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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Management’s discussion and analysis of the major elements of our consolidated balance sheets as of December
31, 2002 and 2001, and consolidated statements of earnings for the years 2000 through 2002 should be reviewed in
conjunction with our consolidated financial statements, accompanying notes, and selected financial data presented
elsewhere in this Form 10-K.  All amounts, prices and per share data related to our common stock have been
adjusted to give effect to all stock splits and stock dividends.
On July 3, 2001, we acquired City Bancshares, Inc. and its subsidiary City National Bank, Mineral Wells, Texas
for $16.5 million in cash. The results of City National Bank are included in our consolidated financial statements
beginning July 1, 2001 and may to some extent affect the comparisons to the prior period amounts and 2002
operating results which include a full year of City National Bank’s operations.
Critical Accounting Policies
The preparation of the Company’s consolidated financial statements is based on the selection of certain
accounting policies, based on generally accepted accounting principles and customary practices in the banking
industry.  These policies, in certain areas, require management to make significant estimates and assumptions.  The
following discussion addresses the Company’s allowance for loan loss and its provision for loan losses which is
deemed by management to be its most critical accounting policy.  We have other key accounting policies and
continue to evaluate the materiality of their impact on our consolidated financial statements, but we believe that
these other policies either do not generally require us to make estimates and judgments that are difficult or
subjective, or it is less likely that they would have a material impact on our reported results for a given period.
A policy is deemed critical if (i) the accounting estimate required the Company to make assumptions about
matters that are highly uncertain at the time the accounting estimate was made; and (ii) different estimates that
reasonably could have been used in the current period, or changes in the accounting estimate that are reasonably
likely to occur from period to period, would have a material impact on the financial statements.
The allowance for loan losses is an amount that management believes will be adequate to absorb inherent
estimated losses on existing loans in which collectibility is unlikely based upon management’s review and
evaluation of the loan portfolio, including letters of credit, lines of credit and unused commitments to provide
financing.  The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of
recoveries).
Management’s periodic evaluation of the adequacy of the allowance is based on general economic conditions,
the financial condition of the borrower, the value and liquidity of collateral, delinquency, prior loan loss experience,
and the results of periodic reviews of the portfolio by our loan review department and regulatory examiners.  A
consistent, well documented loan review methodology has been developed that includes allowances assigned to
specific loans and nonspecific allowances that are based on the factors noted in the prior sentence.  Our independent
loan review department is responsible for performing this evaluation for all of our subsidiary banks to ensure
consistent methodology.
Although we believe that we use the best information available to make loan loss allowance determinations,
future adjustments could be necessary if circumstances or economic conditions differ substantially from the
assumptions used in making our initial determinations. A downturn in the economy and employment could result in
increased levels of non-performing assets and charge-offs, increased loan loss provisions and reductions in income.