UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2012

¨ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from                      to                     

Commission File Number: 000-53629

PLAINSCAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

Texas	75-2182440
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2323 Victory Avenue, Suite 1400, Dallas, Texas 75219

(Address of principal executive offices, including zip code)

(214) 252-4000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or 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  x     No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨     No  x

As of May 1, 2012, there were 34,444,693 shares of the registrant’s Original Common Stock, $0.001 par value, and 0 shares of the registrant’s Common Stock, $0.001 par value, outstanding, including 2,379,636 shares of Original Common Stock that participate in dividends but are not defined as outstanding under generally accepted accounting principles.

PlainsCapital Corporation

Quarterly Report on Form 10-Q for the period ended March 31, 2012

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Interim Financial Statements
Consolidated Balance Sheets, March 31, 2012 and December 31, 2011	3
Consolidated Statements of Income, Three Months Ended March 31, 2012 and 2011	4
Consolidated Statements of Comprehensive Income, Three Months Ended March 31, 2012 and 2011	5
Consolidated Statements of Shareholders’ Equity, Three Months Ended March 31, 2012 and 2011	6
Consolidated Statements of Cash Flows, Three Months Ended March 31, 2012 and 2011	7
Notes to Consolidated Financial Statements	8
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3. Quantitative and Qualitative Disclosures about Market Risk	56
Item 4. Controls and Procedures	59
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	59
Item 1A. Risk Factors	60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3. Defaults Upon Senior Securities	62
Item 4. Mine Safety Disclosures	62
Item 5. Other Information	62
Item 6. Exhibits	62
Signatures	63

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PlainsCapital Corporation and Subsidiaries

Consolidated Balance Sheets

	March 31. 2012			December 31,
	(Unaudited)			2011
	(In thousands)
Assets
Cash and due from banks	$	244,864		$	344,647
Federal funds sold and securities purchased under agreements to resell		19,858			3,347
Loans held for sale		853,801			776,372
Securities
Trading, at fair market value		66,804			58,957
Available for sale, amortized cost $610,257 and $594,287, respectively		616,609			601,086
Held to maturity, fair market value $184,433 and $188,736, respectively		175,647			179,710
		859,060			839,753
Loans, net of unearned income		3,330,664			3,351,167
Allowance for loan losses		(61,409	)		(67,495	)
Loans, net		3,269,255			3,283,672
Broker-dealer and clearing organization receivables		196,990			111,690
Fee award receivable		17,706			18,002
Investment in unconsolidated subsidiaries		2,012			2,012
Premises and equipment, net		92,335			92,906
Accrued interest receivable		15,313			16,175
Other real estate owned		23,590			30,254
Goodwill, net		35,880			35,880
Other intangible assets, net		10,997			11,385
Other assets		145,896			133,925
Total assets	$	5,787,557		$	5,700,020
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing	$	265,036		$	328,858
Interest-bearing		3,903,740			3,917,348
Total deposits		4,168,776			4,246,206
Broker-dealer and clearing organization payables		220,012			186,483
Short-term borrowings		606,774			476,439
Capital lease obligations		12,008			12,121
Notes payable		51,828			54,966
Junior subordinated debentures		67,012			67,012
Other liabilities		120,185			137,509
Total liabilities		5,246,595			5,180,736
Commitments and contingencies
Shareholders’ equity
PlainsCapital Corporation shareholders’ equity
Preferred stock, $1.00 par value per share, authorized 50,000,000 shares; Series C, 114,068 shares issued		114,068			114,068
Original Common Stock, $0.001 par value per share, authorized 100,000,000 shares; 32,255,311 and 31,920,732 shares issued, respectively		32			32
Common Stock, $0.001 par value per share, authorized 150,000,000 shares; 0 shares issued		—			—
Surplus		159,835			156,123
Retained earnings		262,411			244,291
Accumulated other comprehensive income		4,857			4,587
		541,203			519,101
Unearned ESOP shares (190,254 shares)		(2,070	)		(2,070	)
Total PlainsCapital Corporation shareholders’ equity		539,133			517,031
Noncontrolling interest		1,829			2,253
Total shareholders’ equity		540,962			519,284
Total liabilities and shareholders’ equity	$	5,787,557		$	5,700,020

See accompanying notes.

3

PlainsCapital Corporation and Subsidiaries

Consolidated Statements of Income—Unaudited

(In thousands, except per share amounts)

	Three Months Ended March 31,
	2012		2011
Interest income:
Loans, including fees	$	48,600	$	42,204
Securities
Taxable		3,412		4,606
Tax-exempt		2,475		2,387
Federal funds sold and securities purchased under agreements to resell		86		1,092
Interest-bearing deposits with banks		173		314
Other		1,810		1,400
Total interest income		56,556		52,003
Interest expense
Deposits		5,265		7,528
Short-term borrowings		428		398
Capital lease obligations		143		136
Notes payable		723		810
Junior subordinated debentures		648		621
Other		140		85
Total interest expense		7,347		9,578
Net interest income		49,209		42,425
Provision for loan losses		2,221		6,500
Net interest income after provision for loan losses		46,988		35,925
Noninterest income
Service charges on depositor accounts		2,096		1,842
Net gains from sale of loans		99,718		44,334
Mortgage loan origination fees		18,325		17,292
Trust fees		1,031		1,006
Investment advisory fees and commissions		17,453		12,011
Securities brokerage fees and commissions		7,142		6,186
Other		4,341		2,669
Total noninterest income		150,106		85,340
Noninterest expense
Employees’ compensation and benefits		105,774		66,346
Occupancy and equipment, net		17,082		15,398
Professional services		8,175		6,046
Deposit insurance premiums		996		1,856
Repossession and foreclosure, net of recoveries		5,918		1,880
Other		26,157		17,515
Total noninterest expense		164,102		109,041
Income before income taxes		32,992		12,224
Income tax provision		11,254		4,508
Net income		21,738		7,716
Less: Net income attributable to noncontrolling interest		481		122
Net income attributable to PlainsCapital Corporation		21,257		7,594
Dividends on preferred stock and other		1,094		1,400
Income applicable to PlainsCapital Corporation common shareholders	$	20,163	$	6,194
Earnings per share
Basic	$	0.61	$	0.19
Diluted	$	0.59	$	0.18

See accompanying notes.

4

PlainsCapital Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income—Unaudited

(In thousands)

	Three Months Ended March 31,
	2012			2011
Net income	$	21,738		$	7,716
Other comprehensive income (loss)
Unrealized losses on securities available for sale, net of tax of $98 and $2,138		(182	)		(3,982	)
Unrealized gains on securities held in trust for the Supplemental Executive
Retirement Plan, net of tax of $244 and $104		452			193
Unrealized loss on customer-related cash flow hedges, net of tax of $0 and $18		—			(34	)
Comprehensive income		22,008			3,893
Less: comprehensive income attributable to noncontrolling interest		481			122
Comprehensive income applicable to PlainsCapital Corporation common shareholders	$	21,527		$	3,771

See accompanying notes.

5

PlainsCapital Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity—Unaudited

	PlainsCapital Corporation Shareholders
	Preferred Stock				Common Stock						Retained			Accumulated Other Comprehensive			Unearned ESOP			Noncontrolling
	Shares		Amount		Shares		Amount		Surplus		Earnings			Income (Loss)			Shares			Interest			Total
	(In thousands, except share and per share amounts)
Balance, January 1, 2011		92,013	$	89,193		31,780,828	$	32	$	153,289	$	206,786		$	(281	)	$	(2,528	)	$	785		$	447,276
Stock option plans’ activity, including compensation expense		—		—		2,246		—		34		—			—			—			—			34
Vesting of stock-based compensation		—		—		83,713		—		—		—			—			—			—			—
Stock-based compensation expense		—		—		—		—		451		—			—			—			—			451
ESOP activity		—		—		—		—		—		—			—			—			—			—
Dividends on common stock ($0.05 per share)		—		—		—		—		—		(1,702	)		—			—			—			(1,702	)
Dividends on preferred stock		—		—		—		—		—		(1,194	)		—			—			—			(1,194	)
Preferred stock discount and accretion		—		206		—		—		—		(206	)		—			—			—			—
Cash received from noncontrolling interest		—		—		—		—		—		—			—			—			49			49
Cash distributions to noncontrolling interest		—		—		—		—		—		—			—			—			(153	)		(153	)
Net income		—		—		—		—		—		7,594			—			—			122			7,716
Other comprehensive loss		—		—		—		—		—		—			(3,823	)		—			—			(3,823	)
Balance, March 31, 2011		92,013	$	89,399		31,866,787	$	32	$	153,774	$	211,278		$	(4,104	)	$	(2,528	)	$	803		$	448,654
Balance, January 1, 2012		114,068	$	114,068		31,920,732	$	32	$	156,123	$	244,291		$	4,587		$	(2,070	)	$	2,253		$	519,284
Stock option plans’ activity, including compensation expense		—		—		80,579		—		539		—			—			—			—			539
Vesting of stock-based compensation		—		—		75,429		—		—		—			—			—			—			—
Stock-based compensation expense		—		—		—		—		673		—			—			—			—			673
ESOP activity		—		—		178,571		—		2,500		12			—			—			—			2,512
Dividends on common stock ($0.06 per share)		—		—		—		—		—		(2,055	)		—			—			—			(2,055	)
Dividends on preferred stock		—		—		—		—		—		(1,094	)		—			—			—			(1,094	)
Cash received from noncontrolling interest		—		—		—		—		—		—			—			—			110			110
Cash distributions to noncontrolling interest		—		—		—		—		—		—			—			—			(1,015	)		(1,015	)
Net income		—		—		—		—		—		21,257			—			—			481			21,738
Other comprehensive income		—		—		—		—		—		—			270			—			—			270
Balance, March 31, 2012		114,068	$	114,068		32,255,311	$	32	$	159,835	$	262,411		$	4,857		$	(2,070	)	$	1,829		$	540,962

See accompanying notes.

6

PlainsCapital Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

	Three Months Ended March 31,
	2012			2011
Operating Activities
Net income	$	21,738		$	7,716
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Provision for loan losses		2,221			6,500
Net losses on other real estate owned		5,474			1,460
Depreciation and amortization		6,339			8,584
Stock-based compensation expense		673			470
Loss on sale of premises and equipment		44			5
Stock dividends received on securities		(4	)		(7	)
Deferred income taxes		73			5,176
Net change in prepaid FDIC assessments		915			1,566
Net change in assets segregated for regulatory purposes		—			(13,000	)
Net change in trading securities		(7,847	)		(25,705	)
Net change in broker-dealer and clearing organization receivables		(85,300	)		(32,557	)
Net change in fee award receivable		296			312
Net change in broker-dealer and clearing organization payables		33,529			42,355
Net change in other assets		(5,875	)		(5,313	)
Net change in other liabilities		(15,954	)		(59,141	)
Net gains from sale of loans		(99,718	)		(44,334	)
Loans originated for sale		(2,733,126	)		(1,471,560	)
Proceeds from loans sold		2,750,386			1,536,012
Net cash provided by (used in) operating activities		(126,136	)		(41,461	)
Investing Activities
Net change in securities purchased under resale agreements		(4,028	)		75,402
Proceeds from maturities and principal reductions of securities held to maturity		4,172			9,083
Proceeds from sales, maturities and principal reductions of securities available for sale		98,876			98,256
Purchases of securities held to maturity		—			(1,031	)
Purchases of securities available for sale		(116,384	)		(265,372	)
Net change in loans		11,498			144,451
Purchases of premises and equipment and other assets		(5,102	)		(17,471	)
Proceeds from sales of premises and equipment and other real estate owned		2,237			6,258
Net cash received (paid) for Federal Home Loan Bank and Federal Reserve Bank stock		4			2,164
Net cash provided by (used in) investing activities		(8,727	)		51,740
Financing Activities
Net change in deposits		(77,430	)		193,731
Net change in short-term borrowings		130,335			(89,207	)
Proceeds from notes payable		—			1,500
Payments on notes payable		(3,138	)		(3,081	)
Proceeds from issuance of common stock		3,039			15
Dividends paid		(4,225	)		(2,896	)
Net cash received from (distributed to) noncontrolling interest		(905	)		(104	)
Other, net		(113	)		(114	)
Net cash provided by (used in) financing activities		47,563			99,844
Net change in cash and cash equivalents		(87,300	)		110,123
Cash and cash equivalents at beginning of period		347,189			359,335
Cash and cash equivalents at end of period	$	259,889		$	469,458
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$	7,801		$	11,482
Income taxes	$	4,134		$	1,090
Supplemental Schedule of Noncash Activities
Conversion of loans to other real estate owned	$	1,007		$	2,568

See accompanying notes.

7

PlainsCapital Corporation and Subsidiaries

Notes to Consolidated Interim Financial Statements – Unaudited

March 31, 2012

1. Summary of Significant Accounting and Reporting Policies

Basis of Presentation

The unaudited consolidated financial statements of PlainsCapital Corporation, a Texas corporation, and its subsidiaries (“we,” “us,” “our,” “our company,” or “PlainsCapital”) for the three month periods ended March 31, 2012 and 2011 have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

The consolidated interim financial statements of PlainsCapital and subsidiaries are unaudited, but in the opinion of management, contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results of the interim periods presented. The consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q adopted by the SEC. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 16, 2012. Results for interim periods are not necessarily indicative of results to be expected for a full year or any future period. PlainsCapital has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued.

PlainsCapital is a financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Graham-Leach-Bliley Act of 1999, headquartered in Dallas, Texas, that provides, through its subsidiaries, an array of financial products and services. In addition to traditional banking services, PlainsCapital provides residential mortgage lending, investment banking, public finance advisory, wealth and investment management, treasury management, fixed income sales, asset management and correspondent clearing services.

PlainsCapital owns 100% of the outstanding stock of PlainsCapital Bank (the “Bank”) and 100% of the membership interest in PlainsCapital Equity, LLC. PlainsCapital owns a 69.7% membership interest in Hester Capital Management, LLC (“Hester Capital”). The Bank owns 100% of the outstanding stock of PrimeLending, a PlainsCapital Company (“PrimeLending”), PNB Aero Services, Inc. and PCB-ARC, Inc. The Bank has a 100% membership interest in First Southwest Holdings, LLC (“First Southwest”) and PlainsCapital Securities, LLC, as well as a 51% voting interest in PlainsCapital Insurance Services, LLC.

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC, the controlling and sole managing member of PrimeLending Ventures, LLC (“Ventures”). Through a series limited liability company structure, Ventures establishes separate operating divisions with select business partners, such as home builders, real estate brokers and financial institutions, to originate residential mortgage loans.

After the close of business on December 31, 2008, First Southwest Holdings, Inc., a diversified, private investment banking corporation headquartered in Dallas, Texas merged into FSWH Acquisition LLC, a wholly owned subsidiary of the Bank. Following the merger, FSWH Acquisition LLC changed its name to “First Southwest Holdings, LLC.” The principal subsidiaries of First Southwest are First Southwest Company (“FSC”), a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”), and First Southwest Asset Management, Inc., a registered investment advisor under the Investment Advisors Act of 1940.

The acquisition cost of First Southwest Holdings, Inc. was approximately $62.2 million. In addition, PlainsCapital placed approximately 1.7 million shares of PlainsCapital common stock, valued at approximately $19.2 million as of December 31, 2008, into escrow. The percentage of shares to be released from escrow and distributed to former First Southwest stockholders will be determined based upon, among other factors, the valuation of certain auction rate bonds held by First Southwest prior to the merger (or repurchased from investors following the closing of the merger) as of the last day of December 2012 or, if applicable, the aggregate sales price of such auction rate bonds prior to such date. Any shares issued out of the escrow will be accounted for as additional acquisition cost.

8

1. Summary of Significant Accounting and Reporting Policies (continued)

PlainsCapital used a third-party valuation specialist to assist in the determination of the fair value of assets acquired, including intangibles, and liabilities assumed in the acquisition. The purchase price allocation resulted in net assets acquired in excess of consideration paid of approximately $12.8 million. That amount has been recorded in other liabilities until the contingent consideration issue described previously is settled. Upon resolution of the contingent consideration issue, the acquisition cost of First Southwest may increase, resulting in a smaller excess of net assets acquired over consideration paid, or in certain circumstances, an excess of consideration paid over net assets acquired that would result in recording goodwill from the transaction. Any remaining excess of net assets acquired over consideration paid will be allocated pro-rata to reduce the carrying value of purchased assets.

The consolidated interim financial statements include the accounts of the above-named entities. All significant intercompany transactions and balances have been eliminated. Noncontrolling interests have been recorded for minority ownership in entities that are not wholly owned and are presented in compliance with the provisions of Noncontrolling Interest in Subsidiary Subsections of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

PlainsCapital also owns 100% of the outstanding common stock of PCC Statutory Trusts I, II, III and IV (the “Trusts”), which are not included in the consolidated financial statements pursuant to the requirements of the Variable Interest Entities Subsections of the ASC, because the primary beneficiaries of the Trusts are not within the consolidated group.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. Estimates regarding the allowance for loan losses and the valuation of certain investments are particularly subject to change.

Cash Flow Reporting

For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents are defined as the amount included in the consolidated balance sheets caption “Cash and due from banks” and the portion of the amount in the caption “Federal funds sold and securities purchased under agreements to resell” that represents federal funds sold. Cash equivalents have original maturities of three months or less.

Comprehensive Income

PlainsCapital’s comprehensive income consists of its net income and unrealized holding gains (losses) on its available for sale securities, including securities for which the credit portion of an other-than-temporary impairment (“OTTI”) has been recognized in earnings, and investments held in trust for the Supplemental Executive Retirement Plan.

The components of accumulated other comprehensive income (“AOCI”) at March 31, 2012 and December 31, 2011 are shown in the following table (in thousands, net of taxes):

	March 31, 2012			December 31, 2011
Unrealized gain on securities available for sale	$	4,795		$	5,718
Unrealized loss on securities for which the credit portion of an
OTTI has been recognized in earnings		(687	)		(1,428	)
Unrealized gain on securities held in trust for the Supplemental
Executive Retirement Plan		749			297
	$	4,857		$	4,587

9

1. Summary of Significant Accounting and Reporting Policies (continued)

Reclassification

Certain items in the 2011 financial statements have been reclassified to conform to the 2012 presentation.

2. Securities

The amortized cost and fair value of securities, excluding trading securities, as of March 31, 2012, and December 31, 2011 are summarized as follows (in thousands):

	Available for Sale
			Recognized in AOCI
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			OTTI			Fair Value
As of March 31, 2012
U. S. government agencies
Bonds	$	244,485	$	190	$	(1,406	)	$	—		$	243,269
Mortgage-backed securities		33,690		2,331		(74	)		—			35,947
Collateralized mortgage obligations		216,993		1,891		(589	)		—			218,295
States and political subdivisions		68,547		5,056		(23	)		—			73,580
Auction rate bonds		46,542		—		—			(1,024	)		45,518
Totals	$	610,257	$	9,468	$	(2,092	)	$	(1,024	)	$	616,609
As of December 31, 2011
U. S. government agencies
Bonds	$	183,191	$	659	$	—		$	—		$	183,850
Mortgage-backed securities		33,897		2,456		(83	)		—			36,270
Collateralized mortgage obligations		260,878		2,284		(1,084	)		—			262,078
States and political subdivisions		69,779		4,613		(48	)		—			74,344
Auction rate bonds		46,542		—		—			(1,998	)		44,544
Totals	$	594,287	$	10,012	$	(1,215	)	$	(1,998	)	$	601,086

	Held to Maturity
	Amortized Cost		OTTI Unrealized Loss Recognized in AOCI			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of March 31, 2012
U. S. government agencies
Mortgage-backed securities	$	6,135	$	—		$	6,135	$	528	$	(6	)	$	6,657
Collateralized mortgage obligations		14,459		—			14,459		313		(47	)		14,725
States and political subdivisions		109,704		—			109,704		7,625		(6	)		117,323
Auction rate bonds		45,383		(34	)		45,349		379		—			45,728
Totals	$	175,681	$	(34	)	$	175,647	$	8,845	$	(59	)	$	184,433
As of December 31, 2011
U. S. government agencies
Mortgage-backed securities	$	6,639	$	—		$	6,639	$	547	$	(6	)	$	7,180
Collateralized mortgage obligations		15,974		—			15,974		419		(88	)		16,305
States and political subdivisions		111,924		—			111,924		7,209		(10	)		119,123
Auction rate bonds		45,372		(199	)		45,173		955		—			46,128
Totals	$	179,909	$	(199	)	$	179,710	$	9,130	$	(104	)	$	188,736

In the previous table, amounts shown as unrealized losses recognized in AOCI resulting from OTTI relate to OTTI recognized on auction rate bonds classified both as available for sale and held to maturity during the year ended December 31, 2011. The Bank did not incur OTTI in either of the three months ended March 31, 2012 or 2011.

10

2. Securities (continued)

Information regarding securities, including those for which the credit-related portion of an OTTI has been recorded in earnings, which were in an unrealized loss position as of March 31, 2012 and December 31, 2011, is shown in the following tables (dollars in thousands):

	As of March 31, 2012						As of December 31, 2011
	Number of Securities		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses
Available for sale
U. S. government agencies
Bonds
Unrealized loss for less than twelve months		20	$	203,143	$	1,406		—	$	—	$	—
Unrealized loss for more than twelve months		—		—		—		—		—		—
		20		203,143		1,406		—		—		—
Mortgage-backed securities
Unrealized loss for less than twelve months		—		—		—		—		—		—
Unrealized loss for more than twelve months		1		4,370		74		1		4,404		83
		1		4,370		74		1		4,404		83
Collateralized mortgage obligations
Unrealized loss for less than twelve months		16		99,869		589		15		106,887		1,083
Unrealized loss for more than twelve months		—		—		—		1		552		1
		16		99,869		589		16		107,439		1,084
States and political subdivisions
Unrealized loss for less than twelve months		1		126		7		3		635		13
Unrealized loss for more than twelve months		1		1,535		16		4		4,380		35
		2		1,661		23		7		5,015		48
Auction rate bonds
Unrealized loss for less than twelve months		—		—		—		—		—		—
Unrealized loss for more than twelve months		2		23,047		1,046		3		44,544		1,998
		2		23,047		1,046		3		44,544		1,998
Total available for sale
Unrealized loss for less than twelve months		37		303,138		2,002		18		107,522		1,096
Unrealized loss for more than twelve months		4		28,952		1,136		9		53,880		2,117
		41	$	332,090	$	3,138		27	$	161,402	$	3,213
Held to maturity
U. S. government agencies
Mortgage-backed securities
Unrealized loss for less than twelve months		1	$	491	$	6		1	$	491	$	6
Unrealized loss for more than twelve months		—		—		—		—		—		—
		1		491		6		1		491		6
Collateralized mortgage obligations
Unrealized loss for less than twelve months		1		4,962		47		1		5,337		88
Unrealized loss for more than twelve months		—		—		—		—		—		—
		1		4,962		47		1		5,337		88
States and political subdivisions
Unrealized loss for less than twelve months		3		1,467		1		—		—		—
Unrealized loss for more than twelve months		1		206		5		6		2,498		10
		4		1,673		6		6		2,498		10
Auction rate bonds
Unrealized loss for less than twelve months		—		—		—		—		—		—
Unrealized loss for more than twelve months		1		4,494		43		2		10,081		199
		1		4,494		43		2		10,081		199
Total held to maturity
Unrealized loss for less than twelve months		5		6,920		54		2		5,828		94
Unrealized loss for more than twelve months		2		4,700		48		8		12,579		209
		7	$	11,620	$	102		10	$	18,407	$	303

As noted above, the Bank has incurred OTTI on securities classified both as held to maturity and available for sale. Subject to the discussion of OTTI above, management has the intent and ability to hold the securities classified as held to maturity until they mature, at which time the Bank expects to receive full value for the securities. As of March 31, 2012, management does not intend to sell any of the securities classified as available for sale in the previous table and believes that it is more likely than not that the Bank will not have to sell any such securities before a recovery of cost. As of March 31, 2012 and December 31, 2011, the securities included in the previous table represented 42.91% and 22.77%, respectively, of the fair value of the Bank’s securities portfolio. At March 31, 2012 and December 31, 2011, total impairment represented 0.94% and 1.96%, respectively, of the fair value of the underlying securities, and 0.40% and 0.45%, respectively, of the fair value of the Bank’s securities portfolio. Management believes the other impairments detailed in the table are temporary and relate primarily to changes in interest rates and liquidity as of March 31, 2012.

11

2. Securities (continued)

The following table provides details regarding the amounts of credit-related OTTI recognized in earnings (in thousands):

	March 31, 2012		December 31, 2011
Balance at beginning of period	$	5,305	$	—
Additions for credit-related OTTI not previously recognized		—		5,305
Balance at end of period	$	5,305	$	5,305

The amortized cost and fair value of securities, excluding trading securities, as of March 31, 2012 are shown by contractual maturity below (in thousands).

	Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Carrying Value		Fair Value
Due in one year or less	$	2,136	$	2,145	$	5,623	$	5,703
Due after one year through five years		12,970		13,179		4,333		4,501
Due after five years through ten years		666		685		14,486		15,163
Due after ten years		343,802		346,358		130,612		137,684
		359,574		362,367		155,054		163,051
Mortgage-backed securities		33,690		35,947		6,135		6,657
Collateralized mortgage obligations		216,993		218,295		14,458		14,725
	$	610,257	$	616,609	$	175,647	$	184,433

The Bank did not sell securities in either of the three months ended March 31, 2012 or 2011. The Bank determines the cost of securities sold by specific identification.

FSC realized net gains on its trading securities portfolio of $1.2 million and $1.0 million for the three months ended March 31, 2012 and 2011, respectively.

Securities with a carrying amount of approximately $680.4 million and $685.9 million (fair value of approximately $665.1 million and $624.4 million) at March 31, 2012 and December 31, 2011, respectively, were pledged to secure public and trust deposits, federal funds purchased and securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

12

3. Loans and Allowance for Loan Losses

Loans summarized by category as of March 31, 2012 and December 31, 2011, are as follows (in thousands):

	March 31, 2012			December 31, 2011
Commercial and industrial
Commercial	$	1,464,898		$	1,473,564
Lease financing		29,425			32,604
Securities (primarily margin loans)		314,830			319,895
Real estate		1,212,272			1,221,726
Construction and land development		281,847			273,949
Consumer		27,392			29,429
		3,330,664			3,351,167
Allowance for loan losses		(61,409	)		(67,495	)
	$	3,269,255		$	3,283,672

PlainsCapital has lending policies in place with the goal of establishing an asset portfolio that will provide a return on shareholders’ equity sufficient to maintain capital to assets ratios that meet or exceed established regulatory guidelines. Loans are underwritten with careful consideration of the borrower’s financial condition, the specific purpose of the loan, the primary sources of repayment and any collateral pledged to secure the loan.

Underwriting procedures address financial components based on the size or complexity of the credit. The financial components include, but are not limited to, current and projected global cash flows, shock analysis and/or stress testing, and trends in appropriate balance sheet and income statement ratios. Collateral analysis includes a complete description of the collateral, as well as determining values, monitoring requirements, loan to value ratios, concentration risk, appraisal requirements and other information relevant to the collateral being pledged. Guarantor analysis includes liquidity and global cash flow analysis based on the significance the guarantors are expected to serve as secondary repayment sources. PlainsCapital’s underwriting standards are governed by adherence to its loan policy. The loan policy provides for specific guidelines by portfolio segment, including commercial and industrial, real estate, construction and land development, and consumer loans. Within each individual portfolio segment, permissible and impermissible loan types are explicitly outlined. Within the loan types, minimum requirements for the underwriting factors listed above are provided.

PlainsCapital maintains an independent loan review department that reviews credit risk in response to both external and internal factors that potentially impact the performance of either individual loans or the overall loan portfolio. The loan review process reviews the creditworthiness of borrowers and determines compliance with the loan policy. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel. Results of these reviews are presented to management and the Bank’s Board of Directors.

13

3. Loans and Allowance for Loan Losses (continued)

Impaired loans exhibit a clear indication that the borrower’s cash flow may not be sufficient to meet principal and interest payments, which is generally when a loan is 90 days past due unless the asset is both well secured and in the process of collection. Impaired loans include non-accrual loans, troubled debt restructurings (“TDRs”) and partially charged-off loans. Impaired loans as of March 31, 2012 and December 31, 2011 are summarized by class in the following tables (in thousands):

	Unpaid Contractual Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
As of March 31, 2012
Commercial and industrial
Secured by receivables	$	15,249	$	11,797	$	—	$	11,797	$	—	$	12,352
Secured by equipment		917		917		—		917		—		590
Unsecured		6,663		1,816		—		1,816		—		2,285
Lease financing		877		877		—		877		—		1,219
All other commercial and industrial		2,729		1,859		870		2,729		—		2,789
Real estate
Secured by commercial properties		32,464		20,786		7,297		28,083		1,692		28,333
Secured by residential properties		10,722		6,253		3,285		9,538		232		9,529
Construction and land development
Residential construction loans		482		482		—		482		—		1,072
Commercial construction loans and land development		27,956		19,382		—		19,382		—		21,996
Consumer		—		—		—		—		—		—
	$	98,059	$	64,169	$	11,452	$	75,621	$	1,924	$	80,165
	Unpaid Contractual Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
As of December 31, 2011
Commercial and industrial
Secured by receivables	$	13,991	$	11,037	$	1,869	$	12,906	$	392	$	14,275
Secured by equipment		263		263		—		263		—		569
Unsecured		6,753		192		2,561		2,753		837		1,431
Lease financing		1,561		1,561		—		1,561		—		3,795
All other commercial and industrial		2,848		1,963		885		2,848		—		5,384
Real estate
Secured by commercial properties		32,888		16,547		12,035		28,582		2,664		22,570
Secured by residential properties		10,812		9,519		—		9,519		—		9,720
Construction and land development
Residential construction loans		1,662		1,662		—		1,662		—		1,747
Commercial construction loans and land development		28,547		6,690		17,920		24,610		4,894		41,064
Consumer		—		—		—		—		—		18
	$	99,325	$	49,434	$	35,270	$	84,704	$	8,787	$	100,573

Interest income recorded on accruing impaired loans was approximately $0.1 million and $0.2 million for the three months ended March 31, 2012 and 2011, respectively. Interest income recorded on non-accrual loans for the three months ended March 31, 2012 and 2011 was nominal. At March 31, 2012, PlainsCapital had no unadvanced commitments to borrowers whose loans have been restructured in TDRs.

14

3. Loans and Allowance for Loan Losses (continued)

Non-accrual loans as of March 31, 2012 and December 31, 2011 are summarized by class in the following table (in thousands):

	March 31, 2012		December 31, 2011
Commercial and industrial
Secured by receivables	$	11,797	$	12,707
Secured by equipment		917		263
Unsecured		1,816		2,720
Lease financing		877		1,561
All other commercial and industrial		897		1,000
Real estate
Secured by commercial properties		25,215		26,611
Secured by residential properties		7,924		4,612
Construction and land development
Residential construction loans		482		1,465
Commercial construction loans and land development		19,153		24,376
Consumer		—		—
	$	69,078	$	75,315

PlainsCapital classifies loan modifications as TDRs when it concludes that it has both granted a concession to a debtor and that the debtor is experiencing financial difficulties. Loan modifications are typically structured to create affordable payments for the debtor and can be achieved in a variety of ways. PlainsCapital modifies loans by reducing interest rates and/or lengthening loan amortization schedules. PlainsCapital also reconfigures a single loan into two or more loans (“A/B Note”). The typical A/B Note restructure results in a “bad” loan which is charged off and a “good” loan or loans the terms of which comply with the Bank’s customary underwriting policies. The debt charged off on the “bad” loan is not forgiven to the debtor.

PlainsCapital did not grant any TDRs during the three months ended March 31, 2012. None of the TDRs granted during the twelve months preceding March 31, 2012 had a payment that was at least 30 days past due during the three months ended March 31, 2012.

15

3. Loans and Allowance for Loan Losses (continued)

An analysis of the aging of PlainsCapital’s loan portfolio as of March 31, 2012 and December 31, 2011 is shown in the following tables (in thousands):

	Loans Past Due 30-89 Days		Loans Past Due 90 Days or More		Total Past Due Loans		Current Loans		Total Loans
As of March 31, 2012
Commercial and industrial
Secured by receivables	$	3,938	$	8,872	$	12,810	$	684,477	$	697,287
Secured by equipment		1,117		211		1,328		153,513		154,841
Unsecured		85		96		181		117,597		117,778
Lease financing		1,120		877		1,997		27,428		29,425
All other commercial and industrial		308		870		1,178		808,644		809,822
Real estate
Secured by commercial properties		2,744		18,212		20,956		914,845		935,801
Secured by residential properties		5,794		4,163		9,957		266,514		276,471
Construction and land development
Residential construction loans		1,458		—		1,458		46,716		48,174
Commercial construction loans and land development		2,334		18,826		21,160		212,513		233,673
Consumer		102		—		102		27,290		27,392
	$	19,000	$	52,127	$	71,127	$	3,259,537	$	3,330,664
	Loans Past Due 30-89 Days		Loans Past Due 90 Days or More		Total Past Due Loans		Current Loans		Total Loans
As of December 31, 2011
Commercial and industrial
Secured by receivables	$	2,168	$	7,961	$	10,129	$	685,075	$	695,204
Secured by equipment		1,151		218		1,369		133,290		134,659
Unsecured		34		8		42		113,481		113,523
Lease financing		2,965		1,561		4,526		28,078		32,604
All other commercial and industrial		5,119		968		6,087		843,986		850,073
Real estate
Secured by commercial properties		531		19,105		19,636		921,613		941,249
Secured by residential properties		3,604		3,924		7,528		272,949		280,477
Construction and land development
Residential construction loans		1,745		—		1,745		46,810		48,555
Commercial construction loans and land development		43		24,164		24,207		201,187		225,394
Consumer		79		—		79		29,350		29,429
	$	17,439	$	57,909	$	75,348	$	3,275,819	$	3,351,167

No accruing loans were 90 or more days past due at either March 31, 2012 or December 31, 2011.

Management tracks credit quality trends on a quarterly basis related to: (i) past due levels, (ii) non-performing asset levels, (iii) classified loan levels, (iv) net charge-offs, and (v) general economic conditions at state and local levels.

PlainsCapital utilizes a risk grading matrix to assign a risk grade to each of the loans in its portfolio. A risk rating is assigned based on an assessment of the borrower’s management, collateral position, financial capacity, and economic factors. The general characteristics of the various risk grades are described below.

Pass – “Pass” loans present a range of acceptable risks to the Bank. Loans that would be considered virtually risk-free are rated Pass – low risk. Loans that exhibit sound standards based on the grading factors above and present a reasonable risk to the Bank are rated Pass – normal risk. Loans that exhibit a minor weakness in one or more of the grading criteria but still present an acceptable risk to the Bank are rated Pass – high risk.

Special Mention – A “Special Mention” asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset and weaken the Bank’s credit position at some future date. Special Mention assets are not adversely classified and are deemed not to expose the Bank to sufficient risk to require adverse classification.

16

3. Loans and Allowance for Loan Losses (continued)

Substandard – “Substandard” loans are inadequately protected by the current sound worth and paying capacity of the obligor or the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Many substandard loans are considered impaired.

The following tables present the internal risk grades of loans, as previously described, in the portfolio as of March 31, 2012 and December 31, 2011 by class (in thousands):

	Pass		Special Mention		Substandard		Total
As of March 31, 2012
Commercial and industrial
Secured by receivables	$	667,910	$	1,204	$	28,173	$	697,287
Secured by equipment		152,692		—		2,149		154,841
Unsecured		115,962		—		1,816		117,778
Lease financing		26,072		—		3,353		29,425
All other commercial and industrial		785,935		85		23,802		809,822
Real estate
Secured by commercial properties		900,404		3,242		32,155		935,801
Secured by residential properties		266,503		—		9,968		276,471
Construction and land development
Residential construction loans		47,692		—		482		48,174
Commercial construction loans and land development		207,612		—		26,061		233,673
Consumer		27,392		—		—		27,392
	$	3,198,174	$	4,531	$	127,959	$	3,330,664
	Pass		Special Mention		Substandard		Total
As of December 31, 2011
Commercial and industrial
Secured by receivables	$	661,269	$	1,501	$	32,434	$	695,204
Secured by equipment		132,344		—		2,315		134,659
Unsecured		110,287		—		3,236		113,523
Lease financing		28,530		—		4,074		32,604
All other commercial and industrial		826,138		241		23,694		850,073
Real estate
Secured by commercial properties		908,267		272		32,710		941,249
Secured by residential properties		271,533		544		8,400		280,477
Construction and land development
Residential construction loans		47,090		—		1,465		48,555
Commercial construction loans and land development		194,664		2,736		27,994		225,394
Consumer		29,429		—		—		29,429
	$	3,209,551	$	5,294	$	136,322	$	3,351,167

17

3. Loans and Allowance for Loan Losses (continued)

Net investment in lease financing at March 31, 2012 and December 31, 2011 is shown in the following table (in thousands).

	March 31,			December 31,
	2012			2011
Future minimum lease payments	$	29,933		$	33,565
Unguaranteed residual value		150			136
Guaranteed residual value		2,269			2,333
Initial direct costs, net of amortization		58			79
Unearned income		(2,985	)		(3,509	)
	$	29,425		$	32,604

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses inherent in the existing portfolio of loans. Management has responsibility for determining the level of the allowance for loan losses, subject to review by the Audit Committee of our Board of Directors and the Directors’ Loan Review Committee of the Bank’s Board of Directors.

It is management’s responsibility at the end of each quarter, or more frequently as deemed necessary, to analyze the level of the allowance for loan losses to ensure that it is appropriate for the estimated credit losses in the portfolio consistent with the Receivables and Contingencies Topics of the ASC. Estimated credit losses are the probable current amount of loans that we will be unable to collect given facts and circumstances as of the evaluation date. When management determines that a loan or portion thereof, is uncollectible, the loan, or portion thereof, is charged off against the allowance for loan losses. Any subsequent recovery of charged-off loans is added back to the allowance for loan losses.

We have developed a methodology that seeks to determine an allowance within the scope of the Receivables and Contingencies Topics of the ASC. Each of the loans that has been determined to be impaired is within the scope of the Receivables Topic and is individually evaluated for impairment using one of three impairment measurement methods as of the evaluation date: (1) the present value of expected future discounted cash flows on the loan, (2) the loan’s observable market price, or (3) the fair value of the collateral if the loan is collateral dependent. Specific reserves are provided in our estimate of the allowance based on the measurement of impairment under these three methods, except for collateral dependent loans, which require the fair value method. All non-impaired loans are within the scope of the Contingencies Topic. Estimates of loss for the Contingencies Topic are calculated based on historical loss experience by loan portfolio segment adjusted for changes in trends, conditions, and other relevant factors that affect repayment of loans as of the evaluation date. While historical loss experience provides a reasonable starting point for the analysis, historical losses, or recent trends in losses, are not the sole basis upon which to determine the appropriate level for the allowance for loan losses. Management considers recent qualitative or environmental factors that are likely to cause estimated credit losses associated with the existing portfolio to differ from historical loss experience, including but not limited to: changes in lending policies and procedures; changes in underwriting standards; changes in economic and business conditions and developments that affect the collectibility of the portfolio; the condition of various market segments; changes in the nature and volume of the portfolio and in the terms of loans; changes in lending management and staff; changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans; changes in the loan review system; changes in the value of underlying collateral for collateral-dependent loans; and any concentrations of credit and changes in the level of such concentrations.

We design our loan review program to identify and monitor problem loans by maintaining a credit grading process, ensuring that timely and appropriate changes are made to the loans with assigned risk grades and coordinating the delivery of the information necessary to assess the appropriateness of the allowance for loan losses. Loans are evaluated for impairment when: (i) payments on the loan are delayed, typically by 90 days or more (unless the loan is both well secured and in the process of collection), (ii) the loan becomes classified, (iii) the loan is being reviewed in the normal course of the loan review scope, or (iv) the loan is identified by the servicing officer as a problem. We review all loan relationships over $0.2 million that exhibit probable or observed credit weaknesses, the top 25 loan relationships by dollar amount in each market we serve and additional relationships necessary to achieve adequate coverage of our various lending markets.

18

3. Loans and Allowance for Loan Losses (continued)

Homogenous loans, such as consumer installment loans, residential mortgage loans and home equity loans, are not individually reviewed and are generally risk graded at the same levels. The risk grade and reserves are established for each homogenous pool of loans based on the expected net charge-offs from current trends in delinquencies, losses or historical experience and general economic conditions. As of March 31, 2012, we had no material delinquencies in these types of loans.

The allowance is subject to regulatory examinations and determinations as to appropriateness, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance.

Changes in the allowance for loan losses, distributed by portfolio segment, were as follows (in thousands):

	Commercial and Industrial			Real Estate			Construction and Land Development			Consumer			Unallocated		Total
Three Months Ended March 31, 2012
Balance at beginning of period	$	38,196		$	15,703		$	13,268		$	328		$	—	$	67,495
Provision charged to operations		1,108			(740	)		2,057			(204	)		—		2,221
Loans charged off		(3,982	)		(163	)		(4,637	)		(17	)		—		(8,799	)
Recoveries on charged off loans		459			17			1			15			—		492
Balance at end of period	$	35,781		$	14,817		$	10,689		$	122		$	—	$	61,409

	Commercial and Industrial			Real Estate			Construction and Land Development			Consumer			Unallocated		Total
Three Months Ended March 31, 2011
Balance at beginning of period	$	41,687		$	11,732		$	11,227		$	523		$	—	$	65,169
Provision charged to operations		3,024			(188	)		3,575			(35	)		124		6,500
Loans charged off		(4,055	)		(417	)		(1,571	)		(63	)		—		(6,106	)
Recoveries on charged off loans		206			149			5			17			—		377
Balance at end of period	$	40,862		$	11,276		$	13,236		$	442		$	124	$	65,940

As of March 31, 2012 and December 31, 2011, the loan portfolio was distributed by portfolio segment and impairment methodology as shown below (in thousands):

	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
As of March 31, 2012
Loans individually evaluated for impairment	$	18,136	$	37,621	$	19,864	$	—	$	75,621
Loans collectively evaluated for impairment		1,791,017		1,174,651		261,983		27,392		3,255,043
	$	1,809,153	$	1,212,272	$	281,847	$	27,392	$	3,330,664

	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
As of December 31, 2011
Loans individually evaluated for impairment	$	20,331	$	38,101	$	26,272	$	—	$	84,704
Loans collectively evaluated for impairment		1,805,732		1,183,625		247,677		29,429		3,266,463
	$	1,826,063	$	1,221,726	$	273,949	$	29,429	$	3,351,167

19

3. Loans and Allowance for Loan Losses (continued)

As of March 31, 2012 and December 31, 2011, the allowance for loan losses was distributed by portfolio segment and impairment methodology as shown below (in thousands):

	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
As of March 31, 2012
Loans individually evaluated for impairment	$	—	$	1,924	$	—	$	—	$	1,924
Loans collectively evaluated for impairment		35,781		12,893		10,689		122		59,485
	$	35,781	$	14,817	$	10,689	$	122	$	61,409
	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
As of December 31, 2011
Loans individually evaluated for impairment	$	1,229	$	2,664	$	4,894	$	—	$	8,787
Loans collectively evaluated for impairment		36,967		13,039		8,374		328		58,708
	$	38,196	$	15,703	$	13,268	$	328	$	67,495

4. Deposits

Deposits at March 31, 2012 and December 31, 2011 are summarized as follows (in thousands):

	March 31,		December 31,
	2012		2011
Noninterest-bearing demand	$	265,036	$	328,858
Interest-bearing:
NOW accounts		127,792		117,395
Money market		2,111,587		2,090,172
Brokered—money market		224,243		224,925
Demand		65,601		53,650
Savings		173,622		171,088
Time—$100,000 and over		828,104		840,837
Time—other		206,519		216,836
Brokered—time		166,272		202,445
	$	4,168,776	$	4,246,206

5. Short-Term Borrowings

Short-term borrowings at March 31, 2012 and December 31, 2011 were as follows (in thousands):

	March 31,		December 31,
	2012		2011
Federal funds purchased	$	189,950	$	211,025
Securities sold under agreements to repurchase		217,624		134,114
Federal Home Loan Bank (FHLB) notes		100,000		50,000
Short-term bank loans		99,200		81,300
	$	606,774	$	476,439

20

5. Short-Term Borrowings (continued)

Federal funds purchased and securities sold under agreements to repurchase generally mature daily, on demand or on some other short-term basis. The Bank and FSC execute transactions to sell securities under agreements to repurchase with both their customers and broker-dealers. Securities involved in these transactions are held by the Bank, FSC or the dealer. Information concerning federal funds purchased and securities sold under agreements to repurchase is shown in the following table (dollar amounts in thousands):

	Three Months Ended March 31,
	2012			2011
Average balance during the period	$	403,759		$	480,141
Average interest rate during the period		0.22	%		0.23	%
	March 31,			December 31,
	2012			2011
Average interest rate at end of period		0.24	%		0.20	%
Securities underlying the agreements at end of period
Carrying value	$	178,635		$	95,993
Estimated fair value	$	226,190		$	142,866

The estimated fair value of securities underlying repurchase agreements above includes approximately $46.8 million of securities owned by FSC customers and pledged to FSC as collateral for margin loans as of March 31, 2012. FSC is permitted to sell or re-pledge customer securities held as collateral for margin loans under the terms of the margin loan agreements between FSC and its customers.

FHLB notes mature over terms not exceeding 365 days and are collateralized by FHLB Dallas stock, nonspecified real estate loans and certain specific commercial real estate loans. Other information regarding FHLB notes is shown in the following table (dollar amounts in thousands):

	Three Months Ended March 31,
	2012			2011
Average balance during the period	$	25,549		$	43,889
Average interest rate during the period		0.12	%		0.42	%
	March 31,			December 31,
	2012			2011
Average interest rate at end of period		0.10	%		0.10	%

FSC uses short-term bank loans periodically to finance securities owned, customers’ margin accounts, and other short-term operating activities. Interest on the borrowings varies with the federal funds rate. The weighted average interest rate on the borrowings at March 31, 2012 and December 31, 2011 was 1.19% and 1.33%, respectively.

21

6. Notes Payable

Notes payable at March 31, 2012 and December 31, 2011 consisted of the following (in thousands):

		$xxx,xxx,xxx		$xxx,xxx,xxx
	March 31,		December 31,
	2012		2011
Term note with JPMorgan Chase, due July 31, 2012. Principal payments of $0.9 million and interest are payable quarterly.	$	15,045	$	15,930
Revolving credit line with JPMorgan Chase not to exceed $5.0 million. Facility matures July 31, 2012 with interest payable quarterly.		5,000		5,000
Term note with JPMorgan Chase, due July 31, 2012. Principal payments of $0.5 million and interest are payable semi-annually.		2,000		2,500
Term note with JPMorgan Chase, due October 27, 2015. Principal payments of $25,000 and interest are payable quarterly.		425		450
Subordinated note with JPMorgan Chase, not to exceed $20 million. Facility matures October 27, 2015 with principal payments of $1.0 million and interest payable quarterly.		17,000		18,000
First Southwest nonrecourse notes, due January 25, 2035 with interest payable quarterly.		12,358		13,086
	$	51,828	$	54,966

The agreements underlying the JPMorgan Chase debt include certain restrictive covenants, including limitations on the ability to incur additional debt, limitations on the disposition of assets and requirements to maintain various financial ratios, including a non-performing asset ratio, at acceptable levels. At March 31, 2012, the Bank’s non-performing asset ratio was in compliance with the non-performing asset ratio covenant.

7. Income Taxes

PlainsCapital’s effective tax rate was 34.11% and 36.88% for the three months ended March 31, 2012 and 2011, respectively. The decrease in the effective tax rate was primarily due to lower non-deductible expenses in the three months ended March 31, 2012, compared to the same period in 2011. In addition, the effective tax rate for the three months ended March 31, 2011 was affected by certain discrete items recorded in the income tax provision in the first quarter of 2011.

PlainsCapital files income tax returns in the U.S. federal jurisdiction and several U.S. state jurisdictions. PlainsCapital is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2008. PlainsCapital is currently under examination for the 2009 tax year by the U.S. federal income tax authorities and does not anticipate any material adjustments to result from this examination.

8. Commitments and Contingencies

The Bank acts as agent on behalf of certain correspondent banks in the purchase and sale of federal funds that aggregated $25.5 million and $33.0 million at March 31, 2012 and December 31, 2011, respectively.

Legal Matters

In November 2006, FSC received subpoenas from the SEC and the United States Department of Justice (the “DOJ”) in connection with an investigation of possible antitrust and securities law violations, including bid-rigging, in the procurement of guaranteed investment contracts and other investment products for the reinvestment of bond proceeds by municipalities. The investigation is industry-wide and includes approximately 30 or more firms, including some of the largest U.S. investment firms.

22

8. Commitments and Contingencies (continued)

As a result of these SEC and DOJ investigations into industry-wide practices, FSC was initially named as a co-defendant in cases filed in several different federal courts by various state and local governmental entities suing on behalf of themselves and a purported class of similarly situated governmental entities and a similar set of lawsuits filed by various California local governmental entities suing on behalf of themselves and a purported class of similarly situated governmental entities. All claims asserted against FSC in these purported class actions were subsequently dismissed. However, the plaintiffs in these purported class actions have filed amended complaints against other entities, and FSC is identified in these complaints not as a defendant, but as an alleged co-conspirator with the named defendants.

Additionally, as a result of these SEC and DOJ investigations into industry-wide practices, FSC has been named as a defendant in 20 individual lawsuits. These lawsuits have been brought by several California public entities and two New York non-profit corporations that do not seek to certify a class. The Judicial Panel on Multidistrict Litigation has transferred these cases to the United States District Court, Southern District of New York. The California plaintiffs allege violations of Section 1 of the Sherman Act and the California Cartwright Act. The New York plaintiffs allege violations of Section 1 of the Sherman Act and the New York Donnelly Act. The allegations against FSC are very limited in scope. FSC has filed answers in each of the twenty lawsuits denying the allegations and asserting several affirmative defenses. FSC intends to defend itself vigorously in these individual actions. The relief sought is unspecified monetary damages.

PlainsCapital and its subsidiaries are defendants in various other legal matters arising in the normal course of business. Management believes that the ultimate liability, if any, arising from these matters, and the matters discussed above will not materially affect the consolidated financial statements.

Other Contingencies

PlainsCapital and its subsidiaries lease space, primarily for branch facilities and automated teller machines, under noncancelable operating leases with remaining terms, including renewal options, of 1 to 16 years and under capital leases with remaining terms of 12 to 16 years. Future minimum payments under these leases have not changed significantly from the amounts reported at December 31, 2011 in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 16, 2012. Rental expense under the operating leases was approximately $6.0 million and $5.6 million for the three months ended March 31, 2012 and 2011, respectively.

9. Financial Instruments with Off-Balance Sheet Risk

The Bank is party to financial instruments with off-balance sheet risk that are used 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 that involve varying degrees of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received. The contract amounts of those instruments reflect the extent of involvement (and therefore the exposure to credit loss) the Bank has in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer provided that the terms established in the contract are met. Commitments generally have fixed expiration dates and may require payment of fees. Because certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These 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 commitments to customers.

The Bank had in the aggregate outstanding unused commitments to extend credit of $920.0 million at March 31, 2012. The Bank had outstanding standby letters of credit of $45.8 million at March 31, 2012.

The Bank uses the same credit policies in making commitments and standby letters of credit as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary, upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include real estate, accounts receivable, marketable securities, interest-bearing deposit accounts, inventory, and property, plant and equipment.

23

9. Financial Instruments with Off-Balance Sheet Risk (continued)

In the normal course of business, FSC executes, settles and finances various securities transactions that may expose FSC to off-balance sheet risk in the event that a customer or counterparty does not fulfill its contractual obligations. Examples of such transactions include the sale of securities not yet purchased by customers or for the account of FSC, clearing agreements between FSC and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.

10. Stock-Based Compensation

The PlainsCapital Corporation 2009 Long-Term Incentive Plan (the “2009 LTIP”) allows for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights and other awards to employees of PlainsCapital, its subsidiaries and outside directors of PlainsCapital. The 2009 LTIP provides flexibility to PlainsCapital’s compensation methods in order to adapt the compensation of key employees and outside directors to a changing business environment. In the aggregate, 4.0 million shares of common stock may be delivered pursuant to awards granted under the 2009 LTIP.

In addition, the PlainsCapital Corporation 2010 Long-Term Incentive Plan (the “2010 Plan”) allowed for the granting of nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights and other awards to employees of PlainsCapital, its subsidiaries and outside directors of PlainsCapital. The 2010 Plan terminated on March 18, 2012 as to all future awards.

At March 31, 2012, a total of 4.0 million shares were available for grant under the 2009 LTIP. PlainsCapital typically issues new shares upon issuance, exercise or vesting of equity-based awards.

Stock-based compensation cost was approximately $0.7 million and $0.5 million for the three months ended March 31, 2012 and 2011, respectively.

At March 31, 2012, unrecognized cost related to unvested restricted stock and restricted stock units was $4.4 million and $4.9 million, respectively. The vesting of the unvested restricted stock and restricted stock units will automatically accelerate in full under certain conditions. Upon a change in control of PlainsCapital, the entire unrecognized cost related to both unvested restricted stock and restricted stock units would be recognized in noninterest expense immediately. If and when our common stock is listed and traded on an exchange registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the entire unrecognized cost related to unvested restricted stock would be recognized in noninterest expense immediately.

PlainsCapital approved the grant of 344,311 restricted stock units to certain employees effective April 1, 2012. The estimated grant date fair value of the restricted stock units is $4.8 million. The grants vest in 5 years and are subject to the accelerated vesting conditions discussed previously.

Information regarding unvested restricted stock and restricted stock units for the three months ended March 31, 2012 is as follows:

	Unvested Restricted Stock			Weighted Average Grant Date Fair Value		Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding, January 1		528,532		$	11.45		590,149		$	11.91
Granted		—			0.00		—			0.00
Vested		(75,429	)		11.33		—			0.00
Cancellations and expirations		—			0.00		(3,500	)		12.07
Outstanding, March 31		453,103		$	11.46		586,649		$	11.91

24

10. Stock-Based Compensation (continued)

Information regarding stock options for the three months ended March 31, 2012 is as follows:

				Weighted
				Average
				Exercise
	Shares			Price
Outstanding, January 1		647,053		$	10.04
Exercised		(80,579	)		6.69
Cancellations and expirations		(47,913	)		9.89
Outstanding, March 31		518,561		$	10.57

11. Regulatory Matters

The Bank and PlainsCapital are 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 consolidated financial statements. The regulations require us to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital classifications 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 companies to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of Tier 1 and total capital (as defined) to risk-weighted assets (as defined). A comparison of the Bank’s and PlainsCapital’s actual capital amounts and ratios to the minimum requirements is as follows (dollar amounts in thousands):

	At March 31, 2012
	Required					Actual
	Amount		Ratio			Amount		Ratio
PlainsCapital Bank:
Tier 1 capital (to average assets)	$	225,870		4	%	$	549,734		9.74	%
Tier 1 capital (to risk-weighted assets)		175,957		4	%		549,734		12.50	%
Total capital (to risk-weighted assets)		351,913		8	%		604,810		13.75	%
PlainsCapital Corporation:
Tier 1 capital (to average assets)	$	226,335		4	%	$	553,810		9.79	%
Tier 1 capital (to risk-weighted assets)		176,422		4	%		553,810		12.56	%
Total capital (to risk-weighted assets)		352,844		8	%		619,230		14.04	%

	At December 31, 2011
	Required					Actual
	Amount		Ratio			Amount		Ratio
PlainsCapital Bank:
Tier 1 capital (to average assets)	$	219,660		4	%	$	536,274		9.77	%
Tier 1 capital (to risk-weighted assets)		169,281		4	%		536,274		12.67	%
Total capital (to risk-weighted assets)		338,561		8	%		589,365		13.93	%
PlainsCapital Corporation:
Tier 1 capital (to average assets)	$	220,103		4	%	$	532,025		9.67	%
Tier 1 capital (to risk-weighted assets)		169,740		4	%		532,025		12.54	%
Total capital (to risk-weighted assets)		339,480		8	%		596,057		14.05	%

25

11. Regulatory Matters (continued)

To be considered adequately capitalized (as defined) under the regulatory framework for prompt corrective action, the Bank must maintain minimum Tier 1 capital to total average assets and Tier 1 capital to risk-weighted assets ratios of 4%, and a total capital to risk-weighted assets ratio of 8%. Based on the actual capital amounts and ratios shown in the previous table, the Bank’s ratios place it in the well capitalized (as defined) capital category under the regulatory framework for prompt corrective action. The minimum required capital amounts and ratios for the well capitalized category are summarized as follows (dollar amounts in thousands):

	At March 31, 2012
	Required					Actual
	Amount		Ratio			Amount		Ratio
PlainsCapital Bank:
Tier 1 capital (to average assets)	$	282,338		5	%	$	549,734		9.74	%
Tier 1 capital (to risk-weighted assets)		263,935		6	%		549,734		12.50	%
Total capital (to risk-weighted assets)		439,891		10	%		604,810		13.75	%

	At December 31, 2011
	Required					Actual
	Amount		Ratio			Amount		Ratio
PlainsCapital Bank:
Tier 1 capital (to average assets)	$	274,575		5	%	$	536,274		9.77	%
Tier 1 capital (to risk-weighted assets)		253,921		6	%		536,274		12.67	%
Total capital (to risk-weighted assets)		423,202		10	%		589,365		13.93	%

Pursuant to the net capital requirements of the Exchange Act, FSC has elected to determine its net capital requirements using the alternative method. Accordingly, FSC is required to maintain minimum net capital, as defined in Rule 15c3-1, equal to the greater of $250,000 or 2% of aggregate debit balances, as defined in Rule 15c3-3. At March 31, 2012, FSC had net capital of $58.4 million; the minimum net capital requirement was $4.1 million; net capital maintained by FSC was 28% of aggregate debits; and net capital in excess of the minimum requirement was $54.3 million.

As a mortgage originator, PrimeLending is subject to minimum net worth requirements established by both the United States Department of Housing and Urban Development (“HUD”) and the Government National Mortgage Association (“GNMA”). PrimeLending determines its compliance with the minimum net worth requirements on an annual basis. As of December 31, 2011, PrimeLending was required to have net worth of $1.0 million under HUD regulations, including $0.2 million of cash or cash equivalents, and $2.6 million under GNMA regulations, including approximately $0.5 million of cash or cash equivalents. As of December 31, 2011, PrimeLending’s net worth exceeded the amounts required by both HUD and GNMA.

12. Shareholders’ Equity

The Bank is subject to certain restrictions on the amount of dividends it may declare without prior regulatory approval. At March 31, 2012, approximately $62.9 million of retained earnings was available for dividend declaration without prior approval from the Federal Reserve.

At March 31, 2012, $114.1 million of our Non-Cumulative Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”) was outstanding under the Small Business Lending Fund program (the “SBLF”). The Series C Preferred Stock has an aggregate liquidation preference of approximately $114.1 million and qualifies as Tier 1 Capital for regulatory purposes.

The terms of the Series C Preferred Stock provide for the payment of non-cumulative dividends on a quarterly basis beginning January 1, 2012. The dividend rate, as a percentage of the liquidation amount, fluctuates while the Series C Preferred Stock is outstanding based upon changes in the level of “qualified small business lending” (“QSBL”) by the Bank from its average level of QSBL at each of the four quarter ends leading up to June 30, 2010 (the “Baseline”). Until March 2016, the dividend rate will generally decrease if we increase our level of QSBL from the Baseline and increase if we decrease our level of QSBL from the Baseline, subject to certain limitations described in the Certificate of Designations.

26

12. Shareholders’ Equity (continued)

The dividend rate on the Series C Preferred stock was 3.826% for the three months ended March 31, 2012. The dividend rate is 2.423% for the period from April 1, 2012 to June 30, 2012 as a result of increased levels of QSBL over the Baseline.

13. Assets Segregated for Regulatory Purposes

FSC was not required to segregate cash and securities in a special reserve account for the benefit of customers under Rule 15c3-3 of the Exchange Act at March 31, 2012 or December 31, 2011. Assets segregated under the provisions of the Exchange Act are not available for general corporate purposes.

FSC was not required to segregate cash or securities in a special reserve account for the benefit of proprietary accounts of introducing broker-dealers at March 31, 2012 or December 31, 2011.

14. Broker-Dealer and Clearing Organization Receivables and Payables

Broker-dealer and clearing organization receivables and payables at March 31, 2012 and December 31, 2011 consisted of the following (in thousands):

	March 31,		December 31,
	2012		2011
Receivables
Securities borrowed	$	127,361	$	94,044
Securities failed to deliver		5,558		11,476
Clearing organizations		64,035		6,141
Due from dealers		36		29
	$	196,990	$	111,690
Payables
Securities loaned	$	165,456	$	120,658
Correspondents		51,774		56,645
Securities failed to receive		2,463		8,114
Clearing organizations		319		1,066
	$	220,012	$	186,483

15. Fair Value Measurements

Fair Value Measurements and Disclosures

PlainsCapital determines fair values in compliance with the Fair Value Measurements and Disclosures Topic of the ASC (the “Fair Value Topic”). The Fair Value Topic defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and requires disclosures about fair value measurements. The Fair Value Topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Fair Value Topic assumes that transactions upon which fair value measurements are based occur in the principal market for the asset or liability being measured. Further, fair value measurements made under the Fair Value Topic exclude transaction costs and are not the result of forced transactions.

27

15. Fair Value Measurements (continued)

The Fair Value Topic creates a fair value hierarchy that classifies fair value measurements based upon the inputs used in valuing the assets or liabilities that are the subject of fair value measurements. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs, as indicated below.

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities that PlainsCapital can access at the measurement date.

• Level 2 Inputs: Observable inputs other than Level 1 prices. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates and credit risks), and inputs that are derived from or corroborated by market data, among others.

• Level 3 Inputs: Unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. Level 3 inputs include pricing models and discounted cash flow techniques, among others.

Fair Value Option

PlainsCapital has elected to measure substantially all of PrimeLending’s mortgage loans held for sale and certain time deposits at fair value under the provisions of the Fair Value Option Subsections of the ASC (“Fair Value Option”). PlainsCapital elected to apply the provisions of the Fair Value Option to these items so that it would have the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. PlainsCapital determines the fair value of the financial instruments accounted for under the provisions of the Fair Value Option in compliance with the provisions of the Fair Value Topic discussed above.

At March 31, 2012, the aggregate fair value of PrimeLending loans held for sale accounted for under the Fair Value Option was $852.8 million, while the unpaid principal balance of those loans was $828.6 million. At December 31, 2011, the aggregate fair value of PrimeLending loans held for sale accounted for under the Fair Value Option was $775.3 million, while the unpaid principal balance of those loans was $752.8 million. The interest component of fair value is reported as interest income on loans in the income statement.

PlainsCapital holds a number of financial instruments that are measured at fair value on a recurring basis, either by the application of the Fair Value Option or other authoritative pronouncements. The fair values of those instruments are determined primarily using Level 2 inputs. Those inputs include quotes from mortgage loan investors and derivatives dealers, data from an independent pricing service and rates paid in the brokered certificate of deposit market.

At March 31, 2012, the Bank held certain senior and subordinate auction rate bonds purchased as a result of the First Southwest acquisition. The estimated fair value of the auction rate bonds is determined quarterly with the assistance of a third-party valuation expert using significant unobservable inputs. We project cash flows from the bonds based on assumptions for expected workout period and the contractual rate formula specified in the bond indenture. The workout assumptions capture the expectations for prepayments on the underlying student loan collateral and the likelihood of possible redemptions by the issuer. The cash flows are then discounted to determine fair value. The components of the discounts rates are the risk free rate, a credit spread, and a liquidity spread. The credit spreads are derived from observed market spreads in the student loan ABS market. The liquidity spreads represent the estimated risk premium a willing buyer would demand to compensate for the lack of liquidity in the auction rate market. The fair value calculations are sensitive to the input assumptions. Higher credit spreads, higher liquidity spreads, or longer workout assumptions result in lower fair values. In addition, a credit rating downgrade by a Nationally Recognized Statistical Rating Organization could lead to higher credit spreads and lower fair values.

28

15. Fair Value Measurements (continued)

Information regarding the significant unobservable inputs used to estimate the fair value of the auction rate bonds at March 31, 2012 is shown in the following table.

	Liquidity Spread (bps)						Credit Spread (bps)						Workout (Years)
	Low		High		Weighted Avg		Low		High		Weighted Avg		Low		High		Weighted Avg
Senior Auction Rate Bonds		200		250		225		51		1217		159		4.0		5.0		4.5
Subordinate Auction Rate Bonds		200		250		225		274		1841		711		4.0		5.0		4.5

The following table reconciles the beginning and ending balances of assets measured at fair value using Level 3 inputs (in thousands).

	Auction
	Rate Bonds
Balance, January 1, 2012	$	44,544
Unrealized gains in other comprehensive income, net		974
Balance, March 31, 2012	$	45,518

The following tables present information regarding financial assets and liabilities measured at fair value on a recurring basis, including changes in fair value for those instruments that are reported at fair value under an election under the Fair Value Option (in thousands).

	At March 31, 2012
	Level 1		Level 2		Level 3		Total
	Inputs		Inputs		Inputs		Fair Value
Loans held for sale	$	—	$	852,751	$	—	$	852,751
Securities available for sale		—		571,091		45,518		616,609
Trading securities		—		66,804		—		66,804
Derivative assets		—		11,491		—		11,491
Time deposits		—		1,094		—		1,094
Trading liabilities		—		5,218		—		5,218
Derivative liabilities		—		9		—		9

	Changes in Fair Value for Assets and Liabilities Reported at Fair Value under  Fair Value Option
	Three Months Ended March 31, 2012						Three Months Ended March 31, 2011
			Other		Total				Other			Total
	Net Gains from		Noninterest		Changes in		Net Gains from		Noninterest			Changes in
	Sale of Loans		Income		Fair Value		Sale of Loans		Income			Fair Value
Loans held for sale	$	1,652	$	—	$	1,652	$	568	$	—		$	568
Time deposits		—		4		4		—		(2	)		(2	)

PlainsCapital also determines the fair value of assets and liabilities on a non-recurring basis. For example, facts and circumstances may dictate a fair value measurement when there is evidence of impairment. Assets and liabilities measured on a non-recurring basis include the items discussed below.

Impaired Loans – PlainsCapital reports impaired loans at fair value through allocations of the allowance for loan losses. PlainsCapital determines fair value using Level 2 inputs consisting of independent appraisals. At March 31, 2012, loans with a carrying amount of $11.4 million had been reduced by allocations of the allowance for loan losses of $1.9 million, resulting in a reported fair value of $9.5 million.

Other Real Estate Owned – PlainsCapital reports other real estate owned at fair value less estimated cost to sell. Any excess of recorded investment over fair value less cost to sell is charged against the allowance for loan losses when property is initially transferred to other real estate. Subsequent to the initial transfer to other real estate, valuation adjustments are charged against earnings. PlainsCapital determines fair value using Level 2 inputs consisting of independent appraisals. At March 31, 2012, the estimated fair value of other real estate owned was $23.6 million.

29

15. Fair Value Measurements (continued)

The Fair Value of Financial Instruments Subsection of the ASC requires disclosure of the fair value of financial assets and liabilities, including the financial assets and liabilities previously discussed. The methods for determining estimated fair value for financial assets and liabilities is described in detail in Note 21 to the consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on March 16, 2012.

The estimated fair values of PlainsCapital’s financial instruments are shown below (in thousands):

	At March 31, 2012
			Estimated Fair Value
	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Financial assets
Cash and short-term investments	$	264,722	$	264,722	$	—	$	—	$	264,722
Loans held for sale		853,801		—		853,801		—		853,801
Securities		859,060		—		776,600		91,246		867,846
Loans, net		3,269,255		—		9,528		3,288,686		3,298,214
Broker-dealer and clearing organization receivables		196,990		—		196,990		—		196,990
Fee award receivable		17,706		—		17,706		—		17,706
Cash surrender value of life insurance policies		23,504		—		23,504		—		23,504
Interest rate swaps, interest rate lock commitments (“IRLCs”) and forward purchase commitments		11,491		—		11,491		—		11,491
Accrued interest receivable		15,313		—		15,313		—		15,313
Financial liabilities
Deposits		4,168,776		—		4,175,849		—		4,175,849
Broker-dealer and clearing organization payables		220,012		—		220,012		—		220,012
Other trading liabilities		5,218		—		5,218		—		5,218
Short-term borrowings		606,774		—		606,774		—		606,774
Debt		118,840		—		118,840		—		118,840
Forward purchase commitments		9		—		9		—		9
Accrued interest payable		2,498		—		2,498		—		2,498

	At December 31, 2011
			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
	Amount		Inputs		Inputs		Inputs		Total
Financial assets
Cash and short-term investments	$	347,994	$	347,994	$	—	$	—	$	347,994
Loans held for sale		776,372		—		776,372		—		776,372
Securities		839,753		—		758,107		90,672		848,779
Loans, net		3,283,672		—		26,483		3,276,102		3,302,585
Broker-dealer and clearing organization receivables		111,690		—		111,690		—		111,690
Fee award receivable		18,002		—		18,002		—		18,002
Cash surrender value of life insurance policies		23,122		—		23,122		—		23,122
Interest rate swaps, interest rate lock commitments (“IRLCs”) and forward purchase commitments		10,481		—		10,481		—		10,481
Accrued interest receivable		16,175		—		16,175		—		16,175
Financial liabilities
Deposits		4,246,206		—		4,255,639		—		4,255,639
Broker-dealer and clearing organization payables		186,483		—		186,483		—		186,483
Other trading liabilities		4,592		—		4,592		—		4,592
Short-term borrowings		476,439		—		476,439		—		476,439
Debt		121,978		—		121,978		—		121,978
Forward purchase commitments		3,642		—		3,642		—		3,642
Accrued interest payable		2,952		—		2,952		—		2,952

30

16. Derivative Financial Instruments

The Bank and PrimeLending use various derivative financial instruments to mitigate interest rate risk. The Bank’s interest rate risk management strategy involves effectively modifying the re-pricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin. PrimeLending has interest rate risk relative to its inventory of mortgage loans held for sale and IRLCs. PrimeLending is exposed to such rate risk from the time an IRLC is made to an applicant to the time the related mortgage loan is sold.

Derivative Instruments and the Fair Value Option

As discussed in Note 15, PrimeLending elected to measure substantially all mortgage loans held for sale at fair value under the provisions of the Fair Value Option. The election provides PrimeLending the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without applying complex hedge accounting provisions. PrimeLending provides IRLCs to its customers and executes forward purchase commitments to sell mortgage loans. The fair values of both IRLCs and purchase commitments are recorded in other assets or other liabilities, as appropriate. For the three months ended March 31, 2012 and 2011, changes in the fair values of these derivative instruments produced net gains of approximately $4.7 million and $0.5 million, respectively. The net gains were recorded as a component of gain on sale of loans.

Derivative positions at March 31, 2012 and December 31, 2011 are presented in the following table (in thousands):

	At March 31, 2012				At December 31, 2011
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
Derivative instruments
IRLCs	$	869,766	$	10,526	$	687,890	$	10,096
Interest rate swaps		1,969		71		1,969		82
Forward purchase commitments		992,283		885		675,794		(3,339	)

31

17. Segment and Related Information

PlainsCapital has three reportable segments that are organized primarily by the core products offered to the segments’ respective customers. The banking segment includes the operations of the Bank. The operations of PrimeLending comprise the mortgage origination segment. The financial advisory segment is comprised of First Southwest and Hester Capital.

Balance sheet amounts for the operations of PlainsCapital and its remaining subsidiaries not discussed in the previous paragraph are included in “All Other and Eliminations.”

The following tables present information about the revenues, profits and assets of PlainsCapital’s reportable segments (in thousands).

Income Statement Data

		$xxxx,xxxx,xxx		$xxxx,xxxx,xxx			$xxxx,xxxx,xxx		$xxxx,xxxx,xxx			$xxxx,xxxx,xxx
	Three Months Ended March 31, 2012
			Mortgage			Financial		Intercompany			PlainsCapital
	Banking		Origination			Advisory		Eliminations			Consolidated
Interest income	$	54,446	$	7,257		$	4,038	$	(9,185	)	$	56,556
Interest expense		6,047		12,767			941		(12,408	)		7,347
Net interest income (expense)		48,399		(5,510	)		3,097		3,223			49,209
Provision for loan losses		2,083		—			138		—			2,221
Noninterest income		9,591		118,082			25,858		(3,425	)		150,106
Noninterest expense		34,765		102,127			27,412		(202	)		164,102
Income before taxes		21,142		10,445			1,405		—			32,992
Income tax provision		6,562		4,210			482		—			11,254
Consolidated net income		14,580		6,235			923		—			21,738
Less: net income attributable to noncontrolling interest		—		446			35		—			481
Net income attributable to PlainsCapital Corporation	$	14,580	$	5,789		$	888	$	—		$	21,257

Balance Sheet Data

		$xxxx,xxxx,xxx		$xxxx,xxxx,xxx		$xxxx,xxxx,xxx		$xxxx,xxxx,xxx			$xxxx,xxxx,xxx
	March 31, 2012
			Mortgage		Financial		All Other and			PlainsCapital
	Banking		Origination		Advisory		Eliminations			Consolidated
Cash and due frombanks	$	242,215	$	46,593	$	5,221	$	(49,165	)	$	244,864
Loans held for sale		1,050		852,751		—		—			853,801
Securities		796,037		—		63,023		—			859,060
Loans, net		3,741,405		1,848		311,465		(785,463	)		3,269,255
Broker-dealer and clearing organization receivables		—		—		196,990		—			196,990
Investment in subsidiaries		237,088		—		—		(237,088	)		—
Goodwill and other intangible assets, net		7,862		23,706		15,309		—			46,877
Other assets		198,546		32,928		58,959		26,277			316,710
Total assets	$	5,224,203	$	957,826	$	650,967	$	(1,045,439	)	$	5,787,557
Deposits	$	4,151,782	$	—	$	73,262	$	(56,268	)	$	4,168,776
Broker-dealer and clearing organization payables		—		—		220,012		—			220,012
Short-term borrowings		406,613		—		200,161		—			606,774
Notes payable		—		775,425		19,634		(743,231	)		51,828
Junior subordinated debentures		—		—		—		67,012			67,012
Other liabilities		70,258		62,261		47,402		(47,728	)		132,193
PlainsCapital Corporation shareholders’ equity		595,550		118,535		90,496		(265,448	)		539,133
Noncontrolling interest		—		1,605		—		224			1,829
Total liabilities and shareholders’ equity	$	5,224,203	$	957,826	$	650,967	$	(1,045,439	)	$	5,787,557

32

17. Segment and Related Information (continued)

Income Statement Data

		$xxxx,xxxx,x		$xxxx,xxxx,x			$xxxx,xxxx,x			$xxxx,xxxx,x			$xxxx,xxxx,x
	Three Months Ended March 31, 2011
			Mortgage			Financial			Intercompany			PlainsCapital
	Banking		Origination			Advisory			Eliminations			Consolidated
Interest income	$	48,893	$	3,867		$	3,566		$	(4,323	)	$	52,003
Interest expense		8,418		7,451			784			(7,075	)		9,578
Net interest income (expense)		40,475		(3,584	)		2,782			2,752			42,425
Provision for loan losses		6,500		—			—			—			6,500
Noninterest income		7,329		61,674			19,191			(2,854	)		85,340
Noninterest expense		28,089		58,482			22,716			(246	)		109,041
Income before taxes		13,215		(392	)		(743	)		144			12,224
Income tax provision		4,931		(146	)		(277	)		—			4,508
Consolidated net income		8,284		(246	)		(466	)		144			7,716
Less: net income attributable to noncontrolling interest		—		69			53			—			122
Net income attributable to PlainsCapital Corporation	$	8,284	$	(315	)	$	(519	)	$	144		$	7,594
Balance Sheet Data
	December 31, 2011
			Mortgage			Financial			All Other and			PlainsCapital
	Banking		Origination			Advisory			Eliminations			Consolidated
Cash and due from banks	$	341,821	$	48,715		$	4,424		$	(50,313	)	$	344,647
Loans held for sale		1,061		775,311			—			—			776,372
Securities		783,586		—			56,167			—			839,753
Loans, net		3,685,013		1,848			316,992			(720,181	)		3,283,672
Broker-dealer and clearing organization receivables		—		—			111,690			—			111,690
Investment in subsidiaries		230,389		—			—			(230,389	)		—
Goodwill and other intangible assets, net		7,862		23,706			15,697			—			47,265
Other assets		186,737		25,850			51,873			32,161			296,621
Total assets	$	5,236,469	$	875,430		$	556,843		$	(968,722	)	$	5,700,020
Deposits	$	4,238,662	$	—		$	68,778		$	(61,234	)	$	4,246,206
Broker-dealer and clearing organization payables		—		—			186,483			—			186,483
Short-term borrowings		347,559		—			128,880			—			476,439
Notes payable		—		705,715			19,432			(670,181	)		54,966
Junior subordinated debentures		—		—			—			67,012			67,012
Other liabilities		68,357		57,481			64,088			(40,296	)		149,630
PlainsCapital Corporation shareholders’ equity		581,891		110,311			89,182			(264,353	)		517,031
Noncontrolling interest		—		1,923			—			330			2,253
Total liabilities and shareholders’ equity	$	5,236,469	$	875,430		$	556,843		$	(968,722	)	$	5,700,020

33

18. Earnings per Common Share

The following table presents the computation of basic and diluted earnings per common share for the three months ended March 31, 2012 and 2011 (in thousands, except per share data).

	Three Months Ended March 31,
	2012		2011
Income applicable to PlainsCapital Corporation common shareholders	$	20,163	$	6,194
Less: income applicable to participating securities		702		217
Income applicable to PlainsCapital Corporation common shareholders for basic earnings per common share	$	19,461	$	5,977
Weighted-average shares outstanding		32,991,399		32,773,614
Less: participating securities included in weighted-average shares outstanding		1,147,615		1,148,095
Weighted-average shares outstanding for basic earnings per common share		31,843,784		31,625,519
Basic earnings per common share	$	0.61	$	0.19
Income applicable to PlainsCapital Corporation common shareholders	$	20,163	$	6,194
Weighted-average shares outstanding		31,843,784		31,625,519
Dilutive effect of contingently issuable shares due to First Southwest acquisition		1,562,651		1,722,152
Dilutive effect of stock options and non-vested stock awards		517,915		175,847
Weighted-average shares outstanding for diluted earnings per common share		33,924,350		33,523,518
Diluted earnings per common share	$	0.59	$	0.18

PlainsCapital uses the two-class method prescribed by the Earnings Per Share Topic of the ASC to compute earnings per common share. Participating securities include non-vested restricted stock and shares of PlainsCapital stock held in escrow pending the resolution of contingencies with respect to the First Southwest acquisition. For the purpose of calculating fully diluted earnings per share, PlainsCapital evaluates the effect of the First Southwest acquisition on weighted-average shares outstanding assuming that the contingencies are resolved given the conditions existing at the balance sheet date.

The weighted-average shares outstanding used to compute diluted earnings per common share do not include outstanding options of 42,000 and 266,259 for the three months ended March 31, 2012 and 2011, respectively. The exercise price of the excluded options exceeded the estimated average market price of PlainsCapital stock in the periods shown. Accordingly, the assumed exercise of the excluded options would have been antidilutive.

19. Recently Issued Accounting Standards

A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring

In April 2011, the FASB amended the Receivables Topic of the ASC to clarify when creditors should classify loan modifications as TDRs (“TDR Amendment”). The TDR Amendment requires creditors to separately conclude that a creditor has granted a concession to a debtor and that the debtor is experiencing financial difficulties in order to classify a loan modification as a troubled debt restructuring. The TDR Amendment became effective for PlainsCapital on July 1, 2011, and has been applied retrospectively to January 1, 2011. The adoption of the TDR Amendment did not have a significant effect on PlainsCapital’s financial position, results of operations or cash flows.

Achieving Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs

In May 2011, the FASB amended the Fair Value Measurements and Disclosures Topic of the ASC to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards. The amendments clarify the application of existing fair value measurement requirements, change certain principles in the Fair Value Measurements and Disclosure Topic and require additional fair value disclosures. The amendments became effective for PlainsCapital on January 1, 2012 and did not have a significant effect on PlainsCapital’s financial position, results of operations or cash flows. PlainsCapital has included the additional disclosures required by the amendments in Note 15.

34

19. Recently Issued Accounting Standards (continued)

Comprehensive Income

In June 2011, the FASB amended the Comprehensive Income Topic of the ASC to revise the manner in which entities present comprehensive income in their financial statements. The amendments became effective for PlainsCapital January 1, 2012. Accordingly, PlainsCapital has presented the components of comprehensive income in a separate statement of comprehensive income immediately following the statement of income, rather than in the statement of shareholders’ equity. The adoption of the amendment did not have a significant effect on PlainsCapital’s financial position, results of operations or cash flows.

Testing Goodwill for Impairment

In September 2011, the FASB amended the Intangibles Topic of the ASC to simplify how entities test goodwill for impairment. Entities have the option to qualitatively test whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount in determining whether step one of the annual goodwill impairment test is necessary. PlainsCapital early adopted the amendments in the fourth quarter of 2011 and the adoption of the amendment did not have a significant effect on its financial position, results of operations or cash flows.

20. Subsequent Events

On May 8, 2012, we entered into an Agreement and Plan of Merger with Hilltop Holdings Inc. (“Hilltop”) and a wholly owned subsidiary of Hilltop, whereby if the merger (the “Merger”) contemplated therein were consummated, PlainsCapital would become a wholly owned subsidiary of Hilltop and each share of our common stock would be converted into the right to receive 0.776 shares of Hilltop’s common stock and a cash payment of $9.00. The Merger is subject to the approval of the shareholders of both Hilltop and PlainsCapital, regulatory approval and other customary closing conditions. If effected, we anticipate that the Merger would constitute a change of control.

35

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

As used in this Quarterly Report on Form 10-Q (this “Quarterly Report”), unless the context otherwise indicates, the references to “we,” “us,” “our,” “our company” or “PlainsCapital” refer to PlainsCapital Corporation, a Texas corporation, and its consolidated subsidiaries as a whole, references to the “Bank” refer to PlainsCapital Bank, a Texas banking association (a wholly owned subsidiary of PlainsCapital Corporation), references to “First Southwest” refer to First Southwest Holdings, LLC, a Delaware limited liability company (a wholly owned subsidiary of the Bank), and its subsidiaries as a whole, references to “FSC” refer to First Southwest Company, a Delaware corporation (a wholly owned subsidiary of First Southwest Holdings, LLC), and references to “PrimeLending” refer to PrimeLending, a PlainsCapital Company, a Texas corporation (a wholly owned subsidiary of the Bank), and its subsidiaries as a whole. In addition, unless the context otherwise requires, references to “shareholders” are to the holders of our voting securities, which consist of our Common Stock, par value $0.001 per share, and our Original Common Stock, par value $0.001 per share, and references to our “common stock” are to our Common Stock and our Original Common Stock, collectively.

The following discussion and analysis should be read in conjunction with (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three months ended March 31, 2012, and with our consolidated financial statements and notes thereto for the year ended December 31, 2011 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2012 (our “Annual Report”) and (ii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report.

Forward-Looking Statements

Certain statements contained in this Quarterly Report that are not statements of historical fact are forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “anticipate,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “would,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We make forward-looking statements regarding topics including, without limitation, our projected sources of funds, expectations concerning mortgage loan origination volume, expectations concerning the hiring of additional mortgage bankers, the expected dividend rate on our Non-Cumulative Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”), expectations concerning the contemplated merger (the “Merger”) with a subsidiary of Hilltop Holdings Inc. (“Hilltop”), anticipated changes in our revenues or earnings, expectations regarding financial or other market conditions, the effects of government regulation applicable to our operations, the appropriateness of our allowance for loan losses and provision for loan losses, and the collectability of margin loans. We have based these forward-looking statements on our current assumptions, expectations and projections about future events.

Forward-looking statements involve significant risks and uncertainties that could cause our actual results to differ materially from those anticipated in such statements. Most of these factors are outside our control and difficult to predict. Factors that may cause such differences include, but are not limited to:

(1) changes in the default rate of our loans and risks associated with concentration in real estate related loans;

(2) changes in general economic, market and business conditions in areas or markets where we compete;

(3) changes in the interest rate environment;

(4) cost and availability of capital;

(5) changes in state and federal laws, regulations or policies affecting one or more of our business segments, including changes in regulatory fees, deposit insurance premiums, capital requirements, and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);

(6) changes in the auction rate securities we hold and their markets, including ongoing liquidity problems related thereto and the credit ratings thereof;

(7) our participation in governmental programs including the Small Business Lending Fund (“SBLF”);

36

(8) approval of new, or changes in, accounting policies and practices; and

(9) competition for our banking, mortgage origination and financial advisory segments from other banks and financial institutions as well as insurance companies, mortgage originators, investment banking and financial advisory firms, asset-based non-bank lenders and government agencies.

For a more detailed discussion of these and other factors that may affect our business, see the discussion under the caption “Risk Factors” set forth in Item 1A of our Annual Report and the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. We caution that the foregoing list of factors is not exhaustive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. All subsequent written and oral forward-looking statements concerning our business attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Quarterly Report except to the extent required by federal securities laws.

Overview

We are a Texas corporation and a financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999. As of March 31, 2012, on a consolidated basis, we had total assets of approximately $5.8 billion, total deposits of approximately $4.2 billion, total loans, including loans held for sale, of approximately $4.2 billion, and shareholders’ equity of approximately $539.1 million. The Bank, one of our wholly owned subsidiaries, provides a broad array of financial products and services, including commercial banking, personal banking, wealth management and treasury management, from offices located throughout central, north and west Texas. In addition to the Bank, we have various subsidiaries with specialized areas of expertise that also offer an array of financial products and services such as mortgage origination and financial advisory services.

On May 8, 2012, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Hilltop and a wholly owned subsidiary of Hilltop, whereby if the Merger contemplated therein were consummated, PlainsCapital would become a wholly owned subsidiary of Hilltop and each share of our common stock would be converted into the right to receive 0.776 shares of Hilltop’s common stock and a cash payment of $9.00. The Merger is subject to the approval of the shareholders of both Hilltop and PlainsCapital, regulatory approval and other customary closing conditions. If effected, we anticipate that the Merger would constitute a change of control.

We generate revenue from net interest income and from noninterest income. Net interest income represents the difference between the income earned on our assets, including our loans and investment securities, and our cost of funds, including the interest paid on the deposits and borrowings that are used to support our assets. Net interest income is a significant contributor to our operating results. Fluctuations in interest rates, as well as the amounts and types of interest-earning assets and interest-bearing liabilities we hold, affect net interest income. During the first quarter of 2012, we generated $49.2 million in net interest income, compared with $42.4 million in the first quarter of 2011. Net interest margin is a measure of net interest income as a percentage of average interest-earning assets. Our taxable equivalent net interest margin was 3.75% for the first quarter of 2012, as compared to 3.46% for the first quarter of 2011.

The other component of our revenue is noninterest income, which is primarily comprised of the following:

(i) Net gains from sale of loans and mortgage loan origination fees. Through our wholly owned subsidiary, PrimeLending, we generate noninterest income by originating and selling mortgage loans. During the first quarter of 2012, we generated $118.0 million in combined net gains from sale of loans and mortgage loan origination fees, a 91.55% increase over the first quarter of 2011. In recent years, PrimeLending added staff and opened mortgage banking offices on an opportunistic basis. This increase in staff has led to increased market share and a higher volume of mortgage originations during the first quarter of 2012, compared to the same period in 2011. In addition, a more favorable interest rate environment contributed to the higher volume of mortgage originations. Total dollar volume of mortgage loan originations increased 78.91% in the first quarter of 2012 compared to the first quarter of 2011.

(ii) Investment advisory fees and commissions and securities brokerage fees and commissions. Through our wholly owned subsidiary, First Southwest, we provide public finance advisory and various investment banking and brokerage services. We generated $24.6 million and $18.2 million in investment advisory fees and commissions and securities brokerage fees and commissions during the first quarter of 2012 and 2011, respectively. Activity in the public finance market improved during the first quarter of 2012, leading to an increase in public finance advisory revenues.

37

In the aggregate, we generated $150.1 million and $85.3 million in noninterest income during the first quarter of 2012 and 2011, respectively. The increase in noninterest income was primarily due to an increase in net gains on the sale of mortgage loans. Noninterest income represented 75.31% and 66.79% of net revenues (net interest income plus noninterest income) during the first quarter of 2012 and the first quarter of 2011, respectively.

We also incur noninterest expenses in the operation of our businesses. Our businesses engage in labor intensive activities and, consequently, employees’ compensation and benefits represent the majority of our noninterest expenses. Employees’ compensation and benefits were 64.46% and 60.85% of total noninterest expense for the first quarter of 2012 and 2011, respectively.

Segment and Related Information

We have three reportable segments that are organized primarily by the core products offered to the segments’ respective customers. The banking segment includes the operations of the Bank. The operations of PrimeLending comprise the mortgage origination segment. The financial advisory segment is comprised of First Southwest and Hester Capital. The principal subsidiaries of First Southwest are FSC, a broker-dealer registered with the SEC and FINRA, and First Southwest Asset Management, Inc., a registered investment advisor under the Investment Advisors Act of 1940.

The following table presents income before taxes by segment for the indicated periods (in thousands):

	Three Months Ended March 31,
	2012		2011
Banking segment	$	21,142	$	13,215
Mortgage Origination segment		10,445		(392	)
Financial Advisory segment		1,405		(743	)
Intercompany eliminations		—		144
Income before taxes	$	32,992	$	12,224

Our reportable segments also serve as reporting units for the purpose of testing our goodwill for impairment. We do not believe that our reporting units are currently at risk of failing the Step One impairment test prescribed in the Goodwill Subtopic of the FASB Accounting Standards Codification.

How We Generate Revenue

We derive our revenue and net income primarily from the banking segment and the mortgage origination segment, while the remainder is generated from the financial advisory segment. The relative share of total revenue provided by our banking and mortgage origination segments fluctuates depending on market conditions, and operating results for the mortgage origination segment tend to be more volatile than operating results for the banking segment.

The banking segment primarily provides business banking and personal banking products and services and generates revenue from its portfolio of earning assets. The Bank’s results of operations are primarily dependent on net interest income. The banking segment also derives revenue from other sources, including service charges on customer deposit accounts and trust fees.

The mortgage origination segment offers a variety of loan products from offices in 39 states and generates revenue predominantly from selling loans in the secondary market and from fees charged on the origination of those loans.

We generate the remainder of our revenue from our financial advisory services. The majority of revenues in the financial advisory segment are generated from fees and commissions earned from investment advisory and securities brokerage services at First Southwest.

38

Operating Results

Net income for the first quarter of 2012 was $21.3 million, or $0.59 per diluted share, compared to $7.6 million, or $0.18 per diluted share, for the first quarter of 2011.

The changes in our net income during the periods described above are primarily attributable to the factors listed below (in thousands):

	Increase (Decrease) in Net Income
	Three Months Ended
	March 31,
	2012 v. 2011
Net interest income	$	6,784
Provision for loan losses		4,279
Net gains from sale of loans and mortgage loan origination fees		56,417
Investment advisory and brokerage fees and commissions		6,398
Employees’ compensation and benefits		(39,428	)
Other noninterest expenses		(15,633	)
All other (including tax effects)		(5,154	)
	$	13,663

We consider the ratios shown in the table below to be key indicators of our performance:

	Three Months Ended			Year Ended			Three Months Ended
	March 31,			December 31,			March 31,
	2012			2011			2011
Return on average shareholders’ equity		16.29	%		11.27	%		6.87	%
Return on average assets		1.50	%		0.98	%		0.57	%
Net interest margin (taxable equivalent)		3.75	%		3.71	%		3.46	%
Leverage ratio		9.79	%		9.67	%		8.76	%

The return on average shareholders’ equity ratio is calculated by dividing annualized net income by average shareholders’ equity for the period. The return on average assets ratio is calculated by dividing annualized net income by average total assets for the period. Net interest margin is calculated by dividing annualized net interest income (taxable equivalent) by average interest-earning assets. The leverage ratio is discussed in the “Liquidity and Capital Resources” section below.

39

Net Interest Income

The following table summarizes the components of net interest income (in thousands):

	Three Months Ended March 31,
					Variance
	2012		2011		2012 v. 2011
Interest income
Loans, including fees	$	48,600	$	42,204	$	6,396
Securities		3,412		4,606		(1,194	)
Securities—tax exempt		2,475		2,387		88
Federal funds sold and securities purchased under agreements to resell		86		1,092		(1,006	)
Interest-bearing deposits with banks		173		314		(141	)
Other		1,810		1,400		410
Total interest income		56,556		52,003		4,553
Interest expense
Deposits		5,265		7,528		(2,263	)
Notes payable and other borrowings		2,082		2,050		32
Total interest expense		7,347		9,578		(2,231	)
Net interest income	$	49,209	$	42,425	$	6,784

Net interest income increased $6.8 million in the first quarter of 2012 compared with the first quarter of 2011. The increase was primarily due to the increase in loan volume within the banking segment and is discussed further in the “Lines of Business” section below.

Noninterest Income

Noninterest income was $150.1 million in the first quarter of 2012 compared with $85.3 million in the first quarter of 2011, an increase of $64.8 million. The increase was primarily due to increased mortgage loan origination volume, which increased 78.91% in the first quarter of 2012 compared with the first quarter of 2011. The increased mortgage loan origination volume resulted from PrimeLending’s efforts to add staff and open mortgage banking offices in recent years, in addition to a more favorable interest rate environment in the first quarter of 2012, compared to the same period in 2011. The increased mortgage origination volume led to higher combined net gains on the sale of mortgage loans and mortgage loan origination fees during the first quarter of 2012.

40

Noninterest Expense

The following table summarizes noninterest expense for the periods indicated below (in thousands):

	Three Months Ended March 31,
					Variance
	2012		2011		2012 v. 2011
Noninterest expense
Employees’ compensation and benefits	$	105,774	$	66,346	$	39,428
Occupancy and equipment, net		17,082		15,398		1,684
Professional services		8,175		6,046		2,129
Deposit insurance premium		996		1,856		(860	)
Repossession and foreclosure, net of recoveries		5,918		1,880		4,038
Other		26,157		17,515		8,642
Total noninterest expense	$	164,102	$	109,041	$	55,061

Noninterest expense increased $55.1 million for the first quarter of 2012 compared with the first quarter of 2011. The largest components of the increase were employees’ compensation and benefits, other expenses and repossession and foreclosure, net of recoveries.

Employees’ compensation and benefits increased $39.4 million for the first quarter of 2012 compared with the first quarter of 2011. The increase was primarily attributable to increased costs in the mortgage origination segment from the hiring of additional staff in recent years. The additional staff, coupled with an increase in the volume of mortgage loan originations during the first quarter of 2012 compared with the first quarter of 2011, resulted in the mortgage origination segment incurring higher variable costs for commissions, as well as higher fixed costs for salaries and employee benefits.

Other expenses increased $8.6 million for the first quarter of 2012 compared with the first quarter of 2011. The increase was primarily attributable to a higher number of loans originated in the mortgage origination segment where the customer chose to accept a higher interest rate on the loan in return for our payment of the customer’s closing costs, which we expensed as unreimbursed closing costs. Our unreimbursed closing costs for the first quarter of 2012 increased both as result of an increase in the volume of mortgage loans originated as well as an increase in the percentage of customers who chose this option, which percentage has tended to increase as interest rates have approached historical lows.

Repossession and foreclosure, net of recoveries, increased $4.0 million for the first quarter of 2012 compared with the first quarter of 2011. The increase was primarily attributable to valuation adjustments to the fair value of other real estate owned.

41

Lines of Business

Banking Segment

The following table summarizes the results for the banking segment for the indicated periods (in thousands):

	Three Months Ended March 31,
					Variance
	2012		2011		2012 v. 2011
Net interest income	$	48,399	$	40,475	$	7,924
Provision for loan losses		2,083		6,500		(4,417	)
Noninterest income		9,591		7,329		2,262
Noninterest expense		34,765		28,089		6,676
Income before taxes	$	21,142	$	13,215	$	7,927

Income before taxes was $21.1 million for the first quarter of 2012, an increase of $7.9 million compared to the first quarter of 2011. The increase was due primarily to an increase in net interest income and a decrease in the provision for loan losses, partially offset by an increase in noninterest expense.

Net interest income increased $7.9 million for the first quarter of 2012 compared with the first quarter of 2011. The increase was due primarily to increased interest income on the loan portfolio, resulting from higher average loan volumes compared with the first quarter of 2011.

Provision for loan losses decreased by $4.4 million for the first quarter of 2012 compared with the first quarter of 2011. The decrease in the provision for loan losses was primarily due to lower levels of non-performing loans in the first quarter of 2012.

Noninterest income increased $2.3 million for the first quarter of 2012 compared with the first quarter of 2011. The increase was primarily attributable to increases in the fair value of securities acquired in satisfaction of a debt previously contracted and currently classified as trading securities.

Noninterest expense increased $6.7 million for the first quarter of 2012 compared with the first quarter of 2011. The increase was primarily due to increases in employees’ compensation and benefits.

42

The following table summarizes the changes in the banking segment’s net interest income for the periods indicated below, including the component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes in the rates earned or paid on those items (in thousands):

	Three Months Ended March 31,
	2012 v. 2011
	Change Due To(1)
	Volume			Yield/Rate			Change
Interest income
Loans	$	7,990		$	(577	)	$	7,413
Investment securities(2)		(1,088	)		(210	)		(1,298	)
Federal funds sold and securities purchased under agreements to resell		(394	)		(48	)		(442	)
Interest-bearing deposits in other financial institutions		(132	)		(12	)		(144	)
Other		3			6			9
Total interest income(2)		6,379			(841	)		5,538
Interest expense
Deposits		247			(2,568	)		(2,321	)
Notes payable and other borrowings		(29	)		(10	)		(39	)
Total interest expense		218			(2,578	)		(2,360	)
Net interest income(2)	$	6,161		$	1,737		$	7,898

(1) Changes attributable to both volume and yield/rate are included in yield/rate.

(2) Taxable equivalent.

Taxable equivalent net interest income increased $7.9 million for the first quarter of 2012 compared with the first quarter of 2011. Increases in the volume of interest-earning assets, primarily loans, increased taxable equivalent net interest income by $6.4 million, while increases in the volume of interest-bearing liabilities, primarily deposits, reduced taxable equivalent net interest income by $0.2 million. Changes in the yields earned on interest-earning assets decreased taxable equivalent net interest income by $0.8 million, primarily due to lower yields on the loan portfolio and the investment securities portfolio. Changes in rates paid on interest-bearing liabilities increased taxable equivalent net interest income by $2.6 million, primarily due to a decrease in market interest rates on deposits during the first quarter of 2012 compared with prevailing market rates during the first quarter of 2011.

43

The tables below provide additional details regarding the banking segment’s net interest income (dollars in thousands):

	Three Months Ended								Three Months Ended
	March 31, 2012								March 31, 2011
	Average			Interest		Annualized			Average			Interest		Annualized
	Outstanding			Earned or		Yield or			Outstanding			Earned or		Yield or
	Balance			Paid		Rate			Balance			Paid		Rate
Assets
Interest-earning assets
Loans, gross(1)	$	3,685,972		$	48,833		5.33	%	$	3,096,778		$	41,420		5.42	%
Investment securities—taxable		545,090			3,174		2.33	%		746,426			4,369		2.34	%
Investment securities—non-taxable(2)		239,347			3,157		5.28	%		232,948			3,260		5.60	%
Federal funds sold and securities purchased under agreements to resell		9,118			26		1.15	%		53,646			468		3.54	%
Interest-bearing deposits in other financial institutions		260,047			166		0.26	%		447,402			310		0.28	%
Other		15,209			154		4.05	%		14,932			145		3.88	%
Interest-earning assets, gross		4,754,783			55,510		4.70	%		4,592,132			49,972		4.41	%
Allowance for loan losses		(66,489	)							(63,888	)
Interest-earning assets, net		4,688,294								4,528,244
Noninterest-earning assets		501,162								462,541
Total assets	$	5,189,456							$	4,990,785
Liabilities and Shareholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits	$	3,914,421			5,251		0.54	%	$	3,792,341			7,572		0.81	%
Notes payable and other borrowings		376,048			321		0.34	%		408,673			360		0.36	%
Total interest-bearing liabilities(3)		4,290,469			5,572		0.52	%		4,201,014			7,932		0.77	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		244,809								222,363
Other liabilities		63,689								34,292
Total liabilities		4,598,967								4,457,669
Shareholders’ equity		590,489								533,116
Total liabilities and shareholders’ equity	$	5,189,456							$	4,990,785
Net interest income(2)				$	49,938							$	42,040
Net interest spread(2)							4.18	%							3.64	%
Net interest margin(2)							4.22	%							3.71	%

(1) Average loans include non-accrual loans.

(2) Taxable equivalent adjustments are based on a 35% tax rate. The adjustment to interest income was $1.1 million for each of the three months ended March 31, 2012 and 2011.

(3) Excludes the allocation of interest expense on PlainsCapital Corporation debt totaling $0.5 million each for the first quarter of 2012 and 2011, respectively.

The banking segment’s net interest margin shown above exceeds our consolidated net interest margin. Our consolidated net interest margin includes the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in the financial advisory segment, as well as the borrowing costs of PlainsCapital at the holding company level, both of which reduce our consolidated net interest margin.

44

Mortgage Origination Segment

The following table summarizes the results for the mortgage origination segment for the indicated periods (in thousands):

	Three Months Ended March 31,
							Variance
	2012			2011			2012 v. 2011
Net interest income (expense)	$	(5,510	)	$	(3,584	)	$	(1,926	)
Noninterest income		118,082			61,674			56,408
Noninterest expense		102,127			58,482			43,645
Income (loss) before taxes	$	10,445		$	(392	)	$	10,837

Mortgage loan origination volumes are shown in the following table (in millions):

	Three Months Ended March 31,
					Variance
	2012		2011		2012 v. 2011
Mortgage loan origination volume	$	2,757	$	1,541	$	1,216

In recent years, PrimeLending has added staff and opened mortgage banking offices on an opportunistic basis. This increase in staff has led to increased market share and a higher volume of mortgage loan originations in the first quarter of 2012 compared to the first quarter of 2011. In addition, a more favorable interest rate environment contributed to the higher volume of mortgage originations. While we expect to continue to grow and increase our market share in 2012, we anticipate our growth will primarily be generated from loans originated by existing mortgage bankers rather than through the addition of new mortgage bankers.

The mortgage lending business is subject to variables that can impact loan origination volume, including seasonal and interest rate fluctuations. We typically experience increased loan origination volume from purchases of homes during the spring and summer, when more people tend to move and buy or sell homes. A decrease in interest rates tends to result in increased refinancings. During the first quarter of 2012, home purchases and refinancings by dollar volume were 54.64% and 45.36%, respectively, of total mortgage loan origination volume. For the first quarter of 2011, home purchases and refinancings by dollar volume were 67.93% and 32.07%, respectively, of total mortgage loan origination volume. PrimeLending’s home purchase volume in relation to its total volume is greater than the national market average, primarily as a result of its focus on builder and realtor relationships.

Income (loss) before taxes was $10.4 million for the first quarter of 2012, an increase of $10.8 million compared with the first quarter of 2011. The increase was due primarily to an increase in noninterest income, partially offset by an increase in noninterest expense. Employees’ compensation and benefits and other expenses accounted for the majority of the increase in noninterest expense.

Noninterest income increased $56.4 million for the first quarter of 2012 compared with the first quarter of 2011. The increase in noninterest income, which is comprised of net gains on the sale of loans and mortgage origination fees, was due to higher volumes of mortgage loan originations. Mortgage loan origination volume increased $1.216 billion, or 78.91% in the first quarter of 2012 compared with the first quarter of 2011.

Employees’ compensation and benefits increased $32.9 million for the first quarter of 2012 compared with the first quarter of 2011. The increase was attributable to increased staffing levels to address growing compliance and information technology needs, additional mortgage origination offices, higher loan origination volumes and higher commission costs due to higher loan origination volumes subject to commissions.

45

Other expenses increased $8.5 million for the first quarter of 2012 compared with the first quarter of 2011. The increase was primarily attributable to a higher number of loans originated in the mortgage origination segment where the customer chose to accept a higher interest rate on the loan in return for our payment of the customer’s closing costs, which we expensed as unreimbursed closing costs. Our unreimbursed closing costs for the first quarter of 2012 increased both as result of an increase in the volume of mortgage loans originated as well as an increase in the percentage of customers who chose this option, which percentage has tended to increase as interest rates have approached historical lows.

Financial Advisory Segment

The following table summarizes the results for the financial advisory segment for the indicated periods (in thousands):

	Three Months Ended March 31,
						Variance
	2012		2011			2012 v. 2011
Net interest income	$	3,097	$	2,782		$	315
Provision for loan losses		138		—			138
Noninterest income		25,858		19,191			6,667
Noninterest expense		27,412		22,716			4,696
Income (loss) before taxes	$	1,405	$	(743	)	$	2,148

Income (loss) before taxes was $1.4 million for the first quarter of 2012, an increase of $2.1 million compared with the first quarter of 2011. The increase was due primarily to the increase in noninterest income, partially offset by an increase in noninterest expense.

The majority of noninterest income is generated from fees and commissions earned from investment advisory and securities brokerage activities, which increased $6.7 million for the first quarter of 2012 compared with the first quarter of 2011. The increase was attributable to increased activity in the public finance market during the first quarter of 2012 that resulted in higher public finance advisory revenues.

Noninterest expense increased $4.7 million for the first quarter of 2012 compared with the first quarter of 2011. Employees’ compensation and benefits accounted for the majority of the increase in noninterest expense primarily due to increases in compensation costs that vary with noninterest income, which increased in the first quarter of 2012 compared with the first quarter of 2011.

46

Financial Condition

The following discussion contains a more detailed analysis of our financial condition at March 31, 2012 and as compared to December 31, 2011.

Securities Portfolio

The securities portfolio plays a role in the management of our interest rate sensitivity and generates additional interest income. In addition, the securities portfolio is used to meet collateral requirements for public and trust deposits, securities sold under agreements to repurchase and other purposes. The available for sale securities portfolio serves as a source of liquidity. Historically, our policy has been to invest primarily in securities of the U.S. government and its agencies, obligations of municipalities in the State of Texas and other high grade fixed income securities to minimize credit risk. In connection with our acquisition of First Southwest, we purchased a portfolio of auction rate bonds for which an active market does not currently exist.

The securities portfolio consists of three major components: trading securities, securities available for sale and securities held to maturity. Trading securities are carried at fair market value, marked to market through operations and primarily held at First Southwest, which as a broker-dealer is required to carry its securities at fair value. These trading securities are used to support sales, underwriting and other customer activities. Securities that may be sold in response to changes in market interest rates, changes in securities’ prepayment risk, increases in loan demand, general liquidity needs and other similar factors are classified as available for sale and are carried at estimated fair value, with unrealized gains and losses recorded in accumulated other comprehensive income. Securities are classified as held to maturity based on the intent and ability of our management, at the time of purchase, to hold such securities to maturity. These securities are carried at amortized cost. The table below summarizes our securities portfolio (in thousands):

	March 31,		December 31,
	2012		2011
Trading securities, at fair value	$	66,804	$	58,957
Securities available for sale, at fair value
U.S. government agencies
Bonds		243,269		183,850
Mortgage-backed securities		35,947		36,270
Collateralized mortgage obligations		218,295		262,078
States and political subdivisions		73,580		74,344
Auction rate bonds		45,518		44,544
		616,609		601,086
Securities held to maturity, at amortized cost
U.S. government agencies
Mortgage-backed securities		6,135		6,639
Collateralized mortgage obligations		14,459		15,974
States and political subdivisions		109,704		111,924
Auction rate bonds		45,349		45,173
		175,647		179,710
Total securities portfolio	$	859,060	$	839,753

47

We had a net unrealized gain of $6.4 million related to the available for sale investment portfolio at March 31, 2012, net of an unrealized loss of $1.0 million related to auction rate securities. We had a net unrealized gain of $6.8 million related to the available for sale investment portfolio at December 31, 2011, net of an unrealized loss of $2.0 million related to auction rate securities upon which the credit-related portion of an other-than-temporary impairment (“OTTI”) has been previously recognized in earnings.

The market value of securities held to maturity at March 31, 2012 was $8.8 million above book value. At December 31, 2011, market value of held to maturity securities was $9.0 million above book value.

We hold securities issued by Access to Loans for Learning Student Loan Corporation that exceed 10% of our shareholders’ equity. The aggregate carrying value and aggregate estimated market value of the securities at March 31, 2012, was $90.9 million and $91.2 million, respectively.

Loan Portfolio

Consolidated loans held for investment are detailed in the table below (in thousands) and classified by type:

	March 31,			December 31,
	2012			2011
Commercial and industrial
Commercial	$	1,464,898		$	1,473,564
Lease financing		29,425			32,604
Securities (including margin loans)		314,830			319,895
Real estate		1,212,272			1,221,726
Construction and land development		281,847			273,949
Consumer		27,392			29,429
Loans, gross		3,330,664			3,351,167
Allowance for loan losses		(61,409	)		(67,495	)
Loans, net	$	3,269,255		$	3,283,672

Banking Segment

The loan portfolio constitutes the major earning asset of the banking segment and typically offers the best alternative for obtaining the maximum interest spread above the banking segment’s cost of funds. The overall economic strength of the banking segment generally parallels the quality and yield of its loan portfolio. The banking segment’s total loans, net of the allowance for loan losses, were $3.7 billion as of both March 31, 2012 and December 31, 2011. The banking segment’s loan portfolio includes warehouse lines of credit extended to PrimeLending and First Southwest. Advances under these lines of credit were $0.8 billion and $0.7 billion at March 31, 2012 and December 31, 2011, respectively, and are eliminated from net loans on our consolidated balance sheet.

The banking segment does not generally participate in syndicated loan transactions and has no foreign loans in its portfolio. At March 31, 2012, the banking segment had loan concentrations (loans to borrowers engaged in similar activities) that exceeded 10% of total loans in its real estate loan portfolio. The areas of concentration within our real estate portfolio were construction and land development loans and non-construction commercial real estate loans. At March 31, 2012, construction and land development loans were 8% of total loans, while non-construction commercial real estate loans were 27% of total loans. The banking segment’s loan concentrations were within regulatory guidelines as of March 31, 2012.

Mortgage Origination Segment

The loan portfolio of the mortgage origination segment consists of loans held for sale, primarily single-family residential mortgages funded through PrimeLending, and pipeline loans, which are loans in various stages of the application process, but not yet closed and funded. Pipeline loans may not close if potential borrowers elect in their sole discretion not to proceed with the loan application. Total loans held for sale were $852.8 million and $775.3 million as of March 31, 2012 and December 31, 2011, respectively.

48

The components of the mortgage origination segment’s loans held for sale and pipeline loans are shown in the following table (in thousands):

		$xxx,xxxxxxx		$xxx,xxxxxxx
	March 31, 2012		December 31, 2011
Loans held for sale
Unpaid principal balance	$	828,584	$	752,796
Fair value adjustment		24,167		22,515
	$	852,751	$	775,311
Pipeline loans
Unpaid principal balance	$	869,766	$	687,890
Fair value adjustment		10,526		10,096
	$	880,292	$	697,986

The fair value adjustment made to the unpaid principal balance of pipeline loans shown in the previous table reflects assumptions regarding projected loan closing rates.

Financial Advisory Segment

The loan portfolio of the financial advisory segment consists primarily of margin loans to customers and correspondents. These loans are collateralized by the securities purchased or by other securities owned by the clients and, because of collateral coverage ratios, are believed to present minimal collectibility exposure. Additionally, these loans are subject to a number of regulatory requirements as well as First Southwest’s internal policies. The financial advisory segment’s total loans, net of the allowance for loan losses, were $311.5 million and $317.0 million as of March 31, 2012 and December 31, 2011, respectively. The decrease was primarily attributable to decreased borrowings in margin accounts held by First Southwest customers and correspondents.

Allowance for Loan Losses

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses inherent in the existing portfolio of loans held for investment. Our management has responsibility for determining the level of the allowance for loan losses, subject to review by the Audit Committee of our Board of Directors and the Directors’ Loan Review Committee of the Bank’s Board of Directors.

It is our management’s responsibility at the end of each quarter, or more frequently as deemed necessary, to analyze the level of the allowance for loan losses to ensure that it is appropriate for the estimated credit losses in the portfolio consistent with the Receivables and Contingencies Topics of the ASC. Estimated credit losses are the probable current amount of loans that we will be unable to collect given facts and circumstances as of the evaluation date. When management determines that a loan, or portion thereof, is uncollectible, the loan, or portion thereof, is charged off against the allowance for loan losses. Any subsequent recovery of charged-off loans is added back to the allowance for loan losses.

49

We have developed a methodology that seeks to determine an allowance within the scope of the Receivables and Contingencies Topics of the ASC. Each of the loans that has been determined to be impaired is within the scope of the Receivables Topic and is individually evaluated for impairment using one of three impairment measurement methods as of the evaluation date: (1) the present value of expected future discounted cash flows on the loan, (2) the loan’s observable market price, or (3) the fair value of the collateral if the loan is collateral dependent. Specific reserves are provided in our estimate of the allowance based on the measurement of impairment under these three methods, except for collateral dependent loans, which require the fair value method. All non-impaired loans are within the scope of the Contingencies Topic. Estimates of loss for the Contingencies Topic are calculated based on historical loss experience by loan portfolio segment adjusted for changes in trends, conditions, and other relevant factors that affect repayment of loans as of the evaluation date. While historical loss experience provides a reasonable starting point for the analysis, historical losses, or recent trends in losses, are not the sole basis upon which to determine the appropriate level for the allowance for loan losses. Management considers recent qualitative or environmental factors that are likely to cause estimated credit losses associated with the existing portfolio to differ from historical loss experience, including but not limited to: changes in lending policies and procedures; changes in underwriting standards; changes in economic and business conditions and developments that affect the collectibility of the portfolio; the condition of various market segments; changes in the nature and volume of the portfolio and in the terms of loans; changes in lending management and staff; changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans; changes in the loan review system; changes in the value of underlying collateral for collateral-dependent loans; and any concentrations of credit and changes in the level of such concentrations.

We design our loan review program to identify and monitor problem loans by maintaining a credit grading process, ensuring that timely and appropriate changes are made to the loans with assigned risk grades and coordinating the delivery of the information necessary to assess the appropriateness of the allowance for loan losses. Loans are evaluated for impairment when: (i) payments on the loan are delayed, typically by 90 days or more (unless the loan is both well secured and in the process of collection), (ii) the loan becomes classified, (iii) the loan is being reviewed in the normal course of the loan review scope, or (iv) the loan is identified by the servicing officer as a problem. We review on an individual basis all loan relationships over $0.2 million that exhibit probable or observed credit weaknesses, the top 25 loan relationships by dollar amount in each market we serve, and additional relationships necessary to achieve adequate coverage of our various lending markets.

Homogenous loans, such as consumer installment loans, residential mortgage loans and home equity loans, are not individually reviewed and are generally risk graded at the same levels. The risk grade and reserves are established for each homogenous pool of loans based on the expected net charge-offs from current trends in delinquencies, losses or historical experience and general economic conditions. As of March 31, 2012, we had no material delinquencies in these types of loans.

The allowance is subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance. While we believe we have an appropriate allowance for our existing portfolio as of March 31, 2012, additional provisions for losses on existing loans may be necessary in the future. We recorded net charge-offs in the amount of $8.3 million for the first quarter of 2012 and $5.7 million for the first quarter of 2011. In the first quarter of 2012, the partial charge-off of a single loan relationship, which had been previously reserved, accounted for over half of our total net charge-offs. Our allowance for loan losses totaled $61.4 million at March 31, 2012 and $67.5 million at December 31, 2011. The ratio of the allowance for loan losses to total loans held for investment at March 31, 2012 and December 31, 2011 was 1.84% and 2.01%, respectively, reflecting lower levels of non-performing loans.

Provisions for loan losses are charged to operations to record the total allowance for loan losses at a level deemed appropriate by the banking segment’s management based on such factors as the volume and type of lending it conducted, the amount of non-performing loans and related collateral security, the present level of the allowance for loan losses, the results of recent regulatory examinations, generally accepted accounting principles, general economic conditions and other factors related to the ability to collect loans in its portfolio.

The provision for loan losses, primarily in the banking segment, was $2.2 million for the first quarter of 2012, a decrease of $4.3 million compared with the first quarter of 2011. The decrease was primarily a result of a decrease in non-performing loans during the first quarter of 2012 compared with the first quarter of 2011.

50

The following table presents the activity in our allowance for loan losses for the dates indicated (dollars in thousands). Substantially all of the activity shown below occurred within the banking segment:

	Three Months Ended March 31,			Year Ended December 31,			Three Months Ended March 31,
	2012			2011			2011
Balance at beginning of period	$	67,495		$	65,169		$	65,169
Provisions charged to operating expenses		2,221			21,757			6,500
Recoveries of loans previously charged off
Commercial and industrial		459			3,887			206
Real estate		17			280			149
Construction and land development		1			205			5
Consumer		15			102			17
Total recoveries		492			4,474			377
Loans charged off
Commercial and industrial		3,982			9,978			4,055
Real estate		163			4,817			417
Construction and land development		4,637			8,877			1,571
Consumer		17			233			63
Total charge-offs		8,799			23,905			6,106
Net charge-offs		(8,307	)		(19,431	)		(5,729	)
Balance at end of period	$	61,409		$	67,495		$	65,940
Net charge-offs to average loans outstanding		1.00	%		0.63	%		0.77	%

The distribution of the allowance for loan losses among loan types and the percentage of the loans for that type to gross loans, excluding unearned income, are presented in the table below (dollars in thousands).

	March 31,				December 31,
	2012				2011
			% of				% of
			Gross				Gross
	Reserve		Loans		Reserve		Loans
Commercial and industrial	$	35,781		54.32%	$	38,196		54.49%
Real estate (including construction and land development)		25,506		44.86%		28,971		44.63%
Consumer		122		0.82%		328		0.88%
Total	$	61,409		100.00%	$	67,495		100.00%

Potential Problem Loans

Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor’s potential operating or financial difficulties. Management monitors these loans and reviews their performance on a regular basis. As of March 31, 2012, we had 7 credit relationships totaling $4.5 million of potential problem loans. At December 31, 2011, we had $5.3 million of potential problem loans. Potential problem loans contain potential weaknesses that could improve, persist or further deteriorate. If such potential weaknesses persist without improving, the loan is subject to downgrade, typically to substandard, in three to six months.

51

Non-Performing Assets

The following table presents our components of non-performing assets at the dates indicated (dollars in thousands):

		$xxx,xxx,xx			$xxx,xxx,xx			$xxx,xxx,xx
	March 31,			December 31,			March 31,
	2012			2011			2011
Loans accounted for on a non-accrual basis
Commercial and industrial	$	15,427		$	16,690		$	10,628
Lease financing		877			1,561			5,352
Real estate		33,139			31,223			12,109
Construction and land development		19,635			25,841			58,328
Consumer		—			—			11
	$	69,078		$	75,315		$	86,428
Non-performing loans as a percentage of total loans		1.65	%		1.82	%		2.49	%
Other Real Estate Owned	$	23,590		$	30,254		$	18,847
Other repossessed assets	$	1,017		$	1,165		$	8,737
Non-performing assets	$	93,685		$	106,734		$	114,012
Non-performing assets as a percentage of total assets		1.62	%		1.87	%		2.11	%
Loans past due 90 days or more and still accruing	$	—		$	—		$	9
Troubled debt restructurings included in accruing loans	$	4,356		$	9,388		$	14,353

At March 31, 2012, total non-performing assets decreased $13.0 million to $93.7 million compared with $106.7 million at December 31, 2011, primarily due to a decrease in non-accrual loans and Other Real Estate Owned. Non-accrual loans were $69.1 million at March 31, 2012 and $75.3 million at December 31, 2011. The decrease in the level of non-accrual loans reflects charge-offs of non-accrual loans. Of these non-accrual loans, $15.4 million were characterized as commercial and industrial loans as of March 31, 2012, a decrease of $1.3 million compared with December 31, 2011. The commercial and industrial loans included three loan relationships in a variety of industries with an aggregate balance of approximately $11.6 million and secured by accounts receivable and inventory.

Non-accrual loans also included $33.1 million characterized as real estate loans at March 31, 2012, including six commercial real estate loan relationships totaling approximately $25.2 million and secured by occupied single family residential property, occupied commercial real estate, occupied industrial property, retail space, and a hotel.

Non-accrual loans at March 31, 2012 also included $19.6 million characterized as construction and land development loans. Three loan relationships account for approximately $17.6 million of the non-performing construction and land development loans. Collateral securing the loans includes residential land developments and unimproved land.

At March 31, 2012, troubled debt restructurings totaled $29.5 million, of which $4.3 million were included in accruing loans and $25.2 million were reported in non-accrual loans.

Other Real Estate Owned decreased $6.7 million to $23.6 million at March 31, 2012 compared with $30.3 million at December 31, 2011. The decrease was primarily due to valuation adjustments to the fair value of Other Real Estate Owned, principally adjustments to foreclosed properties from two loan relationships. At March 31, 2012, Other Real Estate Owned included a single parcel of unimproved land with a fair value, less cost to sell, of $16.1 million.

52

Additional interest income that would have been recorded if the non-accrual loans had been current and performing during the three months ended March 31, 2012 totaled $0.8 million and $1.0 million for the three months ended March 31, 2011.

Borrowings

Our borrowings as of March 31, 2012 and December 31, 2011 are shown in the table below (in thousands):

		$xxx,xxx,xx		$xxx,xxx,xx		$xxx,xxx,xx
	March 31,		December 31,		Variance
	2012		2011		2012 v. 2011
Short-term borrowings		606,774	$	476,439	$	130,335
Notes payable		51,828		54,966		(3,138	)
Junior subordinated debentures		67,012		67,012		—
Capital lease obligations		12,008		12,121		(113	)
	$	737,622	$	610,538	$	127,084

Short-term borrowings consist of federal funds purchased, securities sold under agreements to repurchase, borrowings at the FHLB and short-term bank loans. The $130.3 million increase in short-term borrowings at March 31, 2012 compared with December 31, 2011 was due primarily to increases in borrowings of $83.5 million under repurchase agreements and $50.0 million under the FHLB resulting from decreases in deposits.

Notes payable is comprised of borrowings under term notes and a revolving line of credit with JPMorgan Chase and nonrecourse notes owed by First Southwest. The agreements underlying the JPMorgan Chase debt include certain restrictive covenants, including limitations on the ability to incur additional debt, limitations on the disposition of assets and requirements to maintain various financial ratios, including a non-performing asset ratio, at acceptable levels. As of March 31, 2012, the Bank’s non-performing asset ratio was in compliance with the non-performing asset ratio covenant. As of March 31, 2012, we had two revolving lines of credit with JPMorgan Chase, one of which had an outstanding principal balance of $5.0 million and was fully advanced, and the second of which was available to PrimeLending, had availability of $1.0 million and had not been drawn against.

Liquidity and Capital Resources

Liquidity refers to the measure of our ability to meet our customers’ short-term and long-term deposit withdrawals and anticipated and unanticipated increases in loan demand without penalizing earnings. Interest rate sensitivity involves the relationships between rate-sensitive assets and liabilities and is an indication of the probable effects of interest rate fluctuations on our net interest income. We discuss our management of interest rate and other risks in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” herein.

Our asset and liability group is responsible for continuously monitoring our liquidity position to ensure that assets and liabilities are managed in a manner that will meet our short-term and long-term cash requirements. Funds invested in short-term marketable instruments, the continuous maturing of other interest-earning assets, cash flows from self-liquidating investments such as mortgage-backed securities and collateralized mortgage obligations, the possible sale of available for sale securities, and the ability to securitize certain types of loans provide sources of liquidity from an asset perspective. The liability base provides sources of liquidity through deposits and the maturity structure of short-term borrowed funds. For short-term liquidity needs, we utilize federal fund lines of credit with correspondent banks, securities sold under agreements to repurchase, borrowings from the Federal Reserve and borrowings under lines of credit with other financial institutions. For intermediate liquidity needs, we utilize advances from the FHLB. To supply liquidity over the longer term, we have access to brokered certificates of deposit, term loans at the FHLB and borrowings under lines of credit with other financial institutions.

At March 31, 2012, $114.1 million of our Series C Preferred Stock was outstanding under the Small Business Lending Fund program (the “SBLF”). The Series C Preferred Stock has an aggregate liquidation preference of approximately $114.1 million and qualifies as Tier 1 Capital for regulatory purposes.

53

The terms of the Series C Preferred Stock provide for the payment of non-cumulative dividends on a quarterly basis beginning January 1, 2012. The dividend rate, as a percentage of the liquidation amount, fluctuates while the Series C Preferred Stock is outstanding based upon changes in the level of “qualified small business lending” (“QSBL”) by the Bank from its average level of QSBL at each of the four quarter ends leading up to June 30, 2010 (the “Baseline”). Until March 2016, the dividend rate will generally decrease if we increase our level of QSBL from the Baseline and increase if we decrease our level of QSBL from the Baseline, subject to certain limitations described in the Certificate of Designations.

The dividend rate on the Series C Preferred stock was 3.826% for the three months ended March 31, 2012. The dividend rate is 2.423% for the period from April 1, 2012 to June 30, 2012 as a result of increased levels of QSBL over the Baseline. Subject to the approval of Treasury, we expect the dividend rate for the period from July 1, 2012 to September 30, 2012 to be 2.626%.

We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements may prompt certain actions by regulators that, if undertaken, could have a direct material adverse effect on our financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

At March 31, 2012, we exceeded all regulatory capital requirements with a total capital to risk weighted assets ratio of 14.04%, Tier 1 capital to risk weighted assets ratio of 12.56% and a Tier 1 capital to average assets, or leverage, ratio of 9.79%. At March 31, 2012, the Bank was also considered to be “well-capitalized.” We discuss regulatory capital requirements in more detail in Note 11 to our unaudited consolidated interim financial statements.

Cash and cash equivalents (consisting of cash and due from banks and federal funds sold), totaled $259.9 million at March 31, 2012, a decrease of $209.6 million from $469.5 million at March 31, 2011. Deposit flows, calls of investment securities and borrowed funds, and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds.

Cash used in operations during the first quarter of 2012 was $126.1 million, a decrease in cash flow of $84.7 million compared with the first quarter of 2011. Cash used by operations increased primarily due to an increase in the net cash used in our mortgage origination segment’s operations.

We use cash primarily to originate loans and purchase securities for our investment portfolio. At March 31, 2012, our loan portfolio increased by $349.5 million compared to March 31, 2011. During the first quarter of 2012, the amount of cash used by lending activities increased by $133.0 million compared with the first quarter of 2011. On the other hand, our investment securities portfolio decreased by $180.8 million at March 31, 2012 compared to March 31, 2011. Cash used in our investment activities included net purchases of securities in our investment portfolio during the first quarter of 2012, which were $13.3 million compared to net purchases of $159.1 million during the first quarter of 2011. We did not sell any securities during the first quarter of 2012 or 2011, respectively.

Cash provided by financing activities during the first quarter of 2012 was $47.6 million, a decrease in cash provided of $52.3 million compared with the first quarter of 2011. The decrease in cash provided was due primarily to a net decrease in deposits during the first quarter of 2012 compared with the first quarter of 2011. This was partially offset by a net increase in short-term borrowings during the first quarter of 2012.

We had deposits of $4.2 billion at March 31, 2012, a decrease of $77.4 million compared with December 31, 2011. Deposit flows are affected by the level of market interest rates, the interest rates and products offered by competitors, the volatility of equity markets and other factors. Within the deposits portfolio, money market deposits, demand deposits and NOW accounts increased by $21.4 million, $12.0 million and $10.4 million, respectively during the first quarter of 2012. This was partially offset by a decrease in noninterest-bearing demand deposits, brokered time deposits and time deposits over $100,000, which decreased $63.8 million, $36.2 million and $12.7 million, respectively.

54

Our 15 largest depositors, excluding our indirect wholly owned subsidiary, First Southwest, accounted for approximately 20.91% of our total deposits, and our five largest depositors, excluding First Southwest, accounted for approximately 12.37% of our total deposits at March 31, 2012. The loss of one or more of our largest customers, or a significant decline in the deposit balances due to ordinary course fluctuations related to these customers’ businesses, could adversely affect our liquidity and might require us to raise deposit rates to attract new deposits, purchase federal funds or borrow funds on a short-term basis to replace such deposits. We have not experienced any liquidity issues to date with respect to brokered deposits or our other large balance deposits, and we believe alternative sources of funding are available to more than compensate for the loss of one or more of these customers.

PrimeLending funds the mortgage loans it originates through a warehouse line of credit of up to $1.0 billion maintained with the Bank. At March 31, 2012, PrimeLending had outstanding borrowings of $775.4 million against the warehouse line of credit. PrimeLending sells substantially all mortgage loans it originates to various investors in the secondary market with servicing released. As these mortgage loans are sold in the secondary market, PrimeLending pays down its warehouse line of credit with the Bank. In addition, PrimeLending has an available line of credit with an unrelated commercial bank of up to $1.0 million. At March 31, 2012, PrimeLending had no borrowings under this line of credit.

FSC relies on its equity capital, short-term bank borrowings, interest-bearing and non-interest-bearing client credit balances, correspondent deposits, securities lending arrangements, repurchase agreement financings and other payables to finance its assets and operations. FSC has credit arrangements with unrelated commercial banks of up to $215.0 million, which are used to finance securities owned, securities held for correspondent accounts and receivables in customer margin accounts. These credit arrangements are provided on an “as offered” basis and are not committed lines of credit. At March 31, 2012, FSC had borrowed approximately $99.2 million under these credit arrangements.

Impact of Inflation and Changing Prices

The Company’s financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States, which presently requires the Company to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on the operations of the Company is reflected in increased operating costs. In management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond the control of the Company, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the U.S. government, its agencies and various other governmental regulatory authorities.

Off-Balance Sheet Arrangements; Commitments; Guarantees

In the normal course of business, we enter into various transactions, which, in accordance with accounting principles generally accepted in the United States, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets.

We enter into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon customers maintaining specific credit standards until the time of loan funding. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. We assess the credit risk associated with certain commitments to extend credit and have recorded a liability related to such credit risk in our consolidated financial statements.

Standby letters of credit are written conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the customer. Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.

55

In the normal course of business, FSC executes, settles and finances various securities transactions that may expose FSC to off-balance sheet risk in the event that a customer or counterparty does not fulfill its contractual obligations. Examples of such transactions include the sale of securities not yet purchased by customers or for the account of FSC, clearing agreements between FSC and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.

Critical Accounting Policies and Estimates

Our accounting policies are integral to understanding the results reported. Our accounting policies are described in detail in Note 1 to our consolidated financial statements for the year ended December 31, 2011, which are included in our Annual Report. You are encouraged to read in its entirety Note 1 to our consolidated financial statements for the year ended December 31, 2011 for additional insight into management’s approach and methodology in estimating the allowance for loan losses. We believe that of our significant accounting policies, the allowance for loan losses and the valuation of certain investments may involve a higher degree of judgment and complexity.

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. Loans are charged to the allowance when the loss is confirmed or when a determination is made that a probable loss has occurred on a specific loan. Recoveries are credited to the allowance at the time of recovery. Throughout the year, management estimates the probable level of losses to determine whether the allowance for credit losses is appropriate to absorb losses in the existing portfolio. Based on these estimates, an amount is charged to the provision for loan losses and credited to the allowance for loan losses in order to adjust the allowance to a level determined to be appropriate to absorb losses. Management’s judgment regarding the appropriateness of the allowance for loan losses involves the consideration of current economic conditions and their estimated effects on specific borrowers; an evaluation of the existing relationships among loans, potential loan losses and the present level of the allowance; results of examinations of the loan portfolio by regulatory agencies; and management’s internal review of the loan portfolio. In determining the ability to collect certain loans, management also considers the fair value of any underlying collateral. The amount ultimately realized may differ from the carrying value of these assets because of economic, operating or other conditions beyond our control. For additional discussion of allowance for loan losses and provisions for loan losses, see the section entitled “Allowance for Loan Losses” earlier in this Item 2.

We hold auction rate bonds for which an active market does not currently exist. Accordingly, we utilize the work of a third-party valuation specialist to estimate the fair value of the auction rate bonds on a quarterly basis. We developed inputs for the valuation using the terms of the auction rate bonds, market interest rates, asset appropriate credit transition matrices and recovery rates, and assumptions regarding the term to maturity of the auction rate bonds. We incurred OTTI on certain of the auction rate bonds in 2011. We determined the amount of the OTTI by evaluating the historical and projected performance of the underlying collateral, the extent of government guarantees related to the collateral, expenses associated with the trust that issued the auction rate bonds, expected cash flows from the auction rate bonds and other factors. For additional discussion of the auction rate bonds, please see Notes 2 and 15 to our unaudited consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Some of the information below contains forward-looking statements. The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The disclosure is not meant to be a precise indicator of expected future losses, but rather an indicator of reasonably possible losses, and therefore our actual results may differ from any of the following projections. This forward-looking information provides an indicator of how we view and manage our ongoing market risk exposures.

We are engaged primarily in the business of investing funds obtained from deposits and borrowings in interest-earning loans and investments, and our primary component of market risk is interest rate risk volatility. Consequently, our earnings depend to a significant extent on our net interest income, which is the difference between interest income on loans and investments and our interest expense on deposits and borrowing. To the extent that our interest-bearing liabilities do not reprice or mature at the same time as our interest-bearing assets, we are subject to interest rate risk and corresponding fluctuations in net interest income.

56

Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The magnitude of the change in earnings and market value of equity resulting from interest rate changes is impacted by the time remaining to maturity on fixed-rate obligations, the contractual ability to adjust rates prior to maturity, competition, the general level of interest rates and customer actions. Our objective is to measure the effect of interest rate changes on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

There are several common sources of interest rate risk that must be effectively managed if there is to be minimal impact on our earnings and capital. Repricing risk arises largely from timing differences in the pricing of assets and liabilities. Reinvestment risk refers to the reinvestment of cash flows from interest payments and maturing assets at lower or higher rates. Basis risk exists when different yield curves or pricing indices do not change at precisely the same time or in the same magnitude such that assets and liabilities with the same maturity are not all affected equally. Yield curve risk refers to unequal movements in interest rates across a full range of maturities.

We have employed asset/liability management policies that attempt to manage our interest-earning assets and interest-bearing liabilities, thereby attempting to control the volatility of net interest income, without having to incur unacceptable levels of credit or investment risk. We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. In addition, the asset/liability management policies permit the use of various derivative instruments to manage interest rate risk or hedge specified assets and liabilities. We manage our interest rate sensitivity position consistent with our established asset/liability management policies.

An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market interest rates. The management of interest rate risk is performed by analyzing the maturity and repricing relationships between interest-earning assets and interest-bearing liabilities at specific points in time (“GAP”) and by analyzing the effects of interest rate changes on net interest income over specific periods of time by projecting the performance of the mix of assets and liabilities in varied interest rate environments. Interest rate sensitivity reflects the potential effect on net interest income resulting from a movement in interest rates. A company is considered to be asset sensitive, or have a positive GAP, when the amount of its interest-earning assets maturing or repricing within a given period exceeds the amount of its interest-bearing liabilities also maturing or repricing within that time period. Conversely, a company is considered to be liability sensitive, or have a negative GAP, when the amount of its interest-bearing liabilities maturing or repricing within a given period exceeds the amount of its interest-earning assets also maturing or repricing within that time period. During a period of rising interest rates, a negative GAP would tend to affect net interest income adversely, while a positive GAP would tend to result in an increase in net interest income. During a period of falling interest rates, a negative GAP would tend to result in an increase in net interest income, while a positive GAP would tend to affect net interest income adversely. However, it is our intent to achieve a proper balance so that incorrect rate forecasts should not have a significant impact on earnings.

57

Interest rate sensitivity analysis presents the amount of assets and liabilities that are estimated to reprice through specified periods. The interest rate sensitivity analysis in the table below reflects changes in banking segment earnings and costs resulting from changes in assets and liabilities on March 31, 2012 that will either be repriced in accordance with market rates, mature or are estimated to mature early within the periods indicated. This is a one-day position that is continually changing and is not necessarily indicative of our position at any other time.

As illustrated in the table below, the banking segment is asset sensitive overall. Loans that adjust daily or monthly to the Wall Street Journal Prime rate comprise a large percentage of interest sensitive assets and are the primary cause of the banking segment’s asset sensitivity. To help neutralize interest rate sensitivity, the banking segment has kept the terms of most of its borrowings under one year (dollars in thousands):

	March 31, 2012
	3 Months or Less			> 3 Months to 1 Year			> 1 Year to 3 Years			> 3 Years to 5 Years			> 5 Years			Total
Interest sensitive assets:
Loans	$	2,662,262		$	401,403		$	369,235		$	109,506		$	258,628		$	3,801,034
Securities		137,177			99,950			87,241			21,235			446,653			792,256
Federal funds sold and securities purchased under agreements to resell		15,025			—			—			—			—			15,025
Other interest sensitive assets		166,884			—			—			—			—			166,884
Total interest sensitive assets		2,981,348			501,353			456,476			130,741			705,281			4,775,199
Interest sensitive liabilities:
Interest bearing checking	$	1,602,946		$	—		$	—		$	—		$	—		$	1,602,946
Savings		173,622			—			—			—			—			173,622
Time deposits		760,919			300,939			55,103			9,284			74,650			1,200,895
Notes payable & other borrowings		406,850			726			2,066			1,108			7,871			418,621
Total interest sensitive liabilities		2,944,337			301,665			57,169			10,392			82,521			3,396,084
Interest sensitivity gap	$	37,011		$	199,688		$	399,307		$	120,349		$	622,760		$	1,379,115
Cumulative interest sensitivity gap	$	37,011		$	236,699		$	636,006		$	756,355		$	1,379,115
Percentage of cumulative gap to total interest sensitive assets		0.78	%		4.96	%		13.32	%		15.84	%		28.88	%

The positive GAP in the interest rate sensitivity analysis indicates that banking segment net interest income would generally rise if rates increase. Because of inherent limitations in interest rate sensitivity analysis, the banking segment uses multiple interest rate risk measurement techniques. Simulation analysis is used to subject the current repricing conditions to rising and falling interest rates in increments and decrements of 1%, 2% and 3% to determine the effect on net interest income changes for the next 12 months. The banking segment also measures the effects of changes in interest rates on market value of equity by discounting projected cash flows of deposits and loans. Market value changes in the investment portfolio are estimated by discounting future cash flows and using duration analysis. Investment security prepayments are estimated using current market information. We believe the simulation analysis presents a more accurate picture than the GAP analysis. Simulation analysis recognizes that deposit products may not react to changes in interest rates as quickly or with the same magnitude as earning assets contractually tied to a market rate index. The sensitivity to changes in market rates varies across deposit products. Also, unlike GAP analysis, simulation analysis takes into account the effect of embedded options in the securities and loan portfolios as well as any off-balance-sheet derivatives.

58

The table below shows the estimated impact of increases of 1%, 2% and 3% and a decrease of 0.5% in interest rates on net interest income and on market value of portfolio equity for the banking segment as of March 31, 2012 (dollars in thousands):

March 31, 2012
Change in Interest Rates (basis points)	Changes in Net Interest Income						Changes in Market Value of Equity
	Amount			Percent			Amount			Percent
+300	$	2,069			1.03	%	$	66,014			11.22	%
+200	$	(3,077	)		-1.53	%	$	54,896			9.33	%
+100	$	(4,971	)		-2.48	%	$	39,633			6.73	%
-50	$	617			0.31	%	$	(34,857	)		-5.92	%

The projected changes in net interest income and market value of equity to changes in interest rates at March 31, 2012 were in compliance with established internal policy guidelines. These projected changes are based on numerous assumptions of growth and changes in the mix of assets or liabilities.

The historically low level of interest rates, combined with the existence of rate floors that are in effect for a significant portion of the loan portfolio, are projected to cause yields on our earning assets to rise more slowly than increases in market interest rates. As a result, in a rising interest rate environment, our interest rate margins are projected to compress until the rise in market interest rates is sufficient to allow our loan portfolio to reprice above applicable rate floors.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, an evaluation was carried out by the our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the fiscal quarter ended March 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Like other financial institutions, we are subject to various federal, state and local laws and regulations relating to environmental matters. Under these laws and regulations, we could be held liable for costs relating to environmental contamination at or from properties that secure our loan portfolio. With respect to our borrowers’ properties, the potential liabilities may far exceed the original amount of the loan made by us and secured by the property. Currently, we are not a defendant in any environmental legal proceeding.

For additional information concerning our legal proceedings, please see the discussion under the caption “Legal Proceedings” set forth in Part I, Item 3 of our Annual Report.

59

Item 1A. Risk Factors

The following risk factors constitute a material amendment to the risk factors disclosed under Item 1A of our Annual Report. For more information concerning our risk factors, please refer to Item 1A of our Annual Report.

Risks Related to the Merger

Because the stock portion of the merger consideration is based on a fixed ratio and the market price of shares of Hilltop common stock may fluctuate, you cannot be certain of the dollar value of the consideration that you will receive upon completion of the Merger.

Upon completion of the Merger, in addition to the cash portion of the merger consideration, each PlainsCapital shareholder of record will receive, in exchange for each share of PlainsCapital common stock owned by such shareholder immediately prior to the Merger, 0.776 shares of Hilltop common stock, plus cash in lieu of any fractional shares (subject to decrease in the case of future stock issuances by PlainsCapital). Because the stock portion of the merger consideration is based on a fixed ratio, the value of the shares of Hilltop common stock that will be issued to shareholders of PlainsCapital in the Merger will depend on the market price of shares of Hilltop common stock at the time they are issued. There will be no adjustment to the number of shares of Hilltop common stock that will be issued to you based upon changes in the market price of shares of Hilltop common stock or PlainsCapital common stock prior to the closing.

The market price of shares of Hilltop common stock at the time the Merger is completed may vary from the price of shares of Hilltop common stock on the date the Merger Agreement was executed as a result of various factors that are beyond the control of Hilltop and PlainsCapital, including but not limited to the following:

• changes in the business, operations or prospects of Hilltop or PlainsCapital;

• changes in stock prices generally, changes in the stock prices of financial services firms and changes in the stock prices of financial services firms comparable to Hilltop or PlainsCapital;

• governmental or regulatory developments, including any limitations on or conditions to consummation of the merger;

• changes in the interest rate environment;

• changes in general economic conditions and the outlook for economic conditions and real estate markets;

• changes in securities markets, including changes due to terrorist activities, other world events or other factors; and

• the timing of the completion of the Merger.

You are urged to obtain current market quotations for shares of Hilltop common stock.

There is no established trading market for shares of our common stock, and regular quotes for our common stock are not available. The absence of an active trading market may significantly restrict your ability to transfer your shares of our common stock or to obtain current information about the price of our common stock.

You may not receive dividends on shares of Hilltop common stock following completion of the Merger.

Hilltop has not paid dividends on its common stock. Any declaration of dividends on Hilltop common stock will be at the discretion of its board of directors, and may depend on the earnings, financial condition, capital requirements, contractual restrictions with respect to payment of dividends and other factors relevant to Hilltop in the future. As a holder of Hilltop common stock following completion of the Merger, you may not receive dividends on the Hilltop common stock at the same level as dividends on PlainsCapital common stock, or at all.

PlainsCapital shareholders would have a reduced ownership and voting interest after the Merger and would exercise less influence over management.

PlainsCapital’s shareholders currently have the right to vote in the election of the board of directors of PlainsCapital and on other matters affecting PlainsCapital. If the Merger were to occur, each PlainsCapital shareholder would become a stockholder of Hilltop with a percentage ownership of the combined organization that is much smaller than the shareholder’s percentage ownership of PlainsCapital. It is expected that the former shareholders of PlainsCapital as a group would own less than 35% of the outstanding shares of Hilltop immediately after the Merger. Because of this, PlainsCapital’s shareholders would have less influence on the management and policies of Hilltop than they now have on the management and policies of PlainsCapital.

60

The Merger is subject to the receipt of consents and approvals from government entities that may impose conditions that could have an adverse effect on the combined company following the Merger.

Before the Merger may be completed, various approvals or consents must be obtained from the Board of Governors of the Federal Reserve System and various bank regulatory, securities, antitrust, insurance and other authorities. These governmental entities, including the Board of Governors of the Federal Reserve System, may impose conditions on the completion of the Merger or require changes to the terms of the Merger. Any such conditions or changes could have the effect of delaying completion of the Merger or imposing additional costs on or limiting the revenues of Hilltop following the Merger, any of which might have a material adverse effect on Hilltop following the Merger.

We will be subject to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on PlainsCapital. These uncertainties may impair our ability to attract or motivate key personnel until the Merger is completed and may cause customers and others that deal with us to seek to change existing business relationships with us. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, the combined company’s business following the Merger may be negatively affected. In addition, the Merger Agreement restricts each of us from making certain acquisitions and taking other specified actions until the Merger occurs, without the consent of the other. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Merger.

If the Merger does not close, we will not benefit from the expenses incurred in pursuing it.

If the Merger is not completed, we will have incurred substantial expenses for which no ultimate benefit will have been received. We have incurred or expect to incur out-of-pocket expenses in connection with the Merger for investment banking, legal and accounting fees and financial printing and other related charges, much of which will be incurred even if the Merger is not completed. Moreover, if Hilltop terminates the Merger Agreement because the PlainsCapital shareholders fail to approve the Merger, PlainsCapital has agreed to pay $5.0 million to Hilltop in respect of Hilltop’s expenses incurred in connection with the proposed Merger.

Termination of the Merger Agreement could negatively impact PlainsCapital.

Termination of the Merger Agreement may negatively affect us. If the Merger Agreement is terminated, we may suffer various adverse consequences, including the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger.

Under certain circumstances, we would be obligated to pay Hilltop a termination fee upon termination of the Merger Agreement.

The Merger Agreement provides for the payment by us to Hilltop of a termination fee in the amount of $17.5 million if the Merger Agreement is terminated in certain circumstances. Payment of a termination fee by us, if required under the circumstances, may adversely affect our financial condition and liquidity.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the first quarter of 2012, we issued 80,579 shares of Original Common Stock upon the exercise of outstanding stock options issued to employees at exercise prices ranging from $6.66 to $6.69 per share. These options were awarded pursuant to the exemption from compliance with the registration requirements of the Securities Act provided by Rule 701 promulgated thereunder. The issuance of shares of our Original Common Stock pursuant to the exercise of such options was therefore also exempt from registration under the Securities Act pursuant to Rule 701.

On March 30, 2012, we sold 178,571 shares of Original Common Stock to the Plains Capital Corporation Employee Stock Ownership Plan at a price of $14.00 per share, or an aggregate of approximately $2.5 million. These securities were sold pursuant to the exemption from registration provided by Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act. The Company filed a Notice of Exempt Offering of Securities on Form D with the SEC on April 4, 2012 concerning the transaction.

61

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

A list of exhibits filed herewith is contained in the Exhibit Index that immediately precedes such exhibits and is incorporated by reference herein.

62

Signatures

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 thereunto duly authorized.

	PLAINSCAPITAL CORPORATION
Date: May 9, 2012	By:	/S/ JOHN A. MARTIN
	Name: John A. Martin
	Title: Executive Vice President and Chief Financial Officer (Duly authorized officer and principal financial officer)

Date: May 9, 2012	By:	/S/ JEFF ISOM
	Name: Jeff Isom
	Title: Executive Vice President of Finance and Accounting (Principal accounting officer)

63

Exhibit Index

					Incorporated by Reference
Exhibit No.			Exhibit Description	Filed Herewith	Form		File No.		Exhibit		Filing Date
	2.1	–	Agreement and Plan of Merger, dated May 8, 2012, by and among Hilltop Holdings Inc., Meadow Corporation and PlainsCapital Corporation.			8-K		000-53629		2.1		05/08/12
	3.1	–	Third Amended and Restated Certificate of Formation of PlainsCapital Corporation, as amended.			10-Q		000-53629		3.1		08/04/11
	3.2	–	Certificate of Designation of Non-Cumulative Perpetual Preferred Stock, Series C.			8-K		000-53629		3.1		09/28/11
	3.3	–	Amended and Restated Bylaws of PlainsCapital Corporation.			8-K		000-53629		3.1		08/31/09
	4.1	–	Amended and Restated Declaration of Trust, dated as of July 31, 2001, by and among State Street Bank and Trust Company of Connecticut, National Association, PlainsCapital Corporation (f/k/a Plains Capital Corporation), and Alan B. White, George McCleskey, and Jeff Isom, as Administrators.			10		000-53629		4.2		04/17/09
	4.2	–	First Amendment to Amended and Restated Declaration of Trust, dated as of August 7, 2006, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and U.S. Bank National Association.			10		000-53629		4.3		04/17/09
	4.3	–	Indenture, dated as of July 31, 2001, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and State Street Bank and Trust Company of Connecticut, National Association.			10		000-53629		4.4		04/17/09
	4.4	–	First Supplemental Indenture, dated as of August 7, 2006, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and U.S. Bank National Association.			10		000-53629		4.5		04/17/09
	4.5	–	Amended and Restated Floating Rate Junior Subordinated Deferrable Interest Debenture of PlainsCapital Corporation (f/k/a Plains Capital Corporation), dated as of August 7, 2006, by PlainsCapital Corporation in favor of U.S. Bank National Association.			10		000-53629		4.6		04/17/09
	4.6	–	Guarantee Agreement, dated as of July 31, 2001, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and State Street Bank and Trust Company of Connecticut, National Association, as trustee.			10		000-53629		4.7		04/17/09
	4.7	–	First Amendment to Guarantee Agreement, dated as of August 7, 2006, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and U.S. Bank National Association.			10		000-53629		4.8		04/17/09

					Incorporated by Reference
Exhibit No.			Exhibit Description	Filed Herewith	Form		File No.		Exhibit		Filing Date
	4.8	–	Amended and Restated Declaration of Trust, dated as of March 26, 2003, by and among U.S. Bank National Association, PlainsCapital Corporation (f/k/a Plains Capital Corporation), and Alan B. White, George McCleskey, and Jeff Isom, as Administrators.			10		000-53629		4.9		04/17/09
	4.9	–	Indenture, dated as of March 26, 2003, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and U.S. Bank National Association.			10		000-53629		4.10		04/17/09
	4.10	–	Floating Rate Junior Subordinated Deferrable Interest Debenture of PlainsCapital Corporation (f/k/a Plains Capital Corporation), dated as of March 26, 2003, by PlainsCapital Corporation in favor of U.S. Bank National Association.			10		000-53629		4.11		04/17/09
	4.11	–	Guarantee Agreement, dated as of March 26, 2003, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and U.S. Bank National Association, as trustee.			10		000-53629		4.12		04/17/09
	4.12	–	Amended and Restated Declaration of Trust, dated as of September 17, 2003, by and among U.S. Bank National Association, PlainsCapital Corporation (f/k/a Plains Capital Corporation), and Alan B. White, George McCleskey, and Jeff Isom, as Administrators.			10		000-53629		4.13		04/17/09
	4.13	–	Indenture, dated as of September 17, 2003, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and U.S. Bank National Association.			10		000-53629		4.14		04/17/09
	4.14	–	Floating Rate Junior Subordinated Deferrable Interest Debenture of PlainsCapital Corporation (f/k/a Plains Capital Corporation), dated as of September 17, 2003, by PlainsCapital Corporation in favor of U.S. Bank National Association.			10		000-53629		4.15		04/17/09
	4.15	–	Guarantee Agreement, dated as of September 17, 2003, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and U.S. Bank National Association, as trustee.			10		000-53629		4.16		04/17/09
	4.16	–	Amended and Restated Trust Agreement, dated as of February 22, 2008, by and among PlainsCapital Corporation (f/k/a Plains Capital Corporation), Wells Fargo Bank, N.A., Wells Fargo Delaware Trust Company, and Alan B. White, DeWayne Pierce, and Jeff Isom, as Administrative Trustees.			10		000-53629		4.17		04/17/09

					Incorporated by Reference
Exhibit No.			Exhibit Description	Filed Herewith	Form		File No.		Exhibit		Filing Date
	4.17	–	Junior Subordinated Indenture, dated as of February 22, 2008, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Wells Fargo Bank, N.A.			10		000-53629		4.18		04/17/09
	4.18	–	PlainsCapital Corporation (f/k/a Plains Capital Corporation) Floating Rate Junior Subordinated Note due 2038, dated as of February 22, 2008, by PlainsCapital Corporation in favor of Wells Fargo Bank, N.A., as trustee of the PCC Statutory Trust IV.			10		000-53629		4.19		04/17/09
	4.19	–	Guarantee Agreement, dated as of February 22, 2008, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Wells Fargo Bank, N.A.			10		000-53629		4.20		04/17/09
	4.20	–	Registration Rights Agreement, dated as of December 31, 2008, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Hill A. Feinberg, as Stockholders’ Representative.			10/A		000-53629		4.21		06/26/09
	4.21	–	Form of Stock Certificate for Non-Cumulative Perpetual Preferred Stock, Series C.			8-K		000-53629		4.1		09/28/11
	10.1	–	Agreement and Plan of Merger, dated as of November 7, 2008, by and among PlainsCapital Corporation (f/k/a Plains Capital Corporation), PlainsCapital Bank, First Southwest Holdings, Inc., and Hill A. Feinberg, as Stockholders’ Representative.			10		000-53629		10.1		04/17/09
	10.2	–	First Amendment to Agreement and Plan of Merger, dated as of December 8, 2008, by and among PlainsCapital Corporation (f/k/a Plains Capital Corporation), PlainsCapital Bank, First Southwest Holdings, Inc., and Hill A. Feinberg, as Stockholders’ Representative.			10		000-53629		10.2		04/17/09
	10.3	–	Second Amendment to Agreement and Plan of Merger, dated as of December 8, 2008, by and among PlainsCapital Corporation (f/k/a Plains Capital Corporation), PlainsCapital Bank, FSWH Acquisition LLC, First Southwest Holdings, Inc., and Hill A. Feinberg, as Stockholders’ Representative.			10		000-53629		10.3		04/17/09
	10.4*	–	Amended and Restated Employment Agreement, dated as of January 1, 2009, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Alan White.			10		000-53629		10.4		04/17/09
	10.5*	–	First Amendment to Amended and Restated Employment Agreement, dated as of March 2, 2009, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Alan White.			10		000-53629		10.5		04/17/09

Incorporated by Reference

Exhibit No.

Exhibit Description

Filed Herewith

Form

File No.

Exhibit

Filing Date

10.6*

–

Employment Agreement, effective as of December 31, 2008, by and among First Southwest Holdings, LLC, PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Hill A. Feinberg.

10

000-53629

10.6

04/17/09

10.7*

–

First Amendment to Employment Agreement, dated as of March 2, 2009, by and among First Southwest Holdings, LLC, PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Hill A. Feinberg.

10

000-53629

10.7

04/17/09

10.8*

Waiver of Executive’s 2011 Bonus, dated as of March 7, 2012, by Hill A. Feinberg in favor of First Southwest Holdings, LLC.

X

10.9*

–

Employment Agreement, dated as of January 1, 2009, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Jerry L. Schaffner.

10

000-53629

10.8

04/17/09

10.10*

–

First Amendment to Employment Agreement, dated as of March 2, 2009, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Jerry L. Schaffner.

10

000-53629

10.9

04/17/09

10.11*

–

Employment Agreement, dated as of January 1, 2009, between James R. Huffines and PlainsCapital Corporation.

8-K

000-53629

10.1

11/16/10

10.12*

–

First Amendment to Employment Agreement, dated as of March 2, 2009, between James R. Huffines and PlainsCapital Corporation.

8-K

000-53629

10.2

11/16/10

10.13*

–

Second Amendment to Employment Agreement, dated as of November 15, 2010, between James R. Huffines and PlainsCapital Corporation.

8-K

000-53629

10.3

11/16/10

10.14*

–

Employment Agreement, dated as of November 15, 2010, between John A. Martin and PlainsCapital Corporation.

8-K

000-53629

10.4

11/16/10

10.15*

Employment Agreement, dated as of April 1, 2010, between Todd Salmans and PlainsCapital Corporation.

10-K

000-53629

10.21

03/22/11

10.16*

–

Plains Capital Corporation Incentive Stock Option Plan, dated March 25, 1998 (the “1998 Incentive Stock Option Plan”).

10

000-53629

10.13

04/17/09

10.17*

–

Plains Capital Corporation Incentive Stock Option Plan, dated April 18, 2001 (the “2001 Incentive Stock Option Plan”).

10

000-53629

10.14

04/17/09

10.18*

–

Plains Capital Corporation Incentive Stock Option Plan, dated March 25, 2003 (the “2003 Incentive Stock Option Plan”).

10

000-53629

10.15

04/17/09

Incorporated by Reference

Exhibit No.

Exhibit Description

Filed Herewith

Form

File No.

Exhibit

Filing Date

10.19*

–

Plains Capital Corporation 2005 Incentive Stock Option Plan, dated April 20, 2005 (the “2005 Incentive Stock Option Plan”).

10

000-53629

10.16

04/17/09

10.20*

–

Amended and Restated Plains Capital Corporation 2007 Nonqualified and Incentive Stock Option Plan, dated December 31, 2008 (the “2007 Stock Option Plan”).

10

000-53629

10.17

04/17/09

10.21*

–

PlainsCapital Corporation 2009 Long-Term Incentive Plan.

8-K

000-53629

10.1

08/31/09

10.22*

First Amendment to PlainsCapital Corporation 2009 Long-Term Incentive Plan.

8-K

000-53629

10.1

11/10/11

10.23*

–

PlainsCapital Corporation 2010 Long-Term Incentive Plan.

8-K

000-53629

10.2

03/23/10

10.24*

–

PNB Financial Bank Supplemental Executive Pension Plan, effective as of January 1, 2008.

10

000-53629

10.18

04/17/09

10.25*

–

First Amendment to PlainsCapital Bank Supplemental Executive Pension Plan, effective as of March 19, 2009.

10

000-53629

10.19

04/17/09

10.26*

–

Plains Capital Corporation Employee Stock Ownership Plan, effective January 1, 2004 and as amended and restated as of January 1, 2006.

10

000-53629

10.20

04/17/09

10.27*

–

First Amendment to Plains Capital Corporation Employees’ Stock Ownership Plan, effective as of January 1, 2007.

10

000-53629

10.21

04/17/09

10.28*

–

Second Amendment to Plains Capital Corporation Employees’ Stock Ownership Plan, dated as of December 1, 2008.

10

000-53629

10.22

04/17/09

10.29*

–

Form of Restricted Stock Award Agreement for restricted stock awards issued to Messrs. Huffines, Schaffner and White on December 17, 2008.

10

000-53629

10.23

04/17/09

10.30*

–

Form of Restricted Stock Award Agreement for restricted stock awards issued to Mr. Feinberg, effective as of December 31, 2008.

10

000-53629

10.24

04/17/09

10.31*

–

Form of Stock Option Agreement under the 1998 Incentive Stock Option Plan.

10

000-53629

10.26

04/17/09

10.32*

–

Form of Stock Option Agreement under the 2001 Incentive Stock Option Plan.

10

000-53629

10.27

04/17/09

10.33*

–

Form of Stock Option Agreement under the 2003 Incentive Stock Option Plan.

10

000-53629

10.28

04/17/09

10.34*

–

Form of Stock Option Agreement under the 2005 Incentive Stock Option Plan.

10

000-53629

10.29

04/17/09

10.35*

–

Form of Stock Option Agreement under the 2007 Stock Option Plan.

10

000-53629

10.30

04/17/09

Incorporated by Reference

Exhibit No.

Exhibit Description

Filed Herewith

Form

File No.

Exhibit

Filing Date

10.36*

Form of Incentive Stock Option Agreement under the PlainsCapital Corporation 2009 Long-Term Incentive Plan.

8-K

000-53629

10.2

11/10/11

10.37*

Form of Nonqualified Stock Option Agreement under the PlainsCapital Corporation 2009 Long-Term Incentive Plan.

8-K

000-53629

10.3

11/10/11

10.38*

Form of Restricted Stock Award Agreement under the PlainsCapital Corporation 2009 Long-Term Incentive Plan.

8-K

000-53629

10.4

11/10/11

10.39*

Form of Restricted Stock Unit Award Agreement under the PlainsCapital Corporation 2009 Long-Term Incentive Plan.

8-K

000-53629

10.5

11/10/11

10.40*

–

Form of Restricted Stock Award Agreement under the PlainsCapital Corporation 2010 Long-Term Incentive Plan.

8-K

000-53629

10.3

03/23/10

10.41*

–

Form of Restricted Stock Unit Award Agreement under the PlainsCapital Corporation 2010 Long-Term Incentive Plan.

8-K

000-53629

10.4

03/23/10

10.42

–

Amended and Restated Subordinate Credit Agreement, dated as of December 19, 2007, between JP Morgan Chase Bank, N.A. and PlainsCapital Corporation (f/k/a Plains Capital Corporation).

10

000-53629

10.31

04/17/09

10.43

–

Renewal, Extension and Modification Agreement, dated as of June 19, 2009, between JPMorgan Chase Bank, NA and PlainsCapital Corporation (f/k/a Plains Capital Corporation).

10-Q

000-53629

10.32

10/21/09

10.44

–

Third Amended and Restated Subordinate Promissory Note, dated as of June 19, 2009, by PlainsCapital Corporation (f/k/a Plains Capital Corporation) in favor of JPMorgan Chase Bank, NA.

10-Q

000-53629

10.33

10/21/09

10.45

–

Amended and Restated Loan Agreement, dated as of October 1, 2001, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA (f/k/a Bank One, NA).

10

000-53629

10.33

04/17/09

10.46

–

First Amendment to Amended and Restated Loan Agreement, dated as of August 1, 2002, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA (f/k/a Bank One, NA).

10

000-53629

10.34

04/17/09

10.47

–

Second Amendment to Amended and Restated Loan Agreement, dated as of August 1, 2003, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA (f/k/a Bank One, NA).

10

000-53629

10.35

04/17/09

				Incorporated by Reference
Exhibit No.		Exhibit Description	Filed Herewith	Form		File No.		Exhibit		Filing Date
10.48	–	Third Amendment to Amended and Restated Loan Agreement, dated as of June 1, 2004, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA (f/k/a Bank One, NA).			10		000-53629		10.36		04/17/09
10.49	–	Fourth Amendment to Amended and Restated Loan Agreement, dated as of November 21, 2005, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA.			10		000-53629		10.37		04/17/09
10.50	–	Fifth Amendment to Amended and Restated Loan Agreement, dated as of October 16, 2006, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA.			10		000-53629		10.38		04/17/09
10.51	–	Sixth Amendment to Amended and Restated Loan Agreement, dated as of December 19, 2007, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA.			10		000-53629		10.39		04/17/09
10.52	–	Seventh Amendment to Amended and Restated Loan Agreement, dated as of June 19, 2009, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA.			10-Q		000-53629		10.41		10/21/09
10.53	–	Eighth Amendment to Amended and Restated Loan Agreement, dated as of April 23, 2010, between JPMorgan Chase Bank, NA and PlainsCapital Corporation.			8-K		000-53629		10.1		04/29/10
10.54	–	Ninth Amendment to Amended and Restated Loan Agreement, dated as of July 30, 2010, between JPMorgan Chase Bank, NA and PlainsCapital Corporation.			8-K		000-53629		10.1		08/05/10
10.55	–	Tenth Amendment to Amended and Restated Loan Agreement, dated as of January 10, 2011, between PlainsCapital Corporation and JPMorgan Chase Bank, NA.			8-K		000-53629		10.1		01/25/11
10.56	–	Eleventh Amendment to Amended and Restated Loan Agreement, dated as of July 26, 2011, between JPMorgan Chase Bank, NA and PlainsCapital Corporation.			8-K		000-53629		10.1		08/01/11
10.57	–	Commercial Pledge and Security Agreement, dated as of November 1, 2000, by PlainsCapital Corporation (f/k/a Plains Capital Corporation) for the benefit of JPMorgan Chase Bank, NA (f/k/a Bank One, Texas N.A.).			10		000-53629		10.40		04/17/09

				Incorporated by Reference
Exhibit No.		Exhibit Description	Filed Herewith	Form		File No.		Exhibit		Filing Date
10.58	–	Sixth Amended and Restated Promissory Note, dated as of July 26, 2011, by PlainsCapital Corporation in favor of JPMorgan Chase Bank, NA.			8-K		000-53629		10.2		08/01/11
10.59	–	Loan Agreement, dated as of September 22, 2004, between JPMorgan Chase Bank, NA (f/k/a Bank One, NA) and PlainsCapital Corporation (f/k/a Plains Capital Corporation).			10		000-53629		10.42		04/17/09
10.60	–	Renewal, Extension and Modification Agreement, dated as of June 19, 2009, between JPMorgan Chase Bank, NA and PlainsCapital Corporation (f/k/a Plains Capital Corporation).			10-Q		000-53629		10.45		10/21/09
10.61	–	Renewal, Extension and Modification Agreement, dated as of July 30, 2010, between JPMorgan Chase Bank, NA and PlainsCapital Corporation.			8-K		000-53629		10.6		08/05/10
10.62	–	Renewal, Extension and Modification Agreement, dated as of July 26, 2011, between JPMorgan Chase Bank, NA and PlainsCapital Corporation.			8-K		000-53629		10.5		08/01/11
10.63	–	Third Amended and Restated Promissory Note, dated as of July 26, 2011, by PlainsCapital Corporation in favor of JPMorgan Chase Bank, NA.			8-K		000-53629		10.6		08/01/11
10.64	–	Loan Agreement, dated as of October 27, 2004, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA (f/k/a Bank One, NA).			10		000-53629		10.44		04/17/09
10.65	–	Renewal, Extension and Modification Agreement, dated as of June 19, 2009, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA.			10-Q		000-53629		10.48		10/21/09
10.66	–	Renewal, Extension and Modification Agreement, dated as of July 30, 2010, between PlainsCapital Corporation and JPMorgan Chase Bank, NA.			8-K		000-53629		10.8		08/05/10
10.67	–	Fourth Amended and Restated Promissory Note, dated as of July 30, 2010, by PlainsCapital Corporation in favor of JPMorgan Chase Bank, NA.			8-K		000-53629		10.9		08/05/10
10.68	–	Credit Agreement, dated as of October 13, 2006, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, N.A.			10		000-53629		10.47		04/17/09

Incorporated by Reference

Exhibit No.

Exhibit Description

Filed Herewith

Form

File No.

Exhibit

Filing Date

10.69

–

Renewal, Extension and Modification Agreement, dated as of June 19, 2009, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and JPMorgan Chase Bank, NA.

10-Q

000-53629

10.51

10/21/09

10.70

–

Modification Agreement, dated as of April 23, 2010, between JPMorgan Chase Bank, NA and PlainsCapital Corporation.

8-K

000-53629

10.2

04/29/10

10.71

–

Renewal, Extension and Modification Agreement, dated as of July 30, 2010, between PlainsCapital Corporation and JPMorgan Chase Bank, NA.

8-K

000-53629

10.3

08/05/10

10.72

–

Modification Agreement, dated as of January 10, 2011, between PlainsCapital Corporation and JPMorgan Chase Bank, NA.

8-K

000-53629

10.2

01/25/11

10.73

–

Renewal, Extension and Modification Agreement, dated as of July 26, 2011, between PlainsCapital Corporation and JPMorgan Chase Bank, NA.

8-K

000-53629

10.3

08/01/11

10.74

–

Fourth Amended and Restated Promissory Note, dated as of July 26, 2011, by PlainsCapital Corporation in favor of JPMorgan Chase Bank, NA.

8-K

000-53629

10.4

08/01/11

10.75

–

Office Lease, dated as of February 7, 2007, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Block L Land, L.P.

10

000-53629

10.49

04/17/09

10.76

–

First Amendment to Office Lease, dated as of April 3, 2007, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Block L Land, L.P.

10

000-53629

10.50

04/17/09

10.77

–

Second Amendment to Office Lease, dated as of November 14, 2008, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and H/H Victory Holdings, L.P.

10

000-53629

10.51

04/17/09

10.78

–

Securities Purchase Agreement, dated as of September 27, 2011, between PlainsCapital Corporation and the Secretary of the Treasury.

8-K

000-53629

10.1

09/28/11

10.79

–

Repurchase Letter, dated as of September 27, 2011, between PlainsCapital Corporation and the United Stated Department of the Treasury.

8-K

000-53629

10.2

09/28/11

10.80

–

Third Amendment to Agreement and Plan of Merger, dated as of December 8, 2008, by and among PlainsCapital Corporation (f/k/a Plains Capital Corporation), PlainsCapital Bank, FSWH Acquisition LLC, First Southwest Holdings, Inc., and Hill A. Feinberg, as Stockholders’ Representative.

X

10.81

–

Fourth Amendment to Agreement and Plan of Merger, dated as of May 8, 2012, by and among PlainsCapital Corporation (f/k/a Plains Capital Corporation), PlainsCapital Bank, FSWH Acquisition LLC, First Southwest Holdings, Inc., and Hill A. Feinberg, as Stockholders’ Representative.

8-K

000-53629

2.2

05/09/12

10.82*

–

Second Amendment to PlainsCapital Bank Supplemental Executive Pension Plan, dated May 8, 2012.

8-K

000-53629

10.1

05/09/12

31.1

–

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

31.2

–

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

						Incorporated by Reference
Exhibit No.			Exhibit Description	Filed Herewith		Form	File No.	Exhibit	Filing Date
	32.1	–	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		X
	101.INS**		XBRL Instance Document.		X
	101.SCH**		XBRL Taxonomy Extension Schema Document.		X
	101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document.		X
	101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document.		X
	101.LAB**		XBRL Taxonomy Extension Label Linkbase Document.		X
	101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document.		X

* Management contract or compensatory plan or arrangement.

** In accordance with Rule 406T of Regulation S-T, the information in these exhibits is “furnished” and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.