text: **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. 