The allowance for probable loan losses primarily consists of the aggregate loan loss allowances of the bank subsidiaries. The allowances are established through charges to operations in the form of provisions for probable loan losses. Loan losses or recoveries are charged or credited directly to the allowances. The allowance for probable loan losses of each bank subsidiary is maintained at a level considered appropriate by management, based on estimated probable losses in the loan portfolio. The allowance for probable loan losses is derived from the following elements: (i) allowances established on specific loans, which are based on a review of the individual characteristics of each loan, including the customer's ability to repay the loan, the underlying collateral values, and the industry the customer operates in, (ii) allowances based on actual historical loss experience for similar types of loans in the Company's loan portfolio, and (iii) allowances based on general economic conditions, changes in the mix of loans, company resources, border risk and credit quality indicators, among other things. All segments of the loan portfolio continue to be impacted by the prolonged economic downturn. Loans secured by real estate could be impacted negatively by the continued economic environment and resulting decrease in collateral values. Consumer loans may be impacted by continued and prolonged unemployment rates.

The Company's management continually reviews the allowance for loan losses of the bank subsidiaries using the amounts determined from the allowances established on specific loans, the allowance established on quantitative historical loss percentages, and the allowance based on qualitative data to establish an appropriate amount to maintain in the Company's allowance for loan loss. Should any of the factors considered by management in evaluating the adequacy of the allowance for probable loan losses change, the Company's estimate of probable loan losses could also change, which could affect the level of future provisions for probable loan losses. While the calculation of the allowance for probable loan losses utilizes management's best judgment and all information available, the adequacy of the allowance is dependent on a variety of factors beyond the Company's control, including, among other things, the performance of the entire loan portfolio, the economy, changes in interest rates and the view of regulatory authorities towards loan classifications.

The specific loan loss provision is determined using the following methods. On a weekly basis, loan past due reports are reviewed by the servicing loan officer to determine if a loan has any potential problems and if a loan should be placed on the Company's internal classified report. Additionally, the Company's credit department reviews the majority of the Company's loans regardless of whether they are past due and segregates any loans with potential problems for further review. The credit department will discuss the potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the evaluation. Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the review process. After the above analysis is completed, the Company will determine if a loan should be placed on an internal classified report because of issues related to the analysis of the credit, credit documents, collateral and/or payment history.

While the Texas and Oklahoma economies are performing better and appear to be recovering faster than other parts of the country, Texas and Oklahoma are not completely immune to the problems associated with the U.S. economy. Thus, the risk of loss associated with all segments of the loan portfolio in these markets continues to be impacted by the prolonged economic downturn. The downturn in the economy and other risk factors are minimized by the underwriting standards of the bank subsidiaries. The general underwriting standards encompass the following principles: (i) the financial strength of the borrower including strong earnings, a high net worth, significant liquidity and an acceptable debt to worth ratio, (ii) managerial and business competence, (iii) the ability to repay, (iv) for a new business, projected cash flows, (v) loan to value, (vi) in the case of a secondary guarantor, a guarantor financial statement, and (vii) financial and/or other character references. Although the underwriting standards reduce the risk of loss, unique risk factors exist in each type of loan that the bank subsidiaries invest.

Commercial and industrial loans are mostly secured by the collateral pledged by the borrower that are directly related to the business activities of the company such as accounts receivable and inventory. The ability of the borrower to collect accounts receivable, and to turn inventory into sales are risk factors in the repayment of the loan.

Construction and land development loans can carry risk of repayment when projects incur cost overruns, have an increase in the price of building materials, encounter zoning and environmental issues, or encounter other factors that may affect the completion of a project on time and on budget. Additionally, repayment risk may be negatively impacted when the market experiences a deterioration in the value of real estate. Risks specifically related to 1-4 family development loans also include the practice by the mortgage industry of more restrictive underwriting standards, which inhibits the buyer from obtaining long term financing, and excessive housing and lot inventory in the market.

Commercial real estate loans demonstrate a risk of repayment when market values deteriorate, the business experiences turnover in key management, the business has an inability to attract or keep occupancy levels stable, or when the market experiences an exit of a specific business industry that is significant to the local economy, such as a manufacturing plant.

First and second lien residential 1-4 family mortgage and consumer loan repayments may be affected by unemployment or underemployment and deteriorating market values of real estate.

A summary of the transactions in the allowance for probable loan losses by loan class is as follows:

	December 31, 2011

	Domestic
	Commercial			Commercial real estate: other construction & land development			Commercial real estate: farmland & commercial			Commercial real estate: multifamily		Residential: first lien			Residential: junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at December 31,	$	22,046		$	26,695		$	16,340		$	53	$	10,059		$	2,611		$	6,241		$	437		$	84,482
Losses charge to allowance		(16,130	)		(1,467	)		(1,955	)		—		(805	)		(1,304	)		(1,067	)		(171	)		(22,899	)
Recoveries credited to allowance		4,126			171			296			—		28			300			211			159			5,291

Net losses charged to allowance		(12,004	)		(1,296	)		(1,659	)		—		(777	)		(1,004	)		(856	)		(12	)		(17,608	)
Provision (credit) charged to operations		16,575			(5,459	)		9,546			950		(4,720	)		3,153			(3,661	)		934			17,318

Balance at December 31,	$	26,617		$	19,940		$	24,227		$	1,003	$	4,562		$	4,760		$	1,724		$	1,359		$	84,192

The allowance for probable loan losses is a reserve established through a provision for probable loan losses charged to expense, which represents management's best estimate of probable loan losses when evaluating loans (i) individually or (ii) collectively. The Company's provision for probable loan losses decreased for the year ended December 31, 2011 mainly due to a decrease in the Company's charge-off experience and a decrease in the loan portfolio. The Company's provision for probable loan losses decreased for the year ended December 31, 2010 mainly due to the decrease in the required reserves for impaired loans analyzed on an individual basis. The impaired loans have been measured based on the fair value of collateral. The majority of these loans show a fair value greater than the carrying value. The Company's provision for probable loan losses increased for the year ended December 31, 2009, prompted by the analysis of management regarding the weakness in the overall economy and the impact of that weakness on the Company's loan portfolio and the related allowance for probable loan losses.

The table below provides additional information on the balance of loans individually or collectively evaluated for impairment and their related allowance, by loan class:

	December 31, 2011

	(Dollars in Thousands)
	Loans individually evaluated for impairment				Loans collectively evaluated for impairment
	Recorded Investment		Allowance		Recorded Investment		Allowance
Domestic
Commercial	$	27,603	$	14,402	$	746,213	$	12,215
Commercial real estate: other construction & land development		60,428		3,073		1,212,961		16,867
Commercial real estate: farmland & commercial		42,231		9,754		1,622,456		14,473
Commercial real estate: multifamily		411		—		121,188		1,003
Residential: first lien		2,290		23		493,432		4,539
Residential: junior lien		1,962		—		398,186		4,760
Consumer		1,334		—		92,775		1,724
Foreign		46		—		229,959		1,359

Total	$	136,305	$	27,252	$	4,917,170	$	56,940

	December 31, 2010

	(Dollars in Thousands)
	Loans individually evaluated for impairment				Loans collectively evaluated for impairment
	Recorded Investment		Allowance		Recorded Investment		Allowance
Domestic
Commercial	$	23,426	$	8,138	$	807,098	$	13,908
Commercial real estate: other construction & land development		77,207		592		1,396,264		26,103
Commercial real estate: farmland & commercial		21,844		3,441		1,666,719		12,899
Commercial real estate: multifamily		473		—		96,318		53
Residential: first lien		2,015		—		531,440		10,059
Residential: junior lien		199		—		415,328		2,611
Consumer		29		—		126,018		6,241
Foreign		7		—		245,618		437

Total	$	125,200	$	12,171	$	5,284,803	$	72,311

Loans accounted for on a non-accrual basis at December 31, 2011, 2010 and 2009 amounted to $118,505,000, $108,030,000 and $68,338,000, respectively. The effect of such non-accrual loans reduced interest income by $4,114,000, $3,750,000 and $4,011,000 for the years ended December 31, 2011, 2010 and 2009, respectively. Amounts received on non-accruals are applied, for financial accounting purposes, first to principal and then to interest after all principal has been collected. Accruing loans contractually past due 90 days or more as to principal or interest payments at December 31, 2011, 2010 and 2009 amounted to $14,288,000, $19,848,000 and $12,089,000, respectively.

The table below provides additional information on loans accounted for on a non-accrual basis by loan class:

	December 31,

	2011		2010
	(Dollars in Thousands)
Domestic
Commercial	$	26,819	$	22,614
Commercial real estate: other construction & land development		54,336		77,207
Commercial real estate: farmland & commercial		34,910		5,486
Commercial real estate: multifamily		411		473
Residential: first lien		1,848		2,015
Residential: junior lien		135		199
Consumer		46		29
Foreign		—		7

Total non-accrual loans	$	118,505	$	108,030

Impaired loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected. The Company has identified these loans through its normal loan review procedures. Impaired loans are measured based on (1) the present value of expected future cash flows discounted at the loan's effective interest rate; (2) the loan's observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company's impaired loans are measured at the fair value of the collateral. In limited cases the Company may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent.

The following tables detail key information regarding the Company's impaired loans by loan class for the year ended December 31, 2011:

	December 31, 2011

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	24,108	$	24,108	$	14,402	$	24,145	$	41
Commercial real estate: other construction & land development		34,417		34,432		3,073		34,709		—
Commercial real estate: farmland & commercial		28,636		28,671		9,754		28,883		817
Residential: first lien		208		208		23		214		—

Total impaired loans with related allowance	$	87,369	$	87,419	$	27,252	$	87,951	$	858

	December 31, 2011

	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	3,495	$	3,932	$	3,942	$	20
Commercial real estate: other construction & land development		26,011		26,112		27,722		128
Commercial real estate: farmland & commercial		13,595		15,394		16,271		102
Commercial real estate: multifamily		411		411		439		—
Residential: first lien		2,082		2,220		2,230		27
Residential: junior lien		1,962		1,970		1,980		118
Consumer		1,334		1,338		1,729		—
Foreign		46		46		46		4

Total impaired loans with no related allowance	$	48,936	$	51,423	$	54,359	$	399

The following tables detail key information regarding the Company's impaired loans by loan class for the year ended December 31, 2010:

	December 31, 2010

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	23,062	$	23,071	$	8,138	$	23,096	$	42
Commercial real estate: other construction & land development		10,603		10,645		592		10,622		—
Commercial real estate: farmland & commercial		17,841		17,878		3,441		18,475		860

Total impaired loans with related allowance	$	51,506	$	51,594	$	12,171	$	52,193	$	902

	December 31, 2010

	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	364	$	980	$	993	$	30
Commercial real estate: other construction & land development		66,604		66,755		68,608		2
Commercial real estate: farmland & commercial		4,003		5,606		5,594		—
Commercial real estate: multifamily		473		473		500		—
Residential: first lien		2,015		2,143		2,297		—
Residential: junior lien		199		226		228		—
Consumer		29		46		49		—
Foreign		7		7		19		—

Total impaired loans with no related allowance	$	73,694	$	76,236	$	78,288	$	32

The following table details key information regarding the Company's impaired loans for the year ended December 31, 2009:

The average recorded investment in impaired loans was $142,310,000, $130,481,000, and $149,528,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

A portion of the impaired loans have adequate collateral and credit enhancements not requiring a related allowance for loan loss. The level of impaired loans is reflective of the economic weakness that has been created by the financial crisis and the subsequent economic downturn. Management is confident the Company's loss exposure regarding these credits will be significantly reduced due to the Company's long-standing practices that emphasize secured lending with strong collateral positions and guarantor support. Management is likewise confident the reserve for probable loan losses is adequate. The Company has no direct exposure to sub-prime loans in its loan portfolio, but the sub-prime crisis has affected the credit markets on a national level, and as a result, the Company has experienced an increasing amount of impaired loans; however, management's decision to place loans in this category does not necessarily mean that the Company will experience significant losses from these loans or significant increases in impaired loans from these levels.

Management of the Company recognizes the risks associated with these impaired loans. However, management's decision to place loans in this category does not necessarily mean that losses will occur. In the current environment, troubled loan management can be protracted because of the legal and process problems that delay the collection of an otherwise collectable loan. Additionally, management believes that the collateral related to these impaired loans and/or the secondary support from guarantors mitigates the potential for losses from impaired loans. It is also important to note that even though the economic conditions in Texas and Oklahoma are weakened, we believe these markets are improving and better positioned to recover than many other areas of the country. Loans accounted for as "troubled debt restructuring" were not significant.

The bank subsidiaries charge off that portion of any loan which management considers to represent a loss as well as that portion of any other loan which is classified as a "loss" by bank examiners. Commercial and industrial or real estate loans are generally considered by management to represent a loss, in whole or part, when an exposure beyond any collateral coverage is apparent and when no further collection of the loss portion is anticipated based on the borrower's financial condition and general economic conditions in the borrower's industry. Generally, unsecured consumer loans are charged-off when 90 days past due.

The following table presents information regarding the aging of past due loans by loan class:

	December 31, 2011

	30 - 59 Days		60 - 89 Days		90 Days or Greater		90 Days or greater & still accruing		Total Past due		Current		Total Portfolio
	(Dollars in Thousands)
Domestic
Commercial	$	5,180	$	1,369	$	1,842	$	1,490	$	8,391	$	765,425	$	773,816
Commercial real estate: other construction & land development		23,426		4,360		49,887		979		77,673		1,195,716		1,273,389
Commercial real estate: farmland & commercial		9,467		10,269		7,879		1,231		27,615		1,637,072		1,664,687
Commercial real estate: multifamily		450		—		411		—		861		120,738		121,599
Residential: first lien		6,207		2,757		10,295		9,382		19,259		476,463		495,722
Residential: junior lien		1,433		378		368		320		2,179		397,969		400,148
Consumer		1,643		408		912		866		2,963		91,146		94,109
Foreign		666		53		20		20		739		229,266		230,005

Total past due loans	$	48,472	$	19,594	$	71,614	$	14,288	$	139,680	$	4,913,795	$	5,053,475

	December 31, 2010

	30 - 59 Days		60 - 89 Days		90 Days or Greater		90 Days or greater & still accruing		Total Past due		Current		Total Portfolio
	(Dollars in Thousands)
Domestic
Commercial	$	3,734	$	861	$	23,239	$	1,029	$	27,834	$	802,690	$	830,524
Commercial real estate: other construction & land development		2,685		2,896		50,618		11,507		56,199		1,417,272		1,473,471
Commercial real estate: farmland & commercial		3,077		817		6,600		1,585		10,494		1,678,069		1,688,563
Commercial real estate: multifamily		73		185		473		—		731		96,060		96,791
Residential: first lien		4,884		3,436		5,136		3,472		13,456		519,999		533,455
Residential: junior lien		703		272		457		277		1,432		414,095		415,527
Consumer		1,518		587		1,505		1,477		3,610		122,437		126,047
Foreign		196		380		501		501		1,077		244,548		245,625

Total past due loans	$	16,870	$	9,434	$	88,529	$	19,848	$	114,833	$	5,295,170	$	5,410,003

The Company's internal classified report is segregated into the following categories: (i) "Special Review Credits," (ii) "Watch List—Pass Credits," or (iii) "Watch List—Substandard Credits." The loans placed in the "Special Review Credits" category reflect the Company's opinion that the loans reflect potential weakness which require monitoring on a more frequent basis. The "Special Review Credits" are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the "Watch List—Pass Credits" category reflect the Company's opinion that the credit contains weaknesses which represent a greater degree of risk, which warrant "extra attention." The "Watch List—Pass Credits" are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the "Watch List—Substandard Credits" classification are considered to be potentially inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to adverse financial, managerial, economic, market or political conditions which may jeopardize repayment of principal and interest. Furthermore, there is the possibility that some future loss could be sustained by the bank if such weaknesses are not corrected. For loans that are classified as impaired, management evaluates these credits under Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," now included as part of ASC 310-10, "Receivables," criteria and, if deemed necessary, a specific reserve is allocated to the credit. The specific reserve allocated under ASC 310-10, is based on (1) the present value of expected future cash flows discounted at the loan's effective interest rate; (2) the loan's observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company's loans evaluated as impaired under ASC 310-10 are measured using the fair value of collateral method. In limited cases, the Company may use other methods to determine the specific reserve of a loan under SFAS ASC 310-10 if such loan is not collateral dependent.

The allowance based on historical loss experience on the Company's remaining loan portfolio, which includes the "Special Review Credits," "Watch List—Pass Credits," and "Watch List—Substandard Credits" is determined by segregating the remaining loan portfolio into certain categories such as commercial loans, installment loans, international loans, loan concentrations and overdrafts. Installment loans are then further segregated by number of days past due. A historical loss percentage, adjusted for (i) management's evaluation of changes in lending policies and procedures, (ii) current economic conditions in the market area served by the Company, (iii) other risk factors, (iv) the effectiveness of the internal loan review function, (v) changes in loan portfolios, and (vi) the composition and concentration of credit volume is applied to each category. Each category is then added together to determine the allowance allocated under ASC 450-20.

A summary of the loan portfolio by credit quality indicator by loan class is as follows:

			December 31, 2011

	Pass		Special Review		Watch List—Pass		Watch List—Substandard		Watch List—Impaired
			(Dollars in Thousands)
Domestic
Commercial	$	655,154	$	5,279	$	6,361	$	79,419	$	27,603
Commercial real estate: other construction & land development		1,058,843		76,722		11,083		66,313		60,428
Commercial real estate: farmland & commercial		1,449,822		83,581		40,510		48,543		42,231
Commercial real estate: multifamily		121,188		—		—		—		411
Residential: first lien		490,924		132		974		1,402		2,290
Residential: junior lien		397,861		—		319		6		1,962
Consumer		92,714		—		41		20		1,334
Foreign		229,898		—		61		—		46

Total	$	4,496,404	$	165,714	$	59,349	$	195,703	$	136,305

			December 31, 2010

	Pass		Special Review		Watch List—Pass		Watch List—Substandard		Watch List—Impaired
			(Dollars in Thousands)
Domestic
Commercial	$	741,006	$	14,015	$	7,187	$	44,890	$	23,426
Commercial real estate: other construction & land development		1,100,430		117,058		53,770		125,006		77,207
Commercial real estate: farmland & commercial		1,521,243		42,353		29,936		73,187		21,844
Commercial real estate: multifamily		94,973		1,345		—		—		473
Residential: first lien		526,504		2,237		1,747		952		2,015
Residential: junior lien		415,021		—		—		307		199
Consumer		125,973		3		—		42		29
Foreign		234,979		10,108		—		531		7

Total	$	4,760,129	$	187,119	$	92,640	$	244,915	$	125,200