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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the Quarterly Period Ended September 30, 2008

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 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 17thStreet

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 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):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

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 October 31, 2008

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









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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

INDEX



|                                                                                                                      |  |      
|--------------------------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                                      |  | Page 
|Part I. FINANCIAL INFORMATION                                                                                         |  |      
|                                                                                                                      | 
|Item 1. Financial Statements                                                                                          |  |      
|                                                                                                                      | 
|Condensed Consolidated Balance Sheets - at September 30, 2008 (Unaudited) and at December 31, 2007                    |  | 2    
|                                                                                                                      | 
|Condensed Consolidated Statements of Operations (Unaudited) - Three and Nine months ended September 30, 2008 and 2007 |  | 3    
|                                                                                                                      | 
|Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - Nine months ended September 30, 2008 and 2007 |  | 4    
|                                                                                                                      | 
|Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 2008 and
2007           |  | 5-6  
|                                                                                                                      | 
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                                      |  | 7-10 
|                                                                                                                      | 
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations                         |  | 11-17
|                                                                                                                      | 
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                    |  | 19   
|                                                                                                                      | 
|Item 4T. Controls and Procedures                                                                                      |  | 19   
|                                                                                                                      | 
|Part II. OTHER INFORMATION                                                                                            |  |      
|                                                                                                                      | 
|Item 1. Legal Proceedings                                                                                             |  | 21   
|                                                                                                                      | 
|Item 1A. Risk Factors                                                                                                 |  | 21   
|                                                                                                                      | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                   |  | 21   
|                                                                                                                      | 
|Item 3. Defaults upon Senior Securities                                                                               |  | 21   
|                                                                                                                      | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                           |  | 21   
|                                                                                                                      | 
|Item 5. Other Information                                                                                             |  | 21   
|                                                                                                                      | 
|Item 6. Exhibits                                                                                                      |  | 21   
|                                                                                                                      | 
|SIGNATURES                                                                                                            |  | 22   



1



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##### Table of Contents

INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

($ in thousands, except share amounts)



|                                                                                                 |  |                     |         |   |                    |         |  
|------------------------------------------------------------------------------------------------ |  | ------------------- | ------- | - | ------------------ | ------- | -
|                                                                                                 |  | AtSeptember 30,2008 |         |   | AtDecember 31,2007 |        
|                                                                                                 |  | (unaudited)         |         |   |                    |        
|Assets                                                                                           |  |                     |         |   |                    |         |  
|Cash and due from banks                                                                          |  | $                   | 6,571   |   |                    | 5,287   |  
|Interest-earning deposits                                                                        |  |                     | 19      |   |                    | 6       |  
|Federal funds sold                                                                               |  |                     | 1,464   |   |                    | 3,436   |  
|                                                                                                 |  |                     |         |   |                    |         |  
|Cash and cash equivalents                                                                        |  |                     | 8,054   |   |                    | 8,729   |  
|Securities available for sale                                                                    |  |                     | 39,264  |   |                    | 41,486  |  
|Loans, net of allowance for loan losses of $1,926 and $1,887                                     |  |                     | 149,386 |   |                    | 152,092 |  
|Foreclosed real estate                                                                           |  |                     | 1,899   |   |                    |        |  
|Accrued interest receivable                                                                      |  |                     | 951     |   |                    | 1,057   |  
|Premises and equipment, net                                                                      |  |                     | 8,200   |   |                    | 7,841   |  
|Federal Home Loan Bank stock                                                                     |  |                     | 925     |   |                    | 926     |  
|Federal Reserve Bank stock                                                                       |  |                     | 237     |   |                    | 237     |  
|Goodwill                                                                                         |  |                     | 1,525   |   |                    | 1,525   |  
|Customer intangible, net                                                                         |  |                     | 323     |   |                    | 375     |  
|Other assets                                                                                     |  |                     | 2,004   |   |                    | 1,447   |  
|                                                                                                 |  |                     |         |   |                    |         |  
|Total assets                                                                                     |  | $                   | 212,768 |   |                    | 215,715 |  
|                                                                                                 |  |                     |         |   |                    |         |  
|                                                                                                 |  |                    
|Liabilities and Stockholders Equity                                                             |  |                     |         |   |                    |         |  
|Liabilities:                                                                                     |  |                     |         |   |                    |         |  
|Noninterest-bearing demand deposits                                                              |  |                     | 16,291  |   |                    | 18,055  |  
|NOW, money-market and savings deposits                                                           |  |                     | 67,092  |   |                    | 81,375  |  
|Time deposits                                                                                    |  |                     | 97,405  |   |                    | 83,737  |  
|                                                                                                 |  |                     |         |   |                    |         |  
|Total deposits                                                                                   |  |                     | 180,788 |   |                    | 183,167 |  
|Federal Home Loan Bank advances                                                                  |  |                     | 10,000  |   |                    | 10,000  |  
|Junior Subordinated Debenture                                                                    |  |                     | 2,062   |   |                    | 2,062   |  
|Other borrowings                                                                                 |  |                     | 2,558   |   |                    | 2,341   |  
|Accrued interest payable and other liabilities                                                   |  |                     | 1,014   |   |                    | 937     |  
|                                                                                                 |  |                     |         |   |                    |         |  
|Total liabilities                                                                                |  |                     | 196,422 |   |                    | 198,507 |  
|                                                                                                 |  |                     |         |   |                    |         |  
|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                                                                                |  |                     | 5,473   |   |                    | 5,969   |  
|Accumulated other comprehensive loss                                                             |  |                     | (429    | ) |                    | (63     | )
|                                                                                                 |  |                     |         |   |                    |         |  
|Total stockholders equity                                                                       |  |                     | 16,346  |   |                    | 17,208  |  
|                                                                                                 |  |                     |         |   |                    |         |  
|Total liabilities and stockholders equity                                                       |  | $                   | 212,768 |   |                    | 215,715 |  
|                                                                                                 |  |                     |         |   |                    |         |  

See accompanying Notes to Condensed Consolidated Financial Statements.



2



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share amounts)



|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|--------------------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | ---- | ----- | ---- | ----- | - | ---- | ------
|                                                    |  | Three Months EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|                                                    |  | 2008                            |       |                                | 2007 |       | 2008 |       |   | 2007
|Interest income:                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Loans                                               |  | $                               | 2,508 |                                |      | 3,067 |      | 7,663 |   |      | 8,852 
|Securities                                          |  |                                 | 407   |                                |      | 451   |      | 1,225 |   |      | 1,375 
|Other                                               |  |                                 | 75    |                                |      | 67    |      | 297   |   |      | 123   
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Total interest income                               |  |                                 | 2,990 |                                |      | 3,585 |      | 9,185 |   |      | 10,350
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Interest expense:                                   |  |                                 |       |                                |      |       |      |       |   |      |       
|Deposits                                            |  |                                 | 1,218 |                                |      | 1,664 |      | 4,030 |   |      | 4,767 
|Borrowings                                          |  |                                 | 137   |                                |      | 184   |      | 432   |   |      | 566   
|Capitalized interest                                |  |                                 | (19   | )                              |      |      |      | (181  | ) |      |      
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Total interest expense                              |  |                                 | 1,336 |                                |      | 1,848 |      | 4,281 |   |      | 5,333 
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Net interest income                                 |  |                                 | 1,654 |                                |      | 1,737 |      | 4,904 |   |      | 5,017 
|Provision for loan losses                           |  |                                 | 366   |                                |      | 34    |      | 925   |   |      | 215   
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Net interest income after provision for loan losses |  |                                 | 1,288 |                                |      | 1,703 |      | 3,979 |   |      | 4,802 
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Noninterest income:                                 |  |                                 |       |                                |      |       |      |       |   |      |       
|Service charges on deposit accounts                 |  |                                 | 114   |                                |      | 122   |      | 357   |   |      | 349   
|Brokerage fees                                      |  |                                 | 133   |                                |      | 157   |      | 462   |   |      | 455   
|Gain on sale of securities                          |  |                                 |      |                                |      |      |      |      |   |      | 2     
|Other                                               |  |                                 | 125   |                                |      | 138   |      | 399   |   |      | 414   
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Total noninterest income                            |  |                                 | 372   |                                |      | 417   |      | 1,218 |   |      | 1,220 
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Noninterest expense:                                |  |                                 |       |                                |      |       |      |       |   |      |       
|Salaries and employee benefits                      |  |                                 | 1,111 |                                |      | 1,016 |      | 3,201 |   |      | 3,034 
|Occupancy and equipment                             |  |                                 | 226   |                                |      | 207   |      | 632   |   |      | 579   
|Data processing                                     |  |                                 | 115   |                                |      | 124   |      | 426   |   |      | 349   
|Advertising and business development                |  |                                 | 46    |                                |      | 38    |      | 163   |   |      | 100   
|Directors fees                                      |  |                                 | 40    |                                |      | 41    |      | 120   |   |      | 123   
|Stationary and supplies                             |  |                                 | 28    |                                |      | 32    |      | 81    |   |      | 129   
|Other                                               |  |                                 | 549   |                                |      | 400   |      | 1,458 |   |      | 1,084 
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Total noninterest expense                           |  |                                 | 2,115 |                                |      | 1,858 |      | 6,081 |   |      | 5,398 
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|(Loss) earnings before income taxes                 |  |                                 | (455  | )                              |      | 262   |      | (884  | ) |      | 624   
|Income tax (benefit) expense                        |  |                                 | (137  | )                              |      | 42    |      | (388  | ) |      | 69    
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Net (loss) earnings                                 |  | $                               | (318  | )                              |      | 220   |      | (496  | ) |      | 555   
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|(Loss) earnings per sharebasic                     |  | $                               | (0.26 | )                              |      | 0.18  |      | (0.40 | ) |      | 0.45  
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       
|Dividends per share                                 |  | $                               |      |                                |      |      |      |      |   |      |      
|                                                    |  |                                 |       |                                |      |       |      |       |   |      |       

See accompanying Notes to Condensed Consolidated Financial Statements.



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders Equity

Nine Months Ended September 30, 2008 and 2007

($ in thousands)



|                                                                                           |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  
|------------------------------------------------------------------------------------------ | ------ | ------------ | --------- | ------------------------ | ----- | ---------------- | ----- |  | --------------------------------- | - |  | ------------------------ | - |  | ------ | -
|                                                                                           |        | Common Stock |           | AdditionalPaid-InCapital |       | RetainedEarnings |       |  | AccumulatedOtherComprehensiveLoss |   |  | TotalStockholders'Equity |  
|                                                                                           | Shares |              | ParAmount |                          |       |                  |      
|Balance at December 31, 2006                                                               |        | 1,176,975    |           | $                        | 2,354 |                  | 7,517 |  | 6,649                             |   |  | (359                     | ) |  | 16,161 |  
|                                                                                           |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  
|Comprehensive income:                                                                      |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  
|Net earnings (unaudited)                                                                   |        |             |           |                          |      |                  |      |  | 555                               |   |  |                         |   |  | 555    |  
|Change in unrealized loss on securities available for sale, net of tax benefit (unaudited) |        |             |           |                          |      |                  |      |  |                                  |   |  | 14                       |   |  | 14     |  
|                                                                                           |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  
|Comprehensive income (unaudited)                                                           |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  | 569    |  
|5% stock dividend (unaudited)                                                              |        | 58,669       |           |                          | 117   |                  | 1,314 |  | (1,431                            | ) |  |                         |   |  |       |  
|Cash in lieu of shares (unaudited)                                                         |        |             |           |                          |      |                  |      |  | (5                                | ) |  |                         |   |  | (5     | )
|                                                                                           |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  
|Balance at September 30, 2007 (unaudited)                                                  |        | 1,235,644    |           | $                        | 2,471 |                  | 8,831 |  | 5,768                             |   |  | (345                     | ) |  | 16,725 |  
|                                                                                           |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  
|Balance at December 31, 2007                                                               |        | 1,235,644    |           | $                        | 2,471 |                  | 8,831 |  | 5,969                             |   |  | (63                      | ) |  | 17,208 |  
|                                                                                           |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  
|Comprehensive loss:                                                                        |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  
|Net loss (unaudited)                                                                       |        |             |           |                          |      |                  |      |  | (496                              | ) |  |                         |   |  | (496   | )
|Change in unrealized loss on securities available for sale, net of tax benefit (unaudited) |        |             |           |                          |      |                  |      |  |                                  |   |  | (366                     | ) |  | (366   | )
|                                                                                           |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  
|Comprehensive loss (unaudited)                                                             |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  | (862   | )
|                                                                                           |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  
|Balance at September 30, 2008 (unaudited)                                                  |        | 1,235,644    |           | $                        | 2,471 |                  | 8,831 |  | 5,473                             |   |  | (429                     | ) |  | 16,346 |  
|                                                                                           |        |              |           |                          |       |                  |       |  |                                   |   |  |                          |   |  |        |  

See accompanying Notes to Condensed Consolidated Financial Statements.



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



|                                                                                                     |  |                                |        |   |      |        |  
|---------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | ------ | -
|                                                                                                     |  | Nine Months EndedSeptember 30, |       
|                                                                                                     |  | 2008                           |        |   | 2007 |       
|Cash flows from operating activities:                                                                |  |                                |        |   |      |        |  
|Net (loss) earnings                                                                                  |  | $                              | (496   | ) |      | 555    |  
|Adjustments to reconcile net (loss) earnings to net cash provided by (used in) operating activities: |  |                                |        |   |      |        |  
|Depreciation and amortization                                                                        |  |                                | 279    |   |      | 255    |  
|Provision for loan losses                                                                            |  |                                | 925    |   |      | 215    |  
|Net amortization of premiums and discounts on securities                                             |  |                                | 105    |   |      | 181    |  
|Gain on sale of securities available for sale                                                        |  |                                |       |   |      | (2     | )
|Amortization of customer intangible                                                                  |  |                                | 52     |   |      | 53     |  
|Net decrease (increase) in accrued interest receivable                                               |  |                                | 106    |   |      | (163   | )
|Net increase in other assets                                                                         |  |                                | (374   | ) |      | (32    | )
|Net increase (decrease) in accrued interest payable and other liabilities                            |  |                                |        |   |      |        |  
|                                                                                                     |  |                                | 77     |   |      | (1,874 | )
|                                                                                                     |  |                                |        |   |      |        |  
|Net cash provided by (used in) operating activities                                                  |  |                                | 674    |   |      | (812   | )
|                                                                                                     |  |                                |        |   |      |        |  
|Cash flows from investing activities:                                                                |  |                                |        |   |      |        |  
|Purchase of securities available for sale                                                            |  |                                | (7,844 | ) |      | (8,083 | )
|Maturities, sales, and principal repayments of securities available for sale                         |  |                                | 9,412  |   |      | 9,109  |  
|Loans originated, net of principal repayments                                                        |  |                                | (118   | ) |      | (6,359 | )
|Purchase of premises and equipment                                                                   |  |                                | (638   | ) |      | (290   | )
|Redemption of Federal Home Loan Bank stock                                                           |  |                                | 1      |   |      | 9      |  
|Purchase of assets of HKH                                                                            |  |                                |       |   |      | (2,019 | )
|                                                                                                     |  |                                |        |   |      |        |  
|Net cash used in investing activities                                                                |  |                                | 813    |   |      | (7,633 | )
|                                                                                                     |  |                                |        |   |      |        |  
|Cash flows from financing activities:                                                                |  |                                |        |   |      |        |  
|Net (decrease) increase in deposits                                                                  |  |                                | (2,379 | ) |      | 7,742  |  
|Net increase (decrease) in other borrowings                                                          |  |                                | 217    |   |      | (275   | )
|Cash in lieu of fractional shares                                                                    |  |                                |       |   |      | (5     | )
|                                                                                                     |  |                                |        |   |      |        |  
|Net cash (used in) provided by financing activities                                                  |  |                                | (2,162 | ) |      | 7,462  |  
|                                                                                                     |  |                                |        |   |      |        |  
|Net decrease in cash and cash equivalents                                                            |  |                                | (675   | ) |      | (983   | )
|Cash and cash equivalents at beginning of period                                                     |  |                                | 8,729  |   |      | 12,277 |  
|                                                                                                     |  |                                |        |   |      |        |  
|Cash and cash equivalents at end of period                                                           |  | $                              | 8,054  |   |      | 11,294 |  
|                                                                                                     |  |                                |        |   |      |        |  



5



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES



Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)



|                                                                                                                         |  |                                |       |   |      |      
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------ | ----- | - | ---- | -----
|                                                                                                                         |  | Nine Months EndedSeptember 30,
|                                                                                                                         |  | 2008                           |       |   | 2007
|Cash paid during the period for:                                                                                         |  |                                |       |   |      |      
|Interest                                                                                                                 |  | $                              | 4,462 |   |      | 5,362
|                                                                                                                         |  |                                |       |   |      |      
|Taxes                                                                                                                    |  | $                              |      |   |      | 25   
|                                                                                                                         |  |                                |       |   |      |      
|Noncash transactions:                                                                                                    |  |                                |       |   |      |      
|Accumulated other comprehensive loss, net change in unrealized loss on securities available for sale, net of tax benefit |  | $                              | (366  | ) |      | 14   
|                                                                                                                         |  |                                |       |   |      |      
|Common stock dividend                                                                                                    |  | $                              |      |   |      | 1,431
|                                                                                                                         |  |                                |       |   |      |      
|Loans transferred to foreclosed real estate                                                                              |  | $                              | 1,899 |   |      |     
|                                                                                                                         |  |                                |       |   |      |      

See accompanying Notes to Condensed Consolidated Financial Statements.



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)



|1. | Basis of Presentation.In the opinion of the management of Independent BancShares, Inc. (the Holding Company), the accompanying condensed
consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position at September 30, 2008, the results of operations for the three- and nine- month periods ended
September 30, 2008 and 2007 and the cash flows for the nine-month periods ended September 30, 2008 and 2007. The results of operations for the three- and nine- month periods ended September 30, 2008, are not necessarily indicative of
results that may be expected for the year ending December 31, 2008.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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):
|-- | -----------------------------------------------------------------------



|                                        |  |                     |         |   |                    |         |  
|--------------------------------------- |  | ------------------- | ------- | - | ------------------ | ------- | -
|                                        |  | AtSeptember 30,2008 |         |   | AtDecember 31,2007 |        
|Commercial real estate                  |  | $                   | 66,616  |   |                    | 65,251  |  
|Residential real estate and home equity |  |                     | 54,739  |   |                    | 49,154  |  
|Construction and land development       |  |                     | 18,553  |   |                    | 27,379  |  
|Commercial                              |  |                     | 8,686   |   |                    | 9,456   |  
|Consumer                                |  |                     | 2,804   |   |                    | 2,866   |  
|                                        |  |                     |         |   |                    |         |  
|Total loans                             |  |                     | 151,398 |   |                    | 154,106 |  
|                                        |  |                    
|Deduct:     Allowance for loan losses   |  |                     | (1,926  | ) |                    | (1,887  | )
|Deferred loan costs, net                |  |                     | (86     | ) |                    | (127    | )
|                                        |  |                     |         |   |                    |         |  
|Loans, net                              |  | $                   | 149,386 |   |                    | 152,092 |  
|                                        |  |                     |         |   |                    |         |  



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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 EndedSeptember 30, |       | Nine Months EndedSeptember 30, |     
|                                  |  | 2008                            |       |                                | 2007 |       | 2008 |       |   | 2007 |      
|Beginning balance                 |  | $                               | 1,938 |                                |      | 1,880 |      | 1,887 |   |      | 1,899 |  
|Provision for loan losses         |  |                                 | 366   |                                |      | 34    |      | 925   |   |      | 215   |  
|Net, (charge-offs) and recoveries |  |                                 | (378  | )                              |      | 4     |      | (886  | ) |      | (196  | )
|                                  |  |                                 |       |                                |      |       |      |       |   |      |       |  
|Ending balance                    |  | $                               | 1,926 |                                |      | 1,918 |      | 1,926 |   |      | 1,918 |  
|                                  |  |                                 |       |                                |      |       |      |       |   |      |       |  

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



|                                             |  |                     |       |                    |    
|-------------------------------------------- |  | ------------------- | ----- | ------------------ | ---
|                                             |  | AtSeptember 30,2008 |       | AtDecember 31,2007
|Nonaccrual loans                             |  | $                   | 1,485 |                    | 751
|Past due ninety days or more, still accruing |  |                     |      |                    |   
|                                             |  |                     |       |                    |    
|                                             |  | $                   | 1,485 |                    | 751
|                                             |  |                     |       |                    |    

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



|                                                                  |  |                     |       |                    |       |  
|----------------------------------------------------------------- |  | ------------------- | ----- | ------------------ | ----- | -
|                                                                  |  | AtSeptember 30,2008 |       | AtDecember 31,2007 |      
|Gross loans with a related allowance for loan loss recorded       |  | $                   |      |                    | 2,328 |  
|Less: Allowance on these loans                                    |  |                     |      |                    | (164  | )
|Gross loans for which there is no related allowance for loan loss |  |                     | 1,079 |                    |      |  
|                                                                  |  |                     |       |                    |       |  
|Net investment in impaired loans                                  |  | $                   | 1,079 |                    | 2,164 |  
|                                                                  |  |                     |       |                    |       |  

There was no interest collected or recognized on impaired loans during the three or nine months
ended September 30, 2008 or 2007.



|4. | (Loss) Earnings Per Share. Basic (loss) 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 1,235,644 during the three- and nine-month periods ended September 30, 2008 and 2007. There is no dilution to basic (loss) earnings per share because the Company does not have any common stock equivalents.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 September 30,
2008 and December 31, 2007 of the Banks actual capital and related capital ratios.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                              |  |             |        |       |                                                  |   |             |   |        |  |      |  
|--------------------------------------------- |  | ----------- | ------ | ----- | ------------------------------------------------ | - | ----------- | - | ------ |  | ---- | -
|                                              |  | Actual      |        |       | Minimum Amountand Ratio toRemain WellCapitalized |  
|                                              |  | Amount      |        | Ratio |                                                  |   | Amount      |   | Ratio  | 
|                                              |  | (Thousands) |        |       |                                                  |   | (Thousands) |   |        | 
|As of September 30, 2008:                     |  |             |        |       |                                                  |   |             |   |        |  |      |  
|Total Capital (to Risk-Weighted Assets) Bank  |  | $           | 18,641 |       | 12.41                                            | % |             | $ | 15,016 |  | 10.0 | %
|                                              |  |             |        |       |                                                  |   |             |   |        |  |      |  
|Tier 1 Capital (to Risk-Weighted Assets) Bank |  | $           | 16,814 |       | 11.20                                            | % |             | $ | 9,009  |  | 6.0  | %
|                                              |  |             |        |       |                                                  |   |             |   |        |  |      |  
|Tier 1 Capital (to Average Assets) Bank       |  | $           | 16,814 |       | 9.93                                             | % |             | $ | 10,607 |  | 5.0  | %
|                                              |  |             |        |       |                                                  |   |             |   |        |  |      |  
|                                              |  |             |        |      
|As of December 31, 2007:                      |  |             |        |       |                                                  |   |             |   |        |  |      |  
|Total Capital (to Risk-Weighted Assets) Bank  |  | $           | 19,116 |       | 12.1                                             | % |             | $ | 15,750 |  | 10.0 | %
|                                              |  |             |        |       |                                                  |   |             |   |        |  |      |  
|Tier 1 Capital (to Risk-Weighted Assets) Bank |  | $           | 17,229 |       | 10.9                                             | % |             | $ | 9,450  |  | 6.0  | %
|                                              |  |             |        |       |                                                  |   |             |   |        |  |      |  
|Tier 1 Capital (to Average Assets) Bank       |  | $           | 17,229 |       | 8.0                                              | % |             | $ | 10,803 |  | 5.0  | %
|                                              |  |             |        |       |                                                  |   |             |   |        |  |      |  



|6. | Fair Value Measurements.Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to
all other accounting pronouncements that require or permit fair value measurements. This standard does not apply to measurements related to share-based payments. Fair value is defined under SFAS 157 as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these
financial assets and liabilities are recognized in operations when they occur.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SFAS 157 also establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1  inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2  inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3
 inputs to the valuation methodology are unobservable and significant to the fair value measurement.



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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued



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



|                              |  |                                                 |        |                                                           |   |                                           |  |                                        |        |  |   |  
|----------------------------- |  | ----------------------------------------------- | ------ | --------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | ------ |  | - | -
|                              |  | Fair Value Measurements at Reporting Date Using
|                              |  | Fair Valueas
ofSeptember 30,2008                |        | Quoted PricesIn ActiveMarkets forIdenticalAssets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
3)
|Available for sale securities |  | $                                               | 39,264 |                                                           | $ |                                          |  | $                                      | 39,264 |  | $ | 
|                              |  |                                                 |        |                                                           |   |                                           |  |                                        |        |  |   |  

The fair values of the Companys securities available for sale are determined by third party
service providers utilizing various methods dependent upon the specific type of investment. Where quoted prices are available in an active market, securities are classified within level 1 of the valuation hierarchy. Level 1 securities include highly
liquid government bonds, certain mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices or securities with similar characteristics, or
discounted cash flows. Examples of such instruments, which would generally be classified within level 2 of the valuation hierarchy, include certain collateralized mortgage and debt obligations and certain high-yield debt securities. In certain cases
where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3 of the valuation hierarchy. Securities classified within level 3 include certain residual interests in securitizations and
other less liquid securities.

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 |       |                                                           |   |                                           |  |                                       
|               |  | CarryingValueas ofSeptember 30,2008             |       | Quoted PricesIn ActiveMarkets forIdenticalAssets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
3) |   | TotalLosses |   |       | TotalLosses inOperations |  
|Impaired loans |  | $                                               | 1,079 |                                                           | $ |                                          |  | $                                      |  |             | $ | 1,079 |                          | $ | (666 | ) |  | $ | (666 | )
|               |  |                                                 |       |                                                           |   |                                           |  |                                        |   |             |   |       |                          |   |      |   |  |   |      |  

SFAS No. 157 applies to loans measured for impairment using the practical expedients
permitted by SFAS 114, Accounting by Creditors for Impairment of a Loan, including impaired loans measured at an observable market price, or at the fair value of the loans collateral, if the loan is collateral dependent. If a loan is
determined to be collateral dependent, the fair value of the collateral is determined by appraisals or independent valuation adjusted for costs related to the liquidation of the collateral.



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|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.



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Liquidity and Capital Resources

The Companys primary source of cash during the nine months ended September 30, 2008 was from maturities, sales and principal repayments of securities available for sale of $9.4 million. Cash was used
primarily to purchase securities available for sale of $7.8 million. At September 30, 2008 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.



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A summary of the amounts of the Companys financial instruments, with off-balance-sheet risk at
September 30, 2008 follows (in thousands):



|                                                   |  |                |       
|-------------------------------------------------- |  | -------------- | ------
|                                                   |  | ContractAmount
|Undisbursed lines of credit and construction loans |  | $              | 5,769 
|                                                   |  |                |       
|Commitments to extend credit                       |  | $              | 10,585
|                                                   |  |                |       
|Standby letters of credit                          |  | $              | 26    
|                                                   |  |                |       

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:



|                                                        |  |                                    |    |  |                             |   |  |                                    |  
|------------------------------------------------------- |  | ---------------------------------- | -- |  | --------------------------- | - |  | ---------------------------------- | -
|                                                        |  | Nine MonthsEndedSeptember 30, 2008 |    |  | Year EndedDecember 31, 2007 |   |  | Nine MonthsEndedSeptember 30, 2007 |  
|Average equity as a percentage of average assets        |  | 7.84                               | %  |  | 7.65                        | % |  | 7.57                               | %
|Total equity to total assets at end of period           |  | 7.68                               | %  |  | 7.98                        | % |  | 7.58                               | %
|Return on average assets (1)                            |  | (.31                               | )% |  | .35                         | % |  | .34                                | %
|Return on average equity (1)                            |  | (3.89                              | )% |  | 4.54                        | % |  | 4.50                               | %
|Noninterest expense to average assets (1)               |  | 3.79                               | %  |  | 3.39                        | % |  | 3.31                               | %
|Nonperforming loans to total loans at end of period (2) |  | .98                                | %  |  | .49                         | % |  | .29                                | %



|(1) | Annualized for the nine months ended September 30, 2008 and 2007.
|--- | -----------------------------------------------------------------

|(2) | Nonperforming loans consist of nonaccrual loans. There are no loans contractually past due ninety days or more that are still accruing interest.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



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Results of Operations

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



|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|---------------------------------------------------------------- |  | -------------------------------- | ------- | -------------------- | ---- | ----- | ----------------- |  | ---- | -------------- |  | -------------------- | ------- | ----------------- | - | ----- |  | ---- | -
|                                                                 |  | Three Months Ended September 30, |        
|                                                                 |  | 2008                             |         |                      | 2007 |      
|                                                                 |  | AverageBalance                   |         | InterestandDividends |      |       | AverageYield/Rate |  |      | AverageBalance |  | InterestandDividends |         | AverageYield/Rate |  
|                                                                 |  | ($ in thousands)                 |        
|Interest-earning assets:                                         |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Loans (1)                                                        |  | $                                | 149,764 |                      |      | 2,508 |                   |  | 6.70 | %              |  | $                    | 157,669 |                   |   | 3,067 |  | 7.78 | %
|Securities                                                       |  |                                  | 37,719  |                      |      | 407   |                   |  | 4.32 |                |  |                      | 38,937  |                   |   | 451   |  | 4.63 |  
|Other interest-earning assets (2)                                |  |                                  | 7,639   |                      |      | 75    |                   |  | 3.93 |                |  |                      | 5,789   |                   |   | 67    |  | 4.63 |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Total interest-earning assets                                    |  |                                  | 195,122 |                      |      | 2,990 |                   |  | 6.13 |                |  |                      | 202,395 |                   |   | 3,585 |  | 7.09 |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Noninterest-earning assets                                       |  |                                  | 18,829  |                      |      |       |                   |  |      |                |  |                      | 16,993  |                   |   |       |  |      |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Total assets                                                     |  | $                                | 213,951 |                      |      |       |                   |  |      |                |  | $                    | 219,388 |                   |   |       |  |      |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Interest-bearing liabilities:                                    |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|NOW, money-market and savings deposits                           |  |                                  | 70,354  |                      |      | 248   |                   |  | 1.41 |                |  |                      | 82,311  |                   |   | 592   |  | 2.88 |  
|Time deposits                                                    |  |                                  | 94,009  |                      |      | 970   |                   |  | 4.13 |                |  |                      | 83,707  |                   |   | 1,072 |  | 5.12 |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Total interest-bearing deposits                                  |  |                                  | 164,363 |                      |      | 1,218 |                   |  | 2.96 |                |  |                      | 166,018 |                   |   | 1,664 |  | 4.01 |  
|Borrowed funds                                                   |  |                                  | 14,745  |                      |      | 137   |                   |  | 3.72 |                |  |                      | 15,536  |                   |   | 184   |  | 4.74 |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Capitalized interest                                             |  |                                  |         |                      |      | (19   | )                 |  |      |                |  |                      |         |                   |   |      |  |      |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Total interest-bearing liabilities                               |  |                                  | 179,108 |                      |      | 1,336 |                   |  | 2.98 |                |  |                      | 181,554 |                   |   | 1,848 |  | 4.07 |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Noninterest-bearing demand deposits                              |  |                                  | 16,820  |                      |      |       |                   |  |      |                |  |                      | 19,792  |                   |   |       |  |      |  
|Noninterest-bearing liabilities                                  |  |                                  | 1,269   |                      |      |       |                   |  |      |                |  |                      | 1,529   |                   |   |       |  |      |  
|Stockholders equity                                             |  |                                  | 16,754  |                      |      |       |                   |  |      |                |  |                      | 16,513  |                   |   |       |  |      |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Total liabilities and stockholders equity                       |  | $                                | 213,951 |                      |      |       |                   |  |      |                |  | $                    | 219,388 |                   |   |       |  |      |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Net interest income                                              |  |                                  |         |                      | $    | 1,654 |                   |  |      |                |  |                      |         |                   | $ | 1,737 |  |      |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Interest-rate spread                                             |  |                                  |         |                      |      |       |                   |  | 3.15 | %              |  |                      |         |                   |   |       |  | 3.02 | %
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Net interest margin (3)                                          |  |                                  |         |                      |      |       |                   |  | 3.39 | %              |  |                      |         |                   |   |       |  | 3.43 | %
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  
|Ratio of interest-earning assets to interest-bearing liabilities |  |                                  | 1.09    |                      |      |       |                   |  |      |                |  |                      | 1.11    |                   |   |       |  |      |  
|                                                                 |  |                                  |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |       |  |      |  



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

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

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



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES



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).



|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|---------------------------------------------------------------- |  | ------------------------------- | ------- | -------------------- | ---- | ----- | ----------------- |  | ---- | -------------- |  | -------------------- | ------- | ----------------- | - | ------ |  | ---- | -
|                                                                 |  | Nine Months Ended September 30, |        
|                                                                 |  | 2008                            |         |                      | 2007 |      
|                                                                 |  | AverageBalance                  |         | InterestandDividends |      |       | AverageYield/Rate |  |      | AverageBalance |  | InterestandDividends |         | AverageYield/Rate |  
|                                                                 |  | ($ in thousands)                |        
|Interest-earning assets:                                         |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Loans (1)                                                        |  | $                               | 151,194 |                      |      | 7,663 |                   |  | 6.76 | %              |  | $                    | 155,732 |                   |   | 8,852  |  | 7.58 | %
|Securities                                                       |  |                                 | 38,885  |                      |      | 1,225 |                   |  | 4.28 |                |  |                      | 40,394  |                   |   | 1,375  |  | 4.54 |  
|Other interest-earning assets (2)                                |  |                                 | 8,517   |                      |      | 297   |                   |  | 3.39 |                |  |                      | 4,170   |                   |   | 123    |  | 3.93 |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Total interest-earning assets                                    |  |                                 | 198,596 |                      |      | 9,185 |                   |  | 6.16 |                |  |                      | 200,296 |                   |   | 10,350 |  | 6.89 |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Noninterest-earning assets                                       |  |                                 | 18,075  |                      |      |       |                   |  |      |                |  |                      | 17,089  |                   |   |        |  |      |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Total assets                                                     |  | $                               | 216,671 |                      |      |       |                   |  |      |                |  | $                    | 217,385 |                   |   |        |  |      |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Interest-bearing liabilities:                                    |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|NOW, money-market and savings deposits                           |  |                                 | 74,510  |                      |      | 952   |                   |  | 1.70 |                |  |                      | 82,288  |                   |   | 1,717  |  | 2.78 |  
|Time deposits                                                    |  |                                 | 91,484  |                      |      | 3,078 |                   |  | 4.49 |                |  |                      | 80,625  |                   |   | 3,050  |  | 5.04 |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Total interest-bearing deposits                                  |  |                                 | 165,994 |                      |      | 4,030 |                   |  | 3.24 |                |  |                      | 162,913 |                   |   | 4,767  |  | 3.90 |  
|Borrowed funds                                                   |  |                                 | 14,521  |                      |      | 432   |                   |  | 3.97 |                |  |                      | 16,334  |                   |   | 566    |  | 4.62 |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Capitalized interest                                             |  |                                 |         |                      |      | (181  | )                 |  |      |                |  |                      |         |                   |   |       |  |      |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Total interest-bearing liabilities                               |  |                                 | 180,515 |                      |      | 4,281 |                   |  | 3.16 |                |  |                      | 179,247 |                   |   | 5,333  |  | 3.97 |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Noninterest-bearing demand deposits                              |  |                                 | 18,013  |                      |      |       |                   |  |      |                |  |                      | 20,058  |                   |   |        |  |      |  
|Noninterest-bearing liabilities                                  |  |                                 | 1,156   |                      |      |       |                   |  |      |                |  |                      | 1,630   |                   |   |        |  |      |  
|Stockholders equity                                             |  |                                 | 16,987  |                      |      |       |                   |  |      |                |  |                      | 16,450  |                   |   |        |  |      |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Total liabilities and stockholders equity                       |  | $                               | 216,671 |                      |      |       |                   |  |      |                |  | $                    | 217,385 |                   |   |        |  |      |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Net interest income                                              |  |                                 |         |                      | $    | 4,904 |                   |  |      |                |  |                      |         |                   | $ | 5,017  |  |      |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Interest-rate spread                                             |  |                                 |         |                      |      |       |                   |  | 3.00 | %              |  |                      |         |                   |   |        |  | 2.92 | %
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Net interest margin (3)                                          |  |                                 |         |                      |      |       |                   |  | 3.29 | %              |  |                      |         |                   |   |        |  | 3.34 | %
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  
|Ratio of interest-earning assets to interest-bearing liabilities |  |                                 | 1.10    |                      |      |       |                   |  |      |                |  |                      | 1.12    |                   |   |        |  |      |  
|                                                                 |  |                                 |         |                      |      |       |                   |  |      |                |  |                      |         |                   |   |        |  |      |  



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

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

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



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Comparison of the Three-Month Periods Ended September 30, 2008 and 2007

General Operating Results.Net loss for the quarter ended September 30, 2008 was ($318,000) or ($0.26) per
basic share compared to net earnings of $220,000 or $0.18 per basic share for the quarter ended September 30, 2007. The third quarter 2008 loss was caused by credit  related expenses including a $366,000 provision for loan losses, and
write downs of foreclosed property in the amount of $110,000 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 82.50%.

Interest Income. Interest income declined $595,000 to $3.0 million for the three month period ended
September 30, 2008, compared to $3.6 million for the three month period ended September 30, 2007. 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 $512,000 from $1.8 million for the three month period ended
September 30, 2007, to $1.3 million for the three month period ended September 30, 2008. 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 $366,000 and $34,000 for the three month period ending September 30, 2008 and 2007, respectively. During the three month
period ending September 30, 2008, the Company posted net charge offs of $388,000 to the allowance for loan losses, due primarily to loans that were written down to the market value of the collateral. At September 30, 2008, the allowance
for loan losses was $1,926,000 or 1.27% 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 $1,926,000 at September 30, 2008, is adequate.

Noninterest Income.Noninterest income decreased $45,000, from $417,000 for the three month period ended September 30, 2007, to $372,000, for the three month period ended September 30, 2008. The
decrease was primarily related to reductions in brokerage fees.

Noninterest Expense.Noninterest expense
increased $257,000, from $1.9 million for the three month period ended September 30, 2007, to $2.1 million for the three month period ended September 30, 2008. The increase was attributable to an increase in expenses related to foreclosed
property included in other expense.

Income Taxes.The Company benefited from an income tax credit of
$137,000 for the period ended September 30, 2008, compared to an income tax expense of $42,000 for the period ended September 30, 2007. The benefit is a direct result of a loss on operations.



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES



Comparison of the Nine-Month Periods Ended September 30, 2008 and 2007

General Operating Results.Net loss for the nine month period ended September 30, 2008, was ($496,000), or ($0.40)
per basic share, compared to net income of $555,000, or $0.45 per basic share for the comparable period in 2007. The net loss was a result of a provision for loan losses of $925,000, and the expense to carry foreclosed real estate of $133,000
included in other expense.

The Company does not have any sub-prime securities in its investment portfolio. The sustained level of liquidity
and conservative nature of investments helps offset the increased level of risk in the loan portfolio. The Company does not use brokered deposits and its loan to deposit ratio is 82.50%.

Interest Income.Interest income decreased $1.2 million to $9.2 million for the nine month period ended September 30,
2008, compared to $10.4 million for the nine month period ended September 30, 2007. The decrease was due to a drop in the average yield on earning assets from 6.89% to 6.16%, a decrease in average loans outstanding of $4.5 million, and the
reversal of interest on non-accrual loans of $ 147,000.

Interest Expense.Interest expense decreased $1
million to $4.3 million for the nine month period ended September 30, 2008, compared to $5.3 million for the nine month period ended September 30, 2007. The decrease was due to lower average yields on interest bearing liabilities, which
went from 3.97% to 3.16%.

Provision for Loan Losses.The provision for loan losses is charged to operations
to bring the total loan loss allowance to a level deemed appropriate by management. The provision is based upon the volume and type of lending conducted by the Company, industry standards, general economic conditions, particularly as they relate to
the Companys market area, and other factors related to the Companys loan portfolio. The Company recorded provisions for loan losses for the nine month periods ending September 30, 2008 and 2007 of $925,000 and $215,000,
respectively. During the nine month period ending September 30, 2008, the Company posted net charge offs of $883,000 to the allowance for loan losses, due primarily to loans that were written down to the market value of the collateral. At
September 30, 2008, the allowance for loan losses was $1,926,000 or 1.27% 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 that the allowance for loan losses of $1,926,000 at September 30, 2008, is adequate.

Noninterest Income.Noninterest income remained flat at $1.2 million for the period ending September 30, 2008 as
compared to September 30, 2007.

Noninterest Expense.Noninterest expense increased $683,000 to $6.0
million for the nine month period ended September 30, 2008, as compared to $5.4 million for the same period in 2007. The increase in expenses can be attributed to foreclosed real estate expenses of $133,000, consulting fees of $151,000,
regulatory assessments of $185,000 (all of which are included in other expense), and salaries and benefits expense increase of $167,000 from the comparable period in 2007.

Income Taxes.The Company benefited from an income tax credit of $388,000 for the nine month period ended
September 30, 2008, compared to an income tax expense of $69,000 for the nine month period ended September 30, 2007.



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES



Recent Developments

In response to the current financial crisis affecting the overall banking system and financial markets in the U.S. and around the world, on October 3, 2008 Congress passed, and the President signed into law, the Emergency Economic
Stabilization Act of 2008 (EESA). Under the EESA, the U.S. Department of the Treasury (Treasury) has the authority, among other things, to purchase up to $700 billion of mortgages, mortgage-backed securities and certain other
financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On
October 14, 2008, Treasury announced the availability through the Troubled Asset Relief Program (TARP), which was created as part of the EESA, of its voluntary Capital Purchase Program (CPP) for qualifying public
financial institutions such as U.S. controlled banks, savings associations, and certain bank and savings and loan holding companies. Under the CPP, Treasury has used $250 billion of its $700 billion available under the EESA to purchase $125 billion
of preferred stock in nine major financial institutions, the remaining $125 billion being made available for the purchase of preferred stock in additional qualifying financial institutions. Under the terms of the preferred stock program a
participating bank will pay a 5% per annum dividend on Treasurys preferred stock for the first five years and a 9% per annum dividend thereafter; will not be able to increase common stock dividends for three years without the consent
of Treasury while Treasury is an investor; will not be able to redeem Treasury preferred stock for three years unless the Bank raises fully qualifying Tier 1 capital; will have to obtain Treasurys consent to buy back its own stock; will grant
Treasury warrants entitling it to buy the Banks common stock equal to 15% of Treasurys total investment in the Bank; require the Bank executives to agree to certain compensation restrictions; and be subject to restrictions on the amount
of executive compensation which is tax deductible.

Although the Holding Company and the Bank meet all applicable regulatory capital requirements and the
Bank remains well capitalized, management and the Board of Directors determined that is in the Companys best interest to participate in the CPP. Accordingly, on November 14, 2008, the Holding Company will apply for up to $4.3 million
investment by Treasury. If approved, this investment by the Treasury could reduce the investment returns to the Companys shareholders by restricting increases in dividends paid on common stock without Treasurys consent and, by operation
of the warrants, could dilute existing shareholders interests.

In addition to the creation of the TARP, the EESA included a provision for an
increase in the amount of deposits insured by the Federal Deposit Insurance Corporation (FDIC) from $100,000 to $250,000 until December 2009. On October 14, 2008, the FDIC went further by announcing the Temporary Liquidity Guarantee
Program (TLGP). TLGP provides unlimited deposit insurance on funds in noninterest bearing transaction deposit accounts not otherwise covered by the existing deposit insurance limit of $250,000. Such noninterest bearing transaction
deposit accounts are initially insured at no cost to the institution for approximately seven weeks with coverage continuing through December 31, 2009, at a 10 bps fee on deposit amounts in excess of $250,000. Eligible institutions have a one
time opt-out option before the extra fee applies available until December 5, 2008.



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES



The Bank is an eligible institution and will not exercise the opt-out option. As a result, until December 31,
2009, noninterest bearing transaction deposit accounts held by the Bank will be insured in their entirety regardless of amount, and all other deposits held by the Bank will be insured up to $250,000. The increased deposit insurance limits are likely
to increase the Banks FDIC insurance costs.

Also under TLGP, newly issued senior unsecured debt issued on or before June 30, 2009, will be
fully insured in the event the issuing institution subsequently fails, or its Holding Company files for bankruptcy. The debt included in the program includes all newly issued unsecured senior debt, including promissory notes, commercial paper,
inter-bank funding, and any unsecured portion of secured debt. The aggregate coverage for an institution may not exceed 125% of the debt outstanding on September 30, 2008, that was scheduled to mature before June 30, 2009. The guarantee of
any newly issued debt will extend to June 30, 2012, even if the maturity of the debt is after that date. Such unsecured debt is initially insured at no cost to the institution for a period of approximately seven weeks with coverage continuing
at a 75 bps annualized fee. Institutions eligible to participate have a one time opt-out option before the extra fee applies available until December 5, 2008. At this time, it is managements intention not to opt-out of this program.

The actions described above, together with additional actions announced by Treasury and other regulatory agencies continue to develop. It is not clear at
this time what impact the EESA, TARP, TLGP or any of the other liquidity and funding initiatives of Treasury and other bank regulatory agencies that have been previously announced, and any additional programs that may be initiated in the future,
will have on the financial markets and the financial services industry. The extreme levels of volatility and limited credit availability currently being experienced could continue to affect the U.S. banking industry and the broader U.S. and global
economies, which may have an impact on all financial institutions, including the Company.



|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.



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES



Changes in Internal Controls Over Financial Reporting

There have been no changes in the Companys internal control over financial reporting during the first nine months of 2008 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.



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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



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INDEPENDENT BANCSHARES, INC. AND SUBSIDIARIES



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.

Date: November 12, 2008



INDEPENDENT BANCSHARES, INC.(Registrant)By:

/s/ Mark A. ImesName:

Mark A. Imes, President andChief Executive Officer(Principal Executive Officer)By:

/s/ Nicholas J. PanicaroName:

Nicholas J. Panicaro, Chief Financial Officer(Principal Financial and Accounting Officer)




22