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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

        Commission File Number: 0-10196

INDEPENDENT BANKSHARES, INC.
(Exact name of registrant as specified in its charter)

        (806) 749-1850
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

        Yes ý    No o

        Indicate the number of shares outstanding of each of the issuer's classes of common stock at June 30, 2002. Class: Common Stock, par value $0.25 per share Outstanding at June 30, 2001: 2,273,647 shares

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

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INDEPENDENT BANKSHARES, INC.
A WHOLLY OWNED SUBSIDIARY OF STATE NATIONAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(In Thousands)

See Accompanying Notes to Interim Consolidated Financial Statements.

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INDEPENDENT BANKSHARES, INC.
A WHOLLY OWNED SUBSIDIARY OF STATE NATIONAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE QUARTERS AND SIX MONTH PERIOD ENDED JUNE 30, 2002 AND 2001
(Unaudited)
(In Thousands)

See Accompanying Notes to Interim Consolidated Financial Statements.

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INDEPENDENT BANKSHARES, INC.
A WHOLLY OWNED SUBSIDIARY OF STATE NATIONAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED JUNE 30, 2002 and 2001
(Unaudited)
(In Thousands)

See Accompanying Notes to Interim Consolidated Financial Statements.

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INDEPENDENT BANKSHARES, INC.

NOTES TO INTERIMCONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

        For information with regard to significant accounting policies, reference is made to Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2001, which was filed with the Securities and Exchange Commission pursuant to Section 13 of the Securities and Exchange Act of 1934, as amended.

        The accompanying financial statements reflect all adjustments necessary to present a fair statement of the results for the interim periods presented, and all adjustments are of a normal recurring nature.

(2) Bank Mergers

        On February 28, 2001, State National Bancshares, Inc. ("State National"), the Company's sole shareholder, contributed its ownership interest in State National Bank of West Texas, Lubbock, Texas ("the Lubbock Bank"), an indirect wholly owned subsidiary of State National, to the Company. The Company in turn, contributed to Independent Financial Corp., a Delaware subsidiary of the Company, all of the capital stock of the Lubbock Bank. On March 9, 2001, the State National Bank of West Texas, Abilene, Texas (the "Abilene Bank"), an indirect wholly owned subsidiary of the Company, was merged (the "Lubbock Merger") with and into the Lubbock Bank. The Lubbock Bank continued as the surviving entity in the Lubbock Merger (the "Bank") and is an indirect wholly owned subsidiary of the Company. There was no merger consideration paid as, prior to the Lubbock Merger, the Abilene Bank and the Lubbock Bank were both direct or indirect subsidiaries of State National. The balance sheet and results of operations of the Lubbock Bank have been included in the Company's consolidated financial statements since August 11, 2000, the date of acquisition of the Company by State National. At August 11, 2000, the Lubbock Bank had total assets of $210,409,000, total deposits of $190,828,000, total loans of $121,130,000 and stockholder's equity of $18,405,000.

(3) Accumulated Other Comprehensive Income

        An analysis of accumulated other comprehensive income for the quarters and six-month periods ended June 30, 2002 and 2001, is as follows:

(4) Adoption of Accounting Standards and Goodwill Impairment

        The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also included guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed

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after June 30, 2001. Statement 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. Additionally, Statement 142 requires that goodwill included in the carrying value of equity method investments no longer be amortized.

        Statement 142 was effective for the Company's fiscal year beginning January 1, 2002. The implementation of Statement 142 resulted in the Company recording a one-time, non-cash, goodwill impairment charge of $15,642,000 during the first quarter of 2002. This charge reflects the cumulative effect of adopting the accounting change in the statement of operations, but does not affect the Company's operations and has no impact on cash flows. The application of the nonamortization provisions of Statement 142 is expected to result in an increase in net income before cumulative effect of a change in accounting principle of $865,000 pre tax for the six month period ended June 30, 2002 and $1,730,000 pre tax for the year ended 2002.

        Intangibles consist of the following:

        Aggregate Amortization Expense for each of the years ended December 31, is as follows:

        The changes in the carrying amount of goodwill for the six month period ended June 30, 2002 are as follows:

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        Substantial loan charge offs that occurred in 2001 were attributable to loans that existed on the books of IBK at the date of Acquisition of the Company by State National. As a result of charged-off loans, management of the Company required that other related loans be paid off thereby generating a further reduction in loans. The significant time devoted by management and various loan officers to identify and charge off problem loans and to facilitate the early pay offs of related loans resulted in a slowing of loan growth to new and existing customers of the Bank. The overall reduction in fair value of the Company resulting from those efforts caused an impairment of $15,642,000 to be calculated under the guidance established by Statement 142 and recorded in the first quarter of 2002 to the goodwill associated with the Acquisition. The fair value of the Company was calculated through a combination of the market comparison, asset value, earnings value and acquisition analysis methods by a third party.

        The following table adjusts earnings for the adoption of Statement 142.

(5) Subsequent Event

        On July 1, 2002 the Bank sold its branch in Bangs, Texas to an unrelated financial institution. At July 1, 2002 the branch had total assets of $1,609,000, total loans, net of allowance for loan loss of $1,263,000 and total deposits of $5,194,000. The effect of this transaction is not reflected in the financial statement presented in the report as of and for the period ended June 30, 2002.

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

        This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to Independent Bankshares, Inc. (the "Company", and at or prior to the date of the Acquisition, "IBK") and its subsidiaries that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such statements are intended to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and we are including this statement for purposes of invoking those safe harbor provisions. These forward-looking statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions, many of which are beyond the Company's control, related to certain factors including, without limitation, competitive factors, general economic conditions nationally and within the State of Texas, customer relations, the interest rate environment, governmental regulation and supervision, nonperforming asset levels, loan concentrations, changes in industry practices, acts of terrorism and war, one time events and other factors described herein. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.

The Company

        The Company is a bank holding company headquartered in Lubbock, Texas. The Company is an indirect wholly owned subsidiary of State National Bancshares, Inc., Lubbock, Texas ("State National"). State National acquired the Company at the close of business on August 11, 2000, in an all cash transaction (the "Acquisition"). At June 30, 2002, the Company owned all of the common securities of Independent Capital Trust ("Independent Capital") and indirectly owned through a Delaware subsidiary, Independent Financial Corp. ("Independent Financial"), 100% of the stock of State National Bank of West Texas, Lubbock, Texas (the "Bank"). At June 30, 2002, the Bank operated full-service banking locations in the Texas cities of Abilene (four locations), Azle (two locations), Bangs, Big Spring, Lubbock (three locations), Odessa (two locations), Plainview, San Angelo, Stamford, Trent and Winters. On July 1, 2002, the Bank sold its branch in Bangs, Texas to an unrelated financial institution. The Company is in the process of closing some of its smaller, immaterial branches in an effort to streamline its services and concentrate on the larger market areas.

General

        The following discussion and analysis presents the more significant factors affecting the Company's results of operations for each of the quarters and six-month periods ended June 30, 2002 and 2001, and the financial condition at June 30, 2002, and December 31, 2001. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements, notes thereto and other financial information appearing elsewhere in this quarterly report.

Analysis of Results of Operations

Net Income (Loss)

        Net income for the quarter ended June 30, 2002 amounted to $1,287,000 compared to net loss of $2,172,000 for the quarter ended June 30, 2001. Net income before cumulative effect of a change in accounting principle for the six month period ended June 30, 2002 was $2,133,000 compared to net loss before cumulative effect of a change in accounting principle of $3,249,000 for the six month period ended June 30, 2001. The increase in net income between the quarter ended June 30, 2002 and the

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quarter ended June 30, 2001 as well as the increase in net income before cumulative effect of a change in accounting principle for the six month period ended June 30, 2002 and the six month period ended June 30, 2001 was primarily due to the reversal of the provision for loan loss recorded in the quarter and six month period ended June 30, 2002 as compared to the loan loss provision recorded for the same periods in 2001 and the discontinuation of goodwill amortization beginning January 1, 2002 due to the adoption of FAS 142. Giving effect to the cumulative effect of a change in accounting principle, net loss for the six-month period ended June 30, 2002, was $13,509,000 compared to net loss of $3,249,000 for the six-month period ended June 30, 2001. The loss in the six month period ended June 30, 2002 was primarily due to a $15,642,000 impairment recorded in the first quarter of 2002 as a cumulative effect of a change in accounting principle, related to the adoption of Statement of Accounting Standards, No. 142 "Goodwill and Other Intangible Assets" ("FAS 142").

Net Interest Income

        Net interest income represents the amount by which interest income on interest-earning assets, including loans and securities, exceeds interest paid on interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is the principal source of the Company's earnings. Interest rate fluctuations, as well as changes in the amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income.

        Net interest income amounted to $5,636,000 for the second quarter of 2002, an increase of $588,000, or 11.65%, when compared to the second quarter of 2001. Net interest income for the second quarter of 2001 was $5,048,000. Net interest income for the first six months of 2002 was $11,399,000, an increase of $500,000, or 4.59%, when compared to net interest income of $10,899,000 for the first six months of 2001. Net interest margin on a fully taxable-equivalent basis increased from 3.54% for the second quarter of 2001 to 4.47% for the second quarter of 2002, as well as from 3.77% for the first six months of 2001 to 4.44% for the first six months of 2002. The decreases in the prime interest rate during 2001 began in January 2001. During the quarter and the six month period ended June 30, 2001, in which the prime interest rate decreased from 8.0% to 6.75% and from 9.5% to 6.75%, respectively, interest earning assets were repricing faster than interest bearing liabilities, thereby pulling the net interest margin at June 30, 2001 down. During the six month period ended June 30, 2002, there have been no reductions to the prime interest rate. This allowed the repricing lag effect of interest bearing liabilities to be reduced and creates an upward trend in the net interest margin from June 30, 2001 to June 30, 2002.

        At June 30, 2002, approximately $136,128,000, or 48.62%, of the Company's total loans, net of unearned income, were loans with floating interest rates. During 2001, loans with floating interest rates had been subjected to rapidly declining interest rates. In addition, total loans, net of unearned income, decreased $33,576,000 since June 30, 2001. The declining interest rates were the primary cause of the decrease in loan yields from 8.68% at June 30, 2001 to 7.23% at June 30, 2002.

        Security yields decreased from 6.74% at June 30, 2001 to 5.41% at June 30, 2002. This decrease was primarily caused by declines in yields in the bond market between the periods ended June 30, 2001 and June 30, 2002.

        These net changes caused the Company's overall yield on interest earning assets to decrease from 7.22% for the quarter ended June 30, 2001 to 6.12% for the quarter ended June 30 2002, and to decrease from 7.63% to 6.22% for the six month period ended June 30, 2001 and 2002, respectively.

        Average overall rates paid for various types of certificates of deposit decreased when comparing the first half of 2001 to the first half of 2002. For example, the average rate paid for certificates of deposit less than $100,000 decreased from 5.79% for the first half of 2001 to 3.24% for the first half of 2002, while the average rate paid by the Company for certificates of deposit of $100,000 or more also decreased from 6.09% during the first six months of 2001 to 3.46% during the first six months of 2002.

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        Rates on other types of deposits, such as interest-bearing demand, savings and money market deposits, also decreased from an average of 2.37% during the first half of 2001 to an average of 0.88% during the first half of 2002. These decreases were primarily caused by the rapidly declining interest rate environment, which existed during the time period from June 30, 2001 to June 30, 2002. These changes caused the Company's overall cost of interest-bearing deposits to decrease from 4.57% for the first six months of 2001 to 2.21% for the first six months of 2002.

        The following table presents the average balance sheets of the Company for the quarters and six-month periods ended June 30, 2002 and 2001, and indicates the interest earned or paid on the major categories of interest-earning assets and interest-bearing liabilities on a fully taxable-equivalent basis and the average rates earned or paid on each major category. This analysis details the

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contribution of interest-earning assets and the impact of the cost of funds on overall net interest income.