | 1,785                             |  | 1,974                           
|Provision for loan losses                                    | 13                                |  | 63                              
|Net interest income after provision
         for loan losses | 1,772                             |  | 1,911                           
|Noninterest income:                                          |                                   |  |                                 
|Service charges on deposit accounts                          | 119                               |  | 132                             
|Net gain on sale of securities available for sale            | -                                 |  | -                               
|Other                                                        | 120                               |  | 123                             
|Total noninterest income                                     | 239                               |  | 255                             
|Noninterest expense:                                         |                                   |  |                                 
|Salaries and employee benefits                               | 919                               |  | 736                             
|Occupancy and equipment                                      | 156                               |  | 155                             
|Data processing                                              | 88                                |  | 63                              
|Stationery and supplies                                      | 38                                |  | 26                              
|Advertising and business development                         | 53                                |  | 54                              
|Other                                                        | 377                               |  | 222                             
|Total noninterest expense                                    | 1,631                             |  | 1,256                           
|Earnings before income taxes                                 | 380                               |  | 910                             
|Income taxes                                                 | 118                               |  | 322                             
|Net earnings                                                 | $ 262                             |  | 588                             
|Earnings per share - basic                                   | $ 0.22                            |  | 0.50                            
|Cash dividends per share                                     | $ -                               |  | -                               

See accompanying Notes to Condensed Consolidated Financial Statements.

3



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

Nine Months Ended September 30, 2006 and 2005($ in thousands)



|                                                                                                                                 | Common Stock | Additional
Paid inCapital | RetainedEarnings           | Accumulated
Other
Compre-
hensiveIncome |      
|-------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------------------------- | -------------------------- | --------------------------------------- | -----
|                                                                                                                                 | Shares       | Par Amount                | Total
Stockholders' Equity
|Balance, December 31, 2004                                                                                                       | 1,112,310    | 2,225                     | $5,836                     | 4,607                                   | (242)
|Comprehensive Income:
    Net earnings (unaudited)                                                                               | -            | -                         | -                          | 1,538                                   | -    
|Change in unrealized loss on
     securities available for
     sale, net of tax (unaudited)                                     | -            | -                         | -                          | -                                       | (85) 
|Comprehensive income       (unaudited)                                                                                           |              |                           |                            |                                         |      
|Proceeds from shares issued in 
      connection with purchases 
      under the Employee Stock 
      Purchase Plan (unaudited) | 6,808        | 14                        | 99                         | -                                       | -    
|Balance, June 30, 2005 (unaudited)                                                                                               | 1,119,118    | 2,239                     | 5,935                      | 6,145                                   | (327)
|Balance, December 31, 2005                                                                                                       | 1,119,791    | 2,240                     | 5,936                      | 6,782                                   | (476)
|Comprehensive Income:
    Net earnings (unaudited)                                                                               | - -          | - -                       | - -                        | 1,224                                   | - -  
|Change in unrealized loss on
     securities available for
     sale, net of tax (unaudited)                                     | - -          | - -                       | - -                        | - -                                     | (161)
|Comprehensive income       (unaudited)                                                                                           |              |                           |                            |                                         |      
|Proceeds from shares issued in 
   connection with purchases 
   under the Employee Stock 
   Purchase Plan (unaudited)          | 1,373        | 2                         | 18                         | - -                                     | - -  
|5% stock dividend (unaudited)                                                                                                    | 55,811       | 112                       | 1,562                      | (1,674)                                 | - -  
|Cash paid in lieu of fractional 
   shares (unaudited)                                                                           | - -          | - -                       | - -                        | (7)                                     | - -  
|Balance, September 30, 2006 (unaudited)                                                                                          | 1,176,975    | 2,354                     | $7,516                     | 6,325                                   | (315)

See accompanying Notes to Condensed Consolidated Financial Statements.

4



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows (Unaudited)(In thousands)

|                                                                                                                                   | Nine Months Ended
September 30,
|---------------------------------------------------------------------------------------------------------------------------------- | -------------------------------
|                                                                                                                                   | 2006                           
|Cash flows from operating activities:                                                                                              |                                
|Net earnings                                                                                                                       | $ 1,224                        
|Adjustments to reconcile net earnings to net cash
       provided by operating activities:                                         |                                
|Depreciation and amortization                                                                                                      | 176                            
|Provision for loan losses                                                                                                          | 41                             
|Deferred income tax benefit                                                                                                        | -                              
|Net amortization of premiums and discounts on securities                                                                           | 182                            
|Net gain on sale of securities available for sale                                                                                  | -                              
|Net increase in accrued interest receivable                                                                                        | (97)                           
|Net decrease in other assets                                                                                                       | (54)                           
|Net increase (decrease) in accrued interest payable and other liabilities                                                          | 14                             
|Net (decrease) increase in other liabilities                                                                                       | (55)                           
|Net cash provided by operating activities                                                                                          | 928                            
|Cash flows from investing activities:                                                                                              |                                
|Purchase of securities available for sale                                                                                          | (13.027)                       
|Maturities, sales, and principal repayments of securities available for sale                                                       | 6,473                          
|Loans originated, net of principal repayments                                                                                      | (4,545)                        
|Purchase of premises and equipment                                                                                                 | (955)                          
|Purchase of Federal Home Loan Bank stock                                                                                           | (46)                           
|Purchase of Federal Reserve Bank stock                                                                                             | (3)                            
|Net cash used in investing activities                                                                                              | (12,103)                       
|Cash flows from financing activities:                                                                                              |                                
|Net increase in deposits                                                                                                           | 12,438                         
|Net increase in Federal Home Loan Bank advances                                                                                    | -                              
|Principal repayments on notes payable                                                                                              | (1,783)                        
|Net increase (decrease) in other borrowings                                                                                        | 1,452                          
|Proceeds from sale of common stock                                                                                                 | 20                             
|Cash paid in lieu of fractional shares                                                                                             | (7)                            
|                                                                                                                                   |                                
|Net cash provided by financing activities                                                                                          | 12,120                         
|Net increase in cash and cash equivalents                                                                                          | 945                            
|Cash and cash equivalents at beginning of period                                                                                   | 8,268                          
|Cash and cash equivalents at end of period                                                                                         | $ 9,213                        
|Supplemental disclosures of cash flow information:
     Cash paid during the period for:                                           |                                
|Interest                                                                                                                           | $ 5,979                        
|Taxes                                                                                                                              | $ 945                          
|Noncash transactions:                                                                                                              |                                
|Accumulated other comprehensive income (loss), net change in 
        unrealized loss on securities available for sale, net of tax | $ 161                          
|Common stock dividend                                                                                                              | $ 1,674                        

See accompanying Notes to Condensed Consolidated Financial Statements

5



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

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, 2006 and the results of operations for the three- and nine-month periods ended September 30, 2006 and 2005 and cash flows for the nine-month periods ended September 30, 2006 and 2005.  The results of operations for the three- and nine-month periods ended September 30, 2006, are not necessarily indicative of results that may be expected for the year ending December 31, 2006.

The Holding Company owns 100% of the outstanding common stock of Independent National Bank (the "Bank") (collectively, the "Company").  The Holding Company's primary business activity is the operation of the Bank.  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 four banking offices located in Marion and Sumter Counties, Florida.

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



|                                  | Three Months EndedSeptember 30 | Six Months EndedSeptember 30
|--------------------------------- | ------------------------------ | ----------------------------
|                                  | 2006                           | 2005                        
|Beginning balance                 | $1,877                         | 1,566                       
|Provision for loan losses         | 13                             | 63                          
|Net, (charge-offs) and recoveries | (2)                            | 213                         
|Ending balance                    | $1,888                         | 1,842                       

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



|                                             | At September 30 | At December 31
|-------------------------------------------- | --------------- | --------------
|                                             | 2006            | 2005          
|Nonaccrual loans                             | $ 142           | 479           
|Past due ninety days or more, still accruing | $   -           | -             
|                                             | $ 142           | 479           

6



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued



2.      Loan Impairment and Loan Losses, Continued.Impaired loans are as follows (in thousands):



|                                                            | At September 30,
2006 | At December 31,
2005
|----------------------------------------------------------- | --------------------- | --------------------
|Gross loans with a related allowance for loan loss recorded | $ 141                 | $ 131               
|Less:  Allowance on these loans                             | (71)                  | (20)                
|Net investment in impaired loans                            | $ 70                  | $111                

There was no interest collected or recognized on impaired loans during the three months ended September 30, 2006 or 2005.

3.      Earnings Per Share. Basic earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the periods, which was 1,176,975 shares and 1,175,390 shares during the three-month periods ended September 30, 2006 and 2005, respectively and 1,176,666 and 1,173,508 during the nine-month periods ended September 30, 2006 and 2005, respectively.  There is no dilution to basic earnings per share because the Company does not have any common stock equivalents.  All per share amounts reflect the 5% stock dividend paid in April 2006.

4.      Regulatory Capital.The Company is required to maintain certain minimum regulatory capital requirements.  The following is a summary at September 30, 2006 of the Company's actual capital on a percentage basis:



|                                                | Actual | RegulatoryRequirement
|----------------------------------------------- | ------ | ---------------------
|Total capital to risk-weighted assets           | 7.68%  | 10.00%               
|Tier I capital to risk-weighted assets          | 12.00% | 6.00%                
|Tier I capital to total assets - leverage ratio | 13.40% | 5.00%                

7



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Review by Independent Registered Public Accounting Firm

Hacker, Johnson & Smith PA, the Company's independent registered public accounting firm, have made a limited review of the financial data as of September 30, 2006, and for the three- and nine-month periods ended September 30, 2006 and 2005 presented in this document, in accordance with standards established by the Public Company Accounting Oversight Board (United States).

Their report furnished pursuant to Article 10 of Regulation S-X is included herein.

8



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Report of Independent Registered Public Accounting Firm

Independent BancShares, Inc. 
Ocala, Florida:

We have reviewed the accompanying condensed consolidated balance sheet of Independent BancShares, Inc. and Subsidiary (the "Company") as of September 30, 2006, the related condensed consolidated statements of earnings for the three- and nine-month periods ended September 30, 2006 and 2005, and the related condensed consolidated statements of cash flows and stockholders' equity for the nine-month periods ended September 30, 2006 and 2005. These interim condensed financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2005, and the related consolidated statements of earnings, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated March 3, 2006, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Hacker, Johnson & Smith PA

HACKER, JOHNSON & SMITH PA
Orlando, Florida
October 17, 2006

9



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

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

Forward Looking Statements

This Form 10-QSB may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to risks and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Among these risks are regional and national economic conditions, competitive and regulatory factors, legislative changes, mortgage-interest rates, cost and availability of borrowed funds, our ability to sell mortgages in the secondary market, and housing sales and values. These risks and uncertainties are contained in the Company's filings with the SEC, available via EDGAR. The Company assumes no obligation to update forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such forward-looking statements.

General

Independent BancShares, Inc. (the "Holding Company") owns 100% of the outstanding common stock of Independent National Bank (the "Bank") (collectively, the, "Company").  The Holding Company's primary business activity is the operation of the Bank.  Effective June 21, 2006, the Holding Company registered its common stock under Section 12(g) of the Securities Exchange Act  of 1934, as amended (the "Exchange Act"), and has thus become subject to the reporting requirements applicable under the Exchange Act.  As a fully reporting company, our common stock has very recently begun trading on the Over-the-Counter Bulletin Board under the symbol "IBFL".

The Bank isa 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 four banking offices located in Marion and Sumter Counties, Florida.

The Bank provides a variety of consumer and commercial banking services to individuals, businesses and industries.  The basic services offered by the Bank include: demand interest-bearing and noninterest-bearing accounts, money market deposit accounts, NOW accounts, time deposits, credit cards, cash management, direct deposits, notary services, money orders, night depository, travelers' checks, cashier's checks, domestic collections, savings bonds, bank drafts, automated teller services, drive-in tellers, and banking by mail.  In addition, the Bank makes secured and unsecured commercial, consumer, and real estate loans and issues stand-by letters of credit.  The Bank provides automated teller machine (ATM) cards and is a member of the Star ATM network, thereby permitting customers to utilize the convenience of larger ATM networks.

10



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

In addition to the foregoing services, the offices of the Company provide customers with extended banking hours.  The Company does not have trust powers and, accordingly, no trust services are provided.

The revenues of the Bank are primarily derived from interest on, and fees received in connection with, real estate and other loans, and from interest and dividends from investment and mortgage-backed securities, and short-term investments.  The principal sources of funds for the Bank's lending activities are its deposits and borrowings, repayment of loans, and the sale and maturity of investment securities.  The principal expenses of the Bank are the interest paid on deposits, and operating and general administrative expenses.

As is the case with banking institutions generally, the Company's operations are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial institution regulatory agencies, including the Board of Governors of the Federal Reserve System (the "Federal Reserve") and the FDIC.  Deposit flows and costs of funds are influenced by interest rates on competing investments and general market rates of interest.  Lending activities are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offered and other factors affecting local demand and availability of funds.  The Company faces strong competition in the attraction of deposits (its primary source of lendable funds) and in the origination of loans.

Liquidity and Capital Resources

The Company's primary source of cash during the nine months ended September 30, 2006 was from net increase in deposits of $12.4 million and from maturities, sales and principal repayments on securities available for sale of $6.5 million.  Cash was used primarily to fund loans, net of principal repayments of $4.5 million and to purchase investments of $13.0 million. At September 30, 2006, 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 unused lines of credit, 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.

11



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Commitments to extend credit, including lines of credit, 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.

A summary of the amounts of the Company's financial instruments, with off-balance-sheet risk at September 30, 2006 follows (in thousands):



|                                                   | ContractAmount
|-------------------------------------------------- | --------------
|Undisbursed lines of credit and construction loans | $ 16,375      
|Commitments to extend credit                       | $ 5,409       
|Standby letters of credit                          | $ 812         

Management believes that the Company has adequate resources to fund all its commitments, that a majority of all of its existing commitments willbe 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.

12



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Selected Ratios

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

|                                                        | Nine Months
Ended
September 30,2006 | Year Ended
December 31,2005 | Nine Months
Ended
September 30,2005
|------------------------------------------------------- | ----------------------------------- | --------------------------- | -----------------------------------
|Average equity as a percentage of average assets        | 7.41%                               | 7.73%                       | 6.94%                              
|Total equity to total assets at end of period           | 7.54%                               | 7.32%                       | 7.00%                              
|Return on average assets (1)                            | .80%                                | 1.13%                       | 1.08%                              
|Return on average equity (1)                            | 10.76%                              | 14.56%                      | 15.54%                             
|Noninterest expense to average assets (1)               | 2.92%                               | 2.62%                       | 2.67%                              
|Nonperforming loans to total loans at end of period (2) | 0.09%                               | 0.33%                       | 0.62%                              

1. Annualized for the six months ended September 30, 2006 and 2005.
2. Nonperforming loans consist of nonaccrual loans and accruing loans contractually past due ninety days or more.

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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

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.

|                                                                 | Three Months Ended September 30,
|---------------------------------------------------------------- | --------------------------------
|                                                                 | 2006                            
|                                                                 | Average Balance                 
|                                                                 | ($ in thousands)                
|Interest-earning assets:                                         |                                 
|Loans(1)                                                         | $ 148,324                       
|Securities                                                       | 36,809                          
|Other interest-earning assets(2)                                 | 7,145                           
|Total interest-earning assets                                    | 192,278                         
|Noninterest-earning assets                                       | 16,058                          
|Total assets                                                     | $208,336                        
|Interest-bearing liabilities:                                    |                                 
|Savings, NOW and 
        money-market deposits                  | 78,381                          
|Time deposits                                                    | 72,794                          
|Subtotal deposits                                                | 151,175                         
|Borrowed funds                                                   | 17,015                          
|Total interest-bearing liabilities                               | 168,190                         
|Noninterest-bearing deposits                                     | 23,596                          
|Noninterest-bearing liabilities                                  | 976                             
|Stockholders' equity                                             | 15,574                          
|Total liabilities and stockholders' equity                       | $208,336                        
|Net interest income                                              |                                 
|Interest-rate spread                                             |                                 
|Net interest margin                                              |                                 
|Ratio of interest-earning assets to interest-bearing liabilities | 1.14                            









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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

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.

|                                                                 | Nine Months Ended September 30,
|---------------------------------------------------------------- | -------------------------------
|                                                                 | 2006                           
|                                                                 | Average Balance                
|                                                                 | ($ in thousands)               
|Interest-earning assets:                                         |                                
|Loans(1)                                                         | $ 148,132                      
|Securities                                                       | 34,713                         
|Other interest-earning assets (2)                                | 6,314                          
|Total interest-earning assets                                    | 189,159                        
|Noninterest-earning assets                                       | 15,373                         
|Total assets                                                     | $204,532                       
|Interest-bearing liabilities:                                    |                                
|Savings, NOW and 
        money-market deposits                  | 78,990                         
|Time deposits                                                    | 67,784                         
|Subtotal deposits                                                | 146,774                        
|Borrowed funds                                                   | 16,913                         
|Total interest-bearing liabilities                               | 163,687                        
|Noninterest-bearing deposits                                     | 24,480                         
|Noninterest-bearing liabilities                                  | 1,201                          
|Stockholders' equity                                             | 15,164                         
|Total liabilities and stockholders' equity                       | $204,532                       
|Net interest income                                              |                                
|Interest-rate spread                                             |                                
|Net interest margin (2)                                          |                                
|Ratio of interest-earning assets to interest-bearing liabilities |                                









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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Comparison of the Three-Month Periods Ended September 30, 2006 and 2005

General Operating Results. Net earnings for the quarter ended September 30, 2006 declined to $262,000 or $0.22 per basic and diluted share from $588,000 or $0.50 per basic share for the quarter ended September 30, 2005.  The decline in net earnings is the result of the following events:

- The compression in net interest margin due to the flattening of the yield curve, which resulted in a decrease of $189,000 in net interest income.
- An increase in noninterest expense due to the opening of the new 14th Street office.  The new offices positive effect on earnings, will not be felt until the office is given the opportunity to mature and reach a profitable asset size.
- An increase in compensation expense of $183,000 due to the opening of the 14th Street banking office and an increase in the number of employees due to the overall growth of the bank.

Interest Income. Interest income increased $434,000 to $3.3 million for the three-month period ended September 30, 2006, compared to the three-month period ended September 30, 2005.  The increase was due to an increase in the average yield earned on interest-earning assets from 6.3% for the three months ended September 30, 2005 to 6.96% for the three months ended September 30, 2006 and a $7.5 million increase in average interest-earning assets outstanding for the three months ended September 30, 2006 compared to the 2005 period.

Interest Expense. Interest expense increased $623,000 from $938,000 for the three-month period ended September 30, 2005 to $1.6 million for the three-month period ended September 30, 2006.  The increase was primarily due to an increase of $7.0 million in average interest-bearing liabilities outstanding and an increase in the average cost of interest-bearing liabilities from 2.33% for the three months ended September 30, 2005 to 3.71% for the comparable 2006 period.  Average interest-bearing deposits increased from $143.6 million outstanding during the three months ended September 30, 2005 to $151.2 million outstanding during the comparable period for 2006.

Provision for Loan Losses. The provision for loan losses is charged to earnings to increase 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 collectibility of the Company's loan portfolio.  The Company recorded provisions for loan losses for the three-month periods ended September 30, 2006 and 2005 of $13,000 and $63,000, respectively. The decrease in the provision was primarily due to the improvement in the quality of the loan portfolio.  Management believes that the allowance for loan losses, which was $1,888,000 or 1.25% of gross loans at September 30, 2006 is adequate.

Noninterest Income. Noninterest income decreased $16,000 during the 2006 period.  The decrease was primarily due to a decrease of $13,000 in service charges on deposit accounts.

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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Comparison of the Three-Month Periods Ended September 30, 2006 and 2005, Continued

Noninterest Expense. Noninterest expense increased by $375,000 from $1.3 million for the three-month period ended September 30, 2005 to $1.6 million for the three-month period ended September 30, 2006.  The increase was primarily due to an increases of $183,000 in salaries and employee benefits, and $155,000 in other noninterest expense, all related to the overall growth of the Company and the opening of a new banking office.

Income Taxes. The income tax expense was $118,000 for the three-month period ended September 30, 2006 (an effective tax rate of 31.1%) and $322,000 (an effective tax rate of 35.4%) for the corresponding period in 2005.





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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Comparison of the Nine-Month Periods Ended September 30, 2006 and 2005

General Operating Results. Net earnings for the nine-month period ended September 30, 2006 was $1,224,000 or $1.04 per basic and diluted share compared to $1,528,000, or $1.31 per basic share and diluted share for the comparable period in 2005.  The decline in net earnings is the result of the following events:

- An increase in noninterest expense due to the opening of the opening of the new 14th Street office.  The new offices positive effect on earnings, will not be felt until the office is given the opportunity to mature and reach a profitable asset size.
- An increase in compensation expense of $297,000 due to the opening of the 14th Street banking office and an increase in the number of employees due to the overall growth of the bank.
- The Company has incurred approximately $100,000 in professional fees associated with its registration with the SEC.

Interest Income. Interest income increased $1.5 million to $9.6 million for the nine-month period ended September 30, 2006, compared to the nine-month period ended September 30, 2005.  The increase was due to an increase in the average yield earned on interest-earning assets from 6.07% for the nine months ended September 30, 2005 to 6.78% for the nine months ended June 30, 2006 and a $11.5 million increase in average interest-earning assets outstanding for the nine months ended September 30, 2006 compared to the 2005 period.

Interest Expense. Interest expense increased $1.5 million from $2,469,000 for the nine-month period ended September 30, 2005 to $3,976,000 for the nine-month period ended September 30, 2006.  The increase was primarily due to an increase of $10.3 million in average interest-bearing liabilities outstanding and an increase in the average cost of interest-bearing liabilities from 2.15% for the nine months ended September 30, 2005 to 3.24% for the comparable 2006 period.  Average interest-bearing deposits increased from $138.4 million outstanding during the nine months ended September 30, 2005 to $146.8 million outstanding during the comparable period for 2006.

Provision for Loan Losses. The provision for loan losses is charged to operations to increase 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 collectibility of the Company's loan portfolio.  The Company recorded provisions for loan losses for the nine-month periods ended September 30, 2006 and 2005 of $41,000 and $282,000, respectively.  The decrease in the provision was primarily due to less overall growth in the loan portfolio in 2006 compared to 2005.  Management believes that the allowance for loan losses, which was $1,888,000 or 1.25% of gross loans at September 30, 2006 is adequate.

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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Comparison of the Nine-Month Periods Ended September 30, 2006 and 2005, Continued

Noninterest Income. Noninterest income decreased $90,000 during the 2006 period.  The decrease was primarily due to a decrease of $45,000 in other noninterest income and $37,000 in service charges on deposit accounts.

Noninterest Expense. Noninterest expense increased by $672,000 from $3.8 million for the nine-month period ended September 30, 2005 to $4.5 million for the nine-month period ended September 30, 2006.  The increase was primarily due to increases of $297,000 in salaries and employee benefits, $21,000 in occupancy and equipment expense, $50,000 in data processing expense, and $246,000 in other noninterest expense, all related to the overall growth of the Company and the opening of a new banking office.

Income Taxes. The income tax benefit was $629,000 for the nine-month period ended September 30, 2006 (an effective tax rate of 33.9%) and $810,000 (an effective tax rate of 34.5%) for the corresponding period in 2005.

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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY

Item 3.  Controls and Procedures

The Company, with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation and as of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to information required to be disclosed in its reports that the Company files or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934. There have been no changes in the Company's internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

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 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3.  Defaults upon Senior Securities

Not applicable

Item 5.  Other Information

Not applicable

Item 6.  Exhibits



|Exhibit No. | Description of Exhibit                                                                                                                               
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|31.1        | Certification of Principal Executive Officer                                                                                                         
|31.2        | Certification of Principal Financial Officer                                                                                                         
|32.1        | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|32.2        | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

20



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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 thereunto duly authorized.

|                       | INDEPENDENT BANCSHARES, INC.
(Registrant)
By: /S/ Mark A. Imes
     Mark A. Imes
     President and Chief Executive Officer
     (Principal Executive Officer)
|---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       | By: /S/ Dennis M. Clarke     Dennis M. Clarke
     Chief Financial Officer (Principal 
     Financial and Accounting Officer)                                 
|Date: November 3, 2006 |                                                                                                                                                               

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