8-K/A 1 ibs8ka3901.txt ============================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A (Amendment No. 1) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 March 9, 2001 ---------------------------------------------------------------- Date of Report (Date of earliest event reported) Independent Bankshares, Inc. ---------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Texas 0-10196 75-1717279 ----------------- ---------- ------------- (State of Other (Commission (I.R.S. Employer Jurisdiction File Number) Identification No.) of Incorporation) 547 Chestnut Street P.O. Box 3296 Abilene, Texas 79604 --------------------------------------- -------- (Address of principal executive offices) (Zip Code) (915) 677-5550 ---------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ---------------------------------------------------------------- (Former name or former address, if changed since last report) ================================================================ The undersigned company hereby amends the following "Item 7. Financial Statements and Exhibits" of its Current Report on Form 8-K filed on March 23, 2001, dated March 9, 2001, to include the following: ITEM 7. Financial Statements and Exhibits. On March 9, 2001, State National Bank of West Texas, Abilene, Texas, the Company's subsidiary bank (formerly First State Bank, National Association, Abilene, Texas) (the "Abilene Bank"), was merged with and into State National Bank of West Texas, a national banking association (the "Bank") and wholly owned subsidiary of State National Bancshares, Inc. of Delaware ("State National - Delaware"). The Bank continued as the surviving entity in the merger. Immediately after the merger, State National - Delaware, a wholly owned subsidiary of State National Bancshares, Inc. ("SNBI"), and the owner of all of the common stock of Independent Bankshares, Inc. (the "Company"), contributed to the Company and the Company, in turn, contributed to Independent Financial Corp., its wholly owned subsidiary ("Independent Financial"), all of the capital stock of the Bank. The result of the transaction was that the Abilene Bank was merged into the Bank, which became an indirect wholly owned subsidiary of the Company. There was no merger consideration paid as, prior to the transactions, the Abilene Bank and the Bank were both direct or indirect wholly owned subsidiaries of SNBI. This Amendment to the Company's Current Report on Form 8-K dated March 9, 2001, contains audited financial statements of an acquired business, the Bank, as of December 31, 2000, and December 31, 1999, with the Report of Independent Accountants thereon. In addition, this Amendment contains the unaudited pro forma combined balance sheet of the Company (consolidated) and the Bank as of December 31, 2000, and the unaudited pro forma combined statements of operations of the Company and the Bank for the year ended December 31, 2000. The unaudited Pro Forma Financial Information of the Company (consolidated) and the Bank has been adjusted to give effect to the push down accounting associated with the acquisition of the Company by SNBI on August 11, 2000, and the subsequent merger of United Bank & Trust, Abilene, Texas, an indirect subsidiary of SNBI, with and into the Abilene Bank on November 13, 2000. 2 (a) Financial Statements of Business Acquired. Pursuant to paragraph (a)(4) of Item 7 of Form 8-K, the Registrant hereby files the following financial statements of State National Bank of West Texas as of and for the years ended December 31, 2000 and 1999, including the signed Report of Independent Auditors: Audited Financial Statements Page ---------------------------- ---- * Report of Independent Auditors 4 * Balance Sheets as of December 31, 2000 and 1999 5 * Statements of Operations for the Years 6 Ended December 31, 2000 and 1999 * Statements of Changes in Shareholder's Equity for the Years Ended December 31, 2000 and 1999 7 * Statements of Cash Flows for the Years Ended December 31, 2000 and 1999 8 * Notes to Financial Statements 9 3 Report of Independent Auditors Shareholders and Board of Directors State National Bancshares, Inc. We have audited the accompanying balance sheets of State National Bank of West Texas (the Bank), a wholly owned subsidiary of State National Bancshares, Inc., as of December 31, 2000 and 1999, and the related statements of operations, changes in shareholder's equity, and cash flows for the years then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of State National Bank of West Texas at December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young, LLP March 9, 2001 4 State National Bank of West Texas Balance Sheets (Dollars in thousands) December 31, ------------------ 2000 1999 ------- -------- Assets Cash and due from banks $ 10,643 $ 10,831 Federal funds sold 12,820 20,532 Interest-bearing deposits in other banks 500 - Securities: Available-for-sale 46,459 36,704 Held-to-maturity (estimated fair value of $13,495 and $18,956 in 2000 and 1999, respectively) 13,517 19,114 Loans, net 122,637 113,490 Premises and equipment, net 3,359 2,714 Accrued interest receivable and other assets 4,405 3,558 Intangible assets, net 2,381 2,601 -------- -------- Total assets $216,721 $209,544 ======== ======== Liabilities and Shareholder's Equity Deposits: Non-interest-bearing $ 29,572 $ 27,419 Interest-bearing 167,117 163,490 -------- -------- 196,689 190,909 Accrued interest payable 776 583 Other liabilities 592 512 -------- -------- Total liabilities 198,057 192,004 Shareholder's equity: Common stock, $5 par value: Authorized shares - 1,500,000 7,500 7,500 Issued shares - 1,500,000 in 2000 and 1999 Additional paid-in capital 10,500 10,500 Accumulated earnings 491 115 Accumulated other comprehensive income (loss) 173 (575) -------- -------- Total shareholder's equity 18,664 17,540 -------- -------- Total liabilities and shareholder's equity $216,721 $209,544 ======== ======== See accompanying notes. 5 State National Bank of West Texas Statements of Operations (Dollars in thousands) Year ended December 31, ------------------- 2000 1999 --------- -------- Interest income: Loans, including fees $ 10,926 $ 9,954 Securities 3,983 2,925 Deposits in other banks 27 9 Federal funds sold 707 616 --------- -------- Total interest income 15,643 13,504 Interest expense: Deposits 7,897 6,471 Federal funds purchased 7 - --------- -------- Total interest expense 7,904 6,471 --------- -------- Net interest income 7,739 7,033 Provision for loan losses 277 466 --------- -------- Net interest income after provision for loan losses 7,462 6,567 Non-interest income: Service charges on deposit accounts 698 522 Net realized gain (loss) on sale of investment securities (8) - Other 245 137 --------- -------- Total non-interest income 935 659 Non-interest expenses: Salaries and employee benefits 2,824 2,730 Net occupancy expense 381 288 Amortization of intangibles 220 246 Other 2,347 2,182 --------- -------- Total non-interest expenses 5,772 5,446 --------- -------- Income before income taxes 2,625 1,780 Income tax expense 899 605 --------- -------- Net income $ 1,726 $ 1,175 ========= ======== See accompanying notes. 6

See accompanying notes. 7 State National Bank of West Texas Statements of Cash Flows (Dollars in thousands) Year ended December 31, ---------------------- 2000 1999 ---------- --------- Operating Activities Net income $ 1,726 $ 1,175 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 277 466 Depreciation and amortization 552 611 Loss (gain) on sale of premises and equipment 2 (2) Net loss (gain) on sale of investment securities 8 - Deferred income taxes (12) (109) Write-down of premises and equipment - 63 Net amortization of premium (discounts) on securities 206 326 Net change in other assets and liabilities (946) (298) -------- -------- Net cash provided by operating activities 1,813 2,232 -------- -------- Investing Activities Purchases of securities available-for- sale (12,842) (28,385) Proceeds from maturities and prepayments of securities available- for-sale 4,075 5,911 Proceeds from maturities and prepayments of securities held-to- maturity 5,527 8,649 Net increase (decrease) in loans (9,424) 150 Purchase of premises and equipment, net (978) (269) -------- -------- Net cash used in investing activities (13,642) (13,944) -------- -------- Financing Activities Net increase in deposits 5,779 21,635 Payment of cash dividends (1,350) (750) -------- -------- Net cash provided by financing activities 4,429 20,885 -------- -------- Net increase (decrease) in cash and cash equivalents (7,400) 9,173 Cash and cash equivalents, beginning of period 31,363 22,190 -------- -------- Cash and cash equivalents, end of period $ 23,963 $ 31,363 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 7,711 $ 6,414 Income taxes 808 471 Non-cash transactions: Transfer of loans to repossessed assets available for sale - 109 See accompanying notes. 8 State National Bank of West Texas Notes to Financial Statements 1. Operations and Summary of Significant Accounting Policies Organization and Nature of Business State National Bancshares, Inc. (SNBI), a Texas bank holding company, was incorporated on March 8, 1996 and subsequently acquired 100% of the outstanding stock of State National Bancshares of Delaware, Inc. (SNB Delaware), a subsidiary bank holding company incorporated in Delaware in 1996. SNB Delaware owned 100% of the outstanding stock of State National Bank of West Texas (SNB West Texas), a national bank that opened on October 1, 1996 and two other commercial banking subsidiaries. The accompanying financial statements include the accounts of SNB West Texas (the Bank). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Pending Adoption of Accounting Standards During 1999, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133, which deferred the required adoption date of SFAS 133 to fiscal years beginning after June 15, 2000. SFAS 133, Accounting for Derivative Instruments and Hedging Activities, will require the recognition of all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Bank currently owns no significant derivative financial instruments and does not engage in hedging activities. As a result, the adoption of SFAS 133 on January 1, 2001, did not have a material effect on the Bank's financial position or results of operations. Cash and Cash Equivalents Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, and federal funds sold. Securities The Bank determines the appropriate classification of debt securities at the time of purchase. Debt securities are classified as held-to-maturity (HTM) when the Bank has the positive intent and ability to hold the securities to maturity. HTM securities are stated at amortized cost. Debt securities not classified as HTM are classified as available-for-sale (AFS). AFS securities are stated at estimated fair value with unrealized gains and losses, net of income taxes, reported as part of comprehensive income. The Bank has no trading securities. 9 1. Operations and Summary of Significant Accounting Policies (continued) The amortized cost of debt securities classified as HTM or AFS is adjusted for amortization of premiums and accretion of discounts. The cost of AFS securities sold is based on the specific identification method. Realized gains and losses and declines in value judged to be other than temporary are included in the results of operations. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal reduced by unearned discount and an allowance for loan losses. Unearned discount on installment loans is recognized as interest income over their estimated lives, using a method which approximates the interest method. Interest on other loans is recognized using the simple-interest method on the daily balances of the principal amounts outstanding. The accrual of interest on impaired loans is discontinued when there is a clear indication that the borrower's cash flow may not be sufficient to meet payments as they become due. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on the cash basis. The allowance for loan losses on impaired non-homogeneous loans is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the underlying collateral. A non-homogeneous loan is considered impaired when, based on current information and events, it is probable that the bank will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement. Allowance for Loan Losses The allowance for loan losses is increased by provision for loan losses and decreased by chargeoffs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay, the estimated value of any underlying collateral, and current economic conditions. The allowance for loan losses is comprised of three elements which include: 1) allowances established on specific loans, 2) allowances based on loss experience and trends in pools or loans with similar characteristics, and 3) unallocated allowances based on general economic conditions and other internal and external risk factors in the Bank's individual markets. The total allowance for loan losses includes activity related to allowances calculated in accordance with SFAS No. 114 and in accordance with SFAS No. 5. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 40 years. Gains or losses on disposals of premises and equipment are included in results of operations. Assets held for future banking purposes are not depreciated until placed in service. Other Real Estate Real estate and other repossessed assets acquired in settlement of loans are initially recorded at the lower of the loan balance or the estimated collateral fair value. Any excess of the loan balance over the estimated collateral fair value is charged to the allowance for loan losses. The carrying value of other real estate is periodically evaluated by management and is reduced to estimated fair value, less costs to dispose, as appropriate. Other real estate was not significant at December 31, 2000 or 1999. 10 1. Operations and Summary of Significant Accounting Policies (continued) Intangible Assets Acquisitions of other banks' deposits and fixed assets accounted for as purchases generally result in recording intangible assets such as core deposit intangibles and goodwill. Core deposit intangibles are amortized over a 10-year life using an accelerated method. The excess of cost over fair value of net identifiable assets of businesses acquired (goodwill) is amortized on a straight-line basis over 15 to 20 years. Accumulated amortization related to intangibles totaled approximately $659,000 and $439,000 at December 31, 2000 and 1999, respectively. All intangible assets are evaluated periodically to determine recoverability of their carrying value. Income Taxes The Bank files a consolidated federal income tax return with its parent, SNBI, and other wholly owned SNBI subsidiaries. Taxes are computed in accordance with a tax allocation agreement between the Bank, SNBI, and other SNBI subsidiaries whereby current and deferred tax provisions approximate the amounts of each separate company's tax liability. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting bases and tax bases of assets and liabilities. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recorded as appropriate. Advertising Advertising costs are expensed as incurred. The total amount charged to advertising expense for the years ended December 31, 2000 and 1999,was approximately $95,000 and $122,000, respectively. 2. Securities The following is a summary of AFS securities and HTM securities at December 31, 2000 (in thousands):

11 2. Securities (continued) The following is a summary of AFS securities and HTM securities at December 31, 1999 (in thousands):

The amortized cost and estimated fair value of securities at December 31, 2000, are presented below by contractual maturity (in thousands).

Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. Securities with carrying values of approximately $17,554,000 and $18,823,000 were pledged to secure certain deposits at December 31, 2000 and 1999, respectively. Gross realized losses of $8,000 and $-0- were recorded on sales and prepayments of available-for-sale securities in 2000 and 1999, respectively. 12 3. Loans and Allowance for Loan Losses The Bank is primarily involved in real estate, commercial, and consumer lending activities with customers primarily in the West Texas area. Although the Bank has a diversified portfolio, its debtors' ability to honor their loan contracts is substantially dependent upon the general economic conditions of the region, which consist primarily of agribusiness, manufacturing, wholesale/retail and health care industries, and institutions of higher education. Loans at December 31, 2000 and 1999, are summarized by category as follows (in thousands): 2000 1999 -------- -------- Commercial $ 53,022 $ 38,209 Agricultural 45,315 25,112 Real estate 8,669 28,162 Installment 16,863 22,426 Other - 579 -------- -------- 123,869 114,488 Deferred dealer premiums and loan costs 249 545 Allowance for loan losses (1,481) (1,543) -------- -------- Loans, net $122,637 $113,490 ======== ======== The changes in the allowance for loan losses during the years ended December 31, 2000 and 1999, are summarized as follows (in thousands): 2000 1999 ------- ------- Balance, beinning of year $1,543 $1,387 Provision for loan losses 277 466 Loans charged off to allowance (379) (330) Recoveries 40 20 ------ ------ Balance at end of year $1,481 $1,543 ====== ====== During the normal course of business, the Bank may enter into transactions with related parties, including their officers, employees, directors, significant shareholders, and their related affiliates. It is the Bank's policy that all such transactions are on substantially the same terms as those prevailing at the time for comparable transactions with others. There were loans outstanding, both directly and indirectly, to this group of approximately $6,686,000 and $7,191,000 at December 31, 2000 and 1999, respectively. At December 31, 2000 and 1999, loans identified as being impaired consisted of non-homogeneous loans placed on non-accrual status. At December 31, 2000 and 1999, the recorded investment in loans that are considered to be impaired under FAS 114 was approximately $250,000 and $278,000, respectively. These did not have a specific related reserve for loan losses at December 31, 2000 and 1999, respectively. The approximate effect of such non-earning assets was a loss of interest income of approximately $26,000 and $24,000 for the years ended December 31, 2000 and 1999, respectively. Payments received on these loans are first applied to principal, and interest is applied at the end of the note term. There was no interest income recognized on these loans for the years ended December 31, 2000 and 1999, respectively. 13 4. Premises and Equipment Premises and equipment at December 31, 2000 and 1999, are summarized as follows (in thousands): 2000 1999 ------- ------ Land $ 609 $ 516 Premises 1,944 1,564 Furniture and equipment 1,718 1,403 ------ ------ 4,271 3,483 Accumulated depreciation (912) (769) ------ ------ $3,359 $2,714 ====== ====== Depreciation expense amounted to approximately $332,000 and $327,000 at December 31, 2000 and 1999, respectively. 5. Interest-Bearing Deposits At December 31, 2000 and 1999, interest-bearing deposits of $100,000 or more were approximately $43,504,000 and $39,372,000, respectively. At December 31, 2000, the scheduled maturities of interest- bearing time deposits are as follows (in thousands): 2001 $ 97,109 2002 6,849 2003 2,869 2004 563 2005 177 Thereafter 17 -------- $107,584 ======== 6. Income Taxes The components of the provision for income taxes are (in thousands): 2000 1999 ------- ------- Current income tax expense $ 913 $ 714 Deferred income tax (benefit) (14) (109) ------- ------ Income tax expense $ 899 $ 605 ======= ====== 14 6. Income Taxes (continued) The following is a reconciliation of the difference between income tax expense (benefit) as reported and the amount computed by applying the statutory income tax rate to income before income taxes (in thousands): 2000 1999 ------- ------- Income before income taxes $2,625 $1,780 Statutory rate 34% 34% ------ ------- Income tax expense at statutory rate 893 605 Non-deductible meals and entertainment expenses 3 - Other, net 3 - ------ ------- Income tax expense as reported $ 899 $ 605 ====== ======= The components of the Bank's deferred tax assets and liabilities at December 31, 2000 and 1999, consist of the following (in thousands): 2000 1999 ------- ------- Deferred tax assets: Premises and Equipment $ 33 $ 18 Allowance for loan losses 504 525 Unrealized loss on securities available-for-sale - 296 Other, net 13 17 ------ ------- 550 856 ------ ------- Deferred tax liabilities: Unrealized gain on securities available-for-sale 89 - Bad debt reserve recapture 83 107 ------ ------- 172 107 ------ ------- Net deferred tax asset $ 378 $ 749 ====== ======= The Bank has recorded no valuation allowance on deferred tax assets as it believes that it is more likely than not that all of a deferred tax asset will be realized. 7. Employee Benefits The Bank participates in the 401(k) profit sharing plans of SNBI to provide retirement benefits for its employees. The Bank contributed $63,600 and $63,500 to its employees 401(k) plan obligation for the years ended December 31, 2000 and 1999, respectively. 8. Financial Instruments with Off-Balance Sheet Risk The Bank is 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 commitments to extend credit and standby letters-of-credit, which involve varying degrees of credit risk in excess of the amount recognized in the balance sheets. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters-of-credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on- balance sheet instruments. 15 8. Financial Instruments with Off-Balance Sheet Risk (continued) Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit-worthiness on a case-by-case basis. Standby letters-of-credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters-of-credit is essentially the same as that involved in extending loan facilities to customers. December 31, ------------------ 2000 1999 ------- --------- Financial instruments whose contract amounts represent credit risk (in thousands): Commitments to extend credit $32,670 $44,304 Standby letters-of-credit 664 628 9. Regulatory Restrictions The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the banks' assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2000, that the Bank meets all capital adequacy requirements to which it is subject. 16 9. Regulatory Restrictions (continued) As of December 31, 2000, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized or adequately capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios, as set forth in the tables below.

Dividends that may be paid by the Bank are routinely restricted by various regulatory authorities. The amount that can be paid in any calendar year without prior approval of the Bank's regulatory agencies cannot exceed the lesser of net profits (as defined) for that year plus the net profits for the preceding two calendar years, or retained earnings. At December 31, 2000, without regulatory approval, approximate dividends available to SNBI from the Bank totaled $491,000. 17 10. Fair Values of Financial Instruments Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments (SFAS 107), requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. SFAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. This disclosure does not and is not intended to represent the fair value of the Bank. A summary of the carrying amounts and estimated fair values of financial instruments at December 31, 2000 and 1999, is as follows (in thousands): 2000 1999 ------------------- -------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value -------- ----------- --------- ---------- Cash and cash equivalents $23,963 $23,963 $31,363 $31,363 Securities: Available- for-sale 46,459 46,459 36,704 36,704 Held-to- maturity 13,517 13,495 19,114 18,956 Loans, net 122,637 124,764 113,490 112,573 Deposits 196,689 196,583 190,909 190,785 The following methods and assumptions were used by the Bank in estimating its fair value disclosures for financial instruments. Cash and Cash Equivalents The carrying amounts reported in the balance sheets for cash and short-term investments approximate their fair value. Securities The fair value of investment securities is based on prices obtained from independent pricing services, which are based on quoted market prices for the same or similar securities. Loans For variable-rate loans that reprice frequently with no significant change in credit risk, fair values are generally based on carrying values. The fair value for other loans is estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximated its fair value. Deposits SFAS 107 defines the fair value of demand deposits as the amount payable on demand, and prohibits adjusting fair value for any deposit base intangible. The deposit base intangible is not considered in the fair value amounts. The carrying amounts for variable-rate money market accounts approximate their fair value. Fixed-term certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities. 18 10. Fair Values of Financial Instruments (continued) Off-Balance Sheet Instruments Fair values for the Bank's off-balance sheet instruments, which consist of lending commitments and standby letters of credit, are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. Management believes that the fair value of these off-balance sheet instruments is not material. 11. Commitments and Contingencies The Bank is involved in various litigation proceedings incidental to the ordinary course of business. In the opinion of management, the ultimate liability, if any, resulting from such litigation would not be material in relation to the Bank's financial condition, results of operations, or liquidity. The Bank has certain noncancelable operating leases for certain branch facilities. Rent expense incurred under operating leases amounted to $125,000 and $65,000 for the years ended December 31, 2000 and 1999, respectively. Minimum future lease payments under operating leases are as follows (in thousands): Minimum Year ending December 31 Payments ------------------------ ----------- 2001 $116,000 2002 105,000 2003 95,000 2004 48,000 2005 and thereafter - -------- $364,000 ======== 12. Related Party Transactions There are parent-subsidiary relationships among the Bank, SNBI and other SNBI subsidiaries. Further, there are common directors and officers of the related entities. In the ordinary course of business, the Bank has loans, deposits and other transactions with directors and officers of various related entities. It is the Bank's policy that all such transactions are entered into on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties. 13. Subsequent Events (Unaudited) On March 9, 2001, SNB Abilene, an indirect subsidiary bank of Independent Bankshares, Inc. (IBK), was merged with and into the Bank. The Bank continued as the surviving entity in the merger. Immediately after the merger, SNBI, the indirect owner of all of the common stock of IBK, caused to be contributed to IBK and IBK, in turn, contributed to Independent Financial Corp., its wholly owned subsidiary, all of the capital stock of the Bank. The result of the transaction was that SNB Abilene was merged into the Bank, which became an indirect wholly owned subsidiary of IBK. There was no merger consideration paid as, prior to the transactions, the Bank and SNB Abilene were both direct or indirect wholly owned subsidiaries of SNBI. 19 13. Subsequent Events (Unaudited) (continued) SNB Abilene is a community bank that offers interest and non- interest bearing depository accounts, and makes consumer and commercial loans. At March 9, 2001, SNB Abilene had total assets of $479,870,000, total deposits of $398,345,000, total loans, net of unearned income, of $231,458,000 and stockholder's equity of $74,756,000. At March 9, 2001, the Bank had total assets of $217,205,000, total deposits of $196,809,000, total loans, net of unearned income, of $116,523,000 and stockholder's equity of $19,086,000. 20 (b) Pro Forma Financial Information Pursuant to paragraph (b)(2) of Item 7 of Form 8-K, the Company hereby files the following unaudited pro forma financial information: * Introductory Paragraphs............................ 21 * Pro forma Combined Balance Sheet as of December 31, 2000(unaudited).................... 22 * Pro forma Combined Statement of Operations for the Year Ended December 31, 2000, for the Company (consolidated) and for the Bank (unaudited)....... 23 Introductory Paragraphs The unaudited pro forma combined balance sheet at December 31, 2000 combines historical financial information of the Company and the Bank at December 31, 2000, as if the merger of the Abilene Bank, with and into the Bank had occurred on December 31, 2000. The unaudited pro forma combined statement of operations for the year ended December 31, 2000 combines historical financial information of the Company (consolidated) and the Bank for the year ended December 31, 2000 as if the merger of the Abilene Bank with and into the Bank had occurred on January 1, 2000. The pro forma financial statements do not purport to represent what the companies' financial position or results of operations would have been if the merger in fact had occurred on January 1, 2000, or to project the companies' financial position or results of operations for any future date or period. The pro forma adjustments are based upon available information and upon certain assumptions as described in the pro forma financial statements that the Company believes are reasonable in the circumstances. The purchase price, including costs incurred by SNBI associated with the acquisition of the Company, has been allocated to net assets acquired based on preliminary estimates of their fair values. Amounts may be subsequently revised. The pro forma data should be read in conjunction with the notes to the unaudited pro forma combined financial information and the historical audited and unaudited financial statements and notes thereto of the Bank. 21

(A) To reflect the contribution of the common stock of the Bank to the Company. 22

23 (A) Reflects the impact of pro forma adjustments related to SNBI's acquisition of the Company as of August 11, 2000, as if the acquisition had been consummated on January 1, 1999, and the amortization of the purchase accounting adjustments had been pushed down to the Company. Accordingly, reflects the pro forma adjustments from January 1, 2000, to August 11, 2000, as the historical amounts from August 12, 2000, to December 31, 2000, are included in the Company's historical consolidated amounts. (B) Reflects the pro forma effect of the contribution of United Bank & Trust ("UB&T") to the Company by SNBI on November 13, 2000. The historical UB&T results presented herein reflect UB&T results of operations from January 1, 2000, through August 11, 2000, because UB&T's results of operations are already included in the Company's historical consolidated amounts from August 12, 2000, to December 31, 2000. (C) Reflects the pro forma impact related to a purchase price adjustment made to adjust certain long term fixed rate loans of the Company to a market interest rate of 10%. (D) Reflects the amortization of goodwill of $26,433,000 amortized over 20 years, plus pro forma amortization expense of $984,000 related to the acquired core deposit intangible ($12,598,000) less amortization expense of $845,000 recorded on the historical financial statements. (E) Reflects the pro forma accretion of the premium on the Trust Preferred Securities of Independent Capital Trust to adjust the effective rate on the Trust Preferred Securities from the stated rate of 8.5% to a market rate of 10.26%. (F) Reflects the tax benefit of the above pro forma adjustments using an effective rate of 34%, excluding goodwill amortization expense of $810,000 which is not deductible. (G) Reflects the pro forma effect of the March 9, 2001, merger of the Abilene Bank with and into the Bank and the subsequent contribution of the Bank to the Company. The historical results presented herein reflect the results of operations from January 1, 2000, through December 31, 2000, for the Bank. 24 (c) Exhibits Exhibit No. Document Description ----------- -------------------- 2.1 Agreement and Plan of Merger dated February 21, 2001, but effective March 9, 2001, between State National Bank of West Texas and State National Bank of West Texas, Abilene, Texas (previously filed). 25 SIGNATURE 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. INDEPENDENT BANKSHARES, INC. Date: May 11, 2001 By: /s/Randal N. Crosswhite ----------------------- Randal N. Crosswhite Chief Financial Officer 26

INDEPENDENT BANKSHARES INC 8-K/A