##### Table of Contents





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, 2010



| ̈ | 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   ̈    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 April 30, 2010, there were 33,985,737 shares of the registrants Original Common Stock, $0.001 par value, and no shares of the
registrants Common Stock, $0.001 par value, outstanding, including 2,507,469 shares that participate in dividends but are not defined as outstanding under generally accepted accounting principles.





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##### Table of Contents

PlainsCapital Corporation

Quarterly Report on Form 10-Q for the period ended March 31, 2010

TABLE OF CONTENTS



|                                                                                            |  |                                                                                       |  |   
|------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION                                                               |  |                                                                                      
|                                                                                            |  |                                                                                      
|Item 1.                                                                                     |  | Financial Statements                                                                  |  |   
|                                                                                            | 
|Unaudited Consolidated Interim Financial Statements                                         |  |                                                                                      
|                                                                                            | 
|Consolidated Balance Sheets, March 31, 2010 and December 31, 2009                           |  | 3                                                                                    
|Consolidated Statements of Income, Three Months Ended March 31, 2010 and 2009               |  | 4                                                                                    
|Consolidated Statements of Shareholders Equity, Three Months Ended March 31, 2010 and 2009 |  | 5                                                                                    
|Consolidated Statements of Cash Flows, Three Months Ended March 31, 2010 and 2009           |  | 6                                                                                    
|Notes to Consolidated Financial Statements                                                  |  | 7                                                                                    
|                                                                                            |  |                                                                                      
|Item 2.                                                                                     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 31
|                                                                                            |  |                                                                                      
|Item 3.                                                                                     |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 51
|                                                                                            |  |                                                                                      
|Item 4T.                                                                                    |  | Controls and Procedures                                                               |  | 54
|                                                                                            | 
|PART II. OTHER INFORMATION                                                                  |  |                                                                                      
|                                                                                            |  |                                                                                      
|Item 1.                                                                                     |  | Legal Proceedings                                                                     |  | 54
|                                                                                            |  |                                                                                      
|Item 1A.                                                                                    |  | Risk Factors                                                                          |  | 55
|                                                                                            |  |                                                                                      
|Item 2.                                                                                     |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 57
|                                                                                            |  |                                                                                      
|Item 3.                                                                                     |  | Defaults Upon Senior Securities                                                       |  | 57
|                                                                                            |  |                                                                                      
|Item 4.                                                                                     |  | (Removed and Reserved)                                                                |  | 57
|                                                                                            |  |                                                                                      
|Item 5.                                                                                     |  | Other Information                                                                     |  | 57
|                                                                                            |  |                                                                                      
|Item 6.                                                                                     |  | Exhibits                                                                              |  | 57
|                                                                                            | 
|Signatures                                                                                  |  | 58                                                                                   



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

PlainsCapital Corporation and Subsidiaries

Consolidated Balance Sheets



|                                                                                                                                       |  |                |           |   |              |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | - | ------------ | - | --------- | -
|                                                                                                                                       |  | March 31, 2010 |           |   | December 31, |  
|                                                                                                                                       |  | (Unaudited)    |           |   | 2009         |  
|                                                                                                                                       |  | (in thousands) |          
|Assets                                                                                                                                 |  |                |           |   |              |   |           |  
|Cash and due from banks                                                                                                                |  | $              | 207,704   |   |              | $ | 148,274   |  
|Federal funds sold                                                                                                                     |  |                | 12,500    |   |              |   | 12,044    |  
|Loans held for sale                                                                                                                    |  |                | 488,206   |   |              |   | 432,202   |  
|Securities                                                                                                                             |  |                |           |   |              |   |           |  
|Held to maturity, fair market value $274,813 and $294,887, respectively                                                                |  |                | 277,427   |   |              |   | 294,013   |  
|Available for sale, amortized cost $314,059 and $228,651, respectively                                                                 |  |                | 313,551   |   |              |   | 227,541   |  
|Trading, at fair market value                                                                                                          |  |                | 72,944    |   |              |   | 24,183    |  
|                                                                                                                                       |  |                |           |   |              |   |           |  
|                                                                                                                                       |  |                | 663,922   |   |              |   | 545,737   |  
|                                                                                                                                       |  |               
|Loans, net of unearned income                                                                                                          |  |                | 3,011,283 |   |              |   | 3,071,769 |  
|Allowance for loan losses                                                                                                              |  |                | (49,971   | ) |              |   | (52,092   | )
|                                                                                                                                       |  |                |           |   |              |   |           |  
|Loans, net                                                                                                                             |  |                | 2,961,312 |   |              |   | 3,019,677 |  
|                                                                                                                                       |  |               
|Broker-dealer and clearing organization receivables                                                                                    |  |                | 129,890   |   |              |   | 82,714    |  
|Fee award receivable                                                                                                                   |  |                | 20,184    |   |              |   | 20,504    |  
|Investment in unconsolidated subsidiaries                                                                                              |  |                | 2,012     |   |              |   | 2,012     |  
|Premises and equipment, net                                                                                                            |  |                | 76,992    |   |              |   | 75,602    |  
|Accrued interest receivable                                                                                                            |  |                | 15,032    |   |              |   | 15,876    |  
|Other real estate owned                                                                                                                |  |                | 19,112    |   |              |   | 17,531    |  
|Goodwill, net                                                                                                                          |  |                | 35,880    |   |              |   | 35,880    |  
|Other intangible assets, net                                                                                                           |  |                | 15,073    |   |              |   | 15,616    |  
|Other assets                                                                                                                           |  |                | 187,036   |   |              |   | 147,051   |  
|                                                                                                                                       |  |                |           |   |              |   |           |  
|Total assets                                                                                                                           |  | $              | 4,834,855 |   |              | $ | 4,570,720 |  
|                                                                                                                                       |  |                |           |   |              |   |           |  
|                                                                                                                                       |  |               
|Liabilities and Shareholders Equity                                                                                                   |  |                |           |   |              |   |           |  
|Deposits                                                                                                                               |  |                |           |   |              |   |           |  
|Noninterest-bearing                                                                                                                    |  | $              | 236,172   |   |              | $ | 223,551   |  
|Interest-bearing                                                                                                                       |  |                | 3,098,328 |   |              |   | 3,054,488 |  
|                                                                                                                                       |  |                |           |   |              |   |           |  
|Total deposits                                                                                                                         |  |                | 3,334,500 |   |              |   | 3,278,039 |  
|                                                                                                                                       |  |               
|Broker-dealer and clearing organization payables                                                                                       |  |                | 209,128   |   |              |   | 108,272   |  
|Short-term borrowings                                                                                                                  |  |                | 611,011   |   |              |   | 488,078   |  
|Capital lease obligation                                                                                                               |  |                | 12,022    |   |              |   | 12,128    |  
|Notes payable                                                                                                                          |  |                | 67,607    |   |              |   | 68,550    |  
|Junior subordinated debentures                                                                                                         |  |                | 67,012    |   |              |   | 67,012    |  
|Other liabilities                                                                                                                      |  |                | 109,617   |   |              |   | 124,531   |  
|                                                                                                                                       |  |                |           |   |              |   |           |  
|Total liabilities                                                                                                                      |  |                | 4,410,897 |   |              |   | 4,146,610 |  
|                                                                                                                                       |  |               
|Commitments and contingencies                                                                                                          |  |                |           |   |              |   |           |  
|                                                                                                                                       |  |               
|Shareholders equity                                                                                                                   |  |                |           |   |              |   |           |  
|PlainsCapital Corporation shareholders equity                                                                                         |  |                |           |   |              |   |           |  
|Preferred stock, $1.00 par value per share, authorized 50,000,000 shares;                                                              |  |                |           |   |              |   |           |  
|Series A, 87,631 shares issued                                                                                                         |  |                | 83,811    |   |              |   | 83,595    |  
|Series B, 4,382 shares issued                                                                                                          |  |                | 4,782     |   |              |   | 4,805     |  
|Original Common Stock, $0.001 par value per share, authorized 50,000,000 shares; 31,754,135 and 31,613,010 shares issued,
respectively |  |                | 32        |   |              |   | 32        |  
|Common Stock, $0.001 par value per share, authorized 150,000,000 shares; zero shares issued                                            |  |                |          |   |              |   |          |  
|Surplus                                                                                                                                |  |                | 151,146   |   |              |   | 150,626   |  
|Retained earnings                                                                                                                      |  |                | 185,359   |   |              |   | 186,743   |  
|Accumulated other comprehensive income (loss)                                                                                          |  |                | 232       |   |              |   | (300      | )
|                                                                                                                                       |  |                |           |   |              |   |           |  
|                                                                                                                                       |  |                | 425,362   |   |              |   | 425,501   |  
|Unearned ESOP shares (275,867 shares)                                                                                                  |  |                | (3,001    | ) |              |   | (3,001    | )
|                                                                                                                                       |  |                |           |   |              |   |           |  
|Total PlainsCapital Corporation shareholders equity                                                                                   |  |                | 422,361   |   |              |   | 422,500   |  
|Noncontrolling interest                                                                                                                |  |                | 1,597     |   |              |   | 1,610     |  
|                                                                                                                                       |  |                |           |   |              |   |           |  
|Total shareholders equity                                                                                                             |  |                | 423,958   |   |              |   | 424,110   |  
|                                                                                                                                       |  |                |           |   |              |   |           |  
|Total liabilities and shareholders equity                                                                                             |  | $              | 4,834,855 |   |              | $ | 4,570,720 |  
|                                                                                                                                       |  |                |           |   |              |   |           |  

See accompanying notes.



3



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PlainsCapital Corporation and Subsidiaries

Consolidated Statements of Income - Unaudited

(In thousands, except per share amounts)



|                                                                   |  |                              |        |      |   |        |  
|------------------------------------------------------------------ |  | ---------------------------- | ------ | ---- | - | ------ | -
|                                                                   |  | Three Months Ended March 31, |       
|                                                                   |  | 2010                         |        | 2009 |  
|Interest income:                                                   |  |                              |        |      |   |        |  
|Loans, including fees                                              |  | $                            | 44,624 |      | $ | 42,336 |  
|Securities                                                         |  |                              |        |      |   |        |  
|Taxable                                                            |  |                              | 3,804  |      |   | 2,408  |  
|Tax-exempt                                                         |  |                              | 2,451  |      |   | 1,713  |  
|Federal funds sold                                                 |  |                              | 9      |      |   | 7      |  
|Interest-bearing deposits with banks                               |  |                              | 243    |      |   | 12     |  
|Other                                                              |  |                              | 1,177  |      |   | 1,158  |  
|                                                                   |  |                              |        |      |   |        |  
|Total interest income                                              |  |                              | 52,308 |      |   | 47,634 |  
|                                                                   |  |                             
|Interest expense                                                   |  |                              |        |      |   |        |  
|Deposits                                                           |  |                              | 7,144  |      |   | 8,784  |  
|Short-term borrowings                                              |  |                              | 778    |      |   | 557    |  
|Capital lease obligation                                           |  |                              | 141    |      |   | 109    |  
|Notes payable                                                      |  |                              | 881    |      |   | 814    |  
|Junior subordinated debentures                                     |  |                              | 613    |      |   | 865    |  
|Other                                                              |  |                              | 78     |      |   | 148    |  
|                                                                   |  |                              |        |      |   |        |  
|Total interest expense                                             |  |                              | 9,635  |      |   | 11,277 |  
|                                                                   |  |                              |        |      |   |        |  
|                                                                   |  |                             
|Net interest income                                                |  |                              | 42,673 |      |   | 36,357 |  
|Provision for loan losses                                          |  |                              | 22,955 |      |   | 14,013 |  
|                                                                   |  |                              |        |      |   |        |  
|Net interest income after provision for loan losses                |  |                              | 19,718 |      |   | 22,344 |  
|                                                                   |  |                             
|Noninterest income                                                 |  |                              |        |      |   |        |  
|Service charges on depositor accounts                              |  |                              | 2,118  |      |   | 2,212  |  
|Net realized gains on sale of securities                           |  |                              | 1,612  |      |   | 301    |  
|Income from loan origination and net gains from sale of loans      |  |                              | 47,402 |      |   | 48,419 |  
|Trust fees                                                         |  |                              | 1,073  |      |   | 894    |  
|Investment advisory fees and commissions                           |  |                              | 15,536 |      |   | 13,856 |  
|Securities brokerage fees and commissions                          |  |                              | 5,713  |      |   | 4,950  |  
|Other                                                              |  |                              | 1,978  |      |   | (66    | )
|                                                                   |  |                              |        |      |   |        |  
|Total noninterest income                                           |  |                              | 75,432 |      |   | 70,566 |  
|                                                                   |  |                             
|Noninterest expense                                                |  |                              |        |      |   |        |  
|Employees compensation and benefits                               |  |                              | 56,795 |      |   | 48,508 |  
|Occupancy and equipment, net                                       |  |                              | 13,837 |      |   | 11,372 |  
|Professional services                                              |  |                              | 5,791  |      |   | 4,040  |  
|Deposit insurance premiums                                         |  |                              | 1,275  |      |   | 561    |  
|Repossession and foreclosure, net of recoveries                    |  |                              | 1,452  |      |   | 1,034  |  
|Other                                                              |  |                              | 13,669 |      |   | 11,749 |  
|                                                                   |  |                              |        |      |   |        |  
|Total noninterest expense                                          |  |                              | 92,819 |      |   | 77,264 |  
|                                                                   |  |                              |        |      |   |        |  
|                                                                   |  |                             
|Income before income taxes                                         |  |                              | 2,331  |      |   | 15,646 |  
|Income tax provision                                               |  |                              | 580    |      |   | 5,620  |  
|                                                                   |  |                              |        |      |   |        |  
|                                                                   |  |                             
|Net income                                                         |  |                              | 1,751  |      |   | 10,026 |  
|Less: Net income attributable to noncontrolling interest           |  |                              | 65     |      |   | 23     |  
|                                                                   |  |                              |        |      |   |        |  
|                                                                   |  |                             
|Net income attributable to PlainsCapital Corporation               |  |                              | 1,686  |      |   | 10,003 |  
|Dividends on preferred stock and other                             |  |                              | 1,388  |      |   | 1,559  |  
|                                                                   |  |                              |        |      |   |        |  
|Income applicable to PlainsCapital Corporation common shareholders |  | $                            | 298    |      | $ | 8,444  |  
|                                                                   |  |                              |        |      |   |        |  
|                                                                   |  |                             
|Earnings per share                                                 |  |                              |        |      |   |        |  
|Basic                                                              |  | $                            | 0.01   |      | $ | 0.27   |  
|                                                                   |  |                              |        |      |   |        |  
|Diluted                                                            |  | $                            | 0.01   |      | $ | 0.26   |  
|                                                                   |  |                              |        |      |   |        |  

See accompanying notes.



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PlainsCapital Corporation and Subsidiaries

Consolidated Statements of Shareholders Equity - Unaudited



|                                                                                                                  |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | -------------------------------------- | ------ | ------------ | - | ------ |  | ---------- | ------ |  | ------- | ---------------- |  | -------- | -------- | - | ------------- | - | ------- | ------ |  | - | -------------- | - |  | ----- | ------ | - |  | - | ----- | - |  | - | ------- | -
|                                                                                                                  |  |                        |        |   | PlainsCapital Corporation Shareholders |        |              |   |        |  |            |       
|                                                                                                                  |  |                        |        |   | Preferred Stock                        |        | Common Stock |   |        |  |            |        |  |         | AccumulatedOther |  |          | Unearned |   |               |   |         |        |  |  
|                                                                                                                  |  | Comprehensive          |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  | Retained |          |   | Comprehensive |   |         | ESOP   |  |   | Noncontrolling |   |  |       |       
|                                                                                                                  |  | Income                 |        |   | Shares                                 |        | Amount       |   | Shares |  |            | Amount |  | Surplus |                  |  | Earnings |          |   | Income (Loss) |   |         | Shares |  |   | Interest       |   |  | Total |       
|                                                                                                                  |  | (Dollars in thousands) |       
|Balance, January 1, 2009                                                                                          |  |                        |        |   |                                        | 92,013 |              | $ | 87,631 |  | 31,573,518 |        |  | $       | 32               |  | $        | 147,445  |   |               | $ | 167,865 |        |  | $ | 331            |   |  | $     | (3,489 | ) |  | $ | 1,709 |   |  | $ | 401,524 |  
|Stock option plans activity, including compensation expense                                                      |  |                        |        |   |                                        |       |              |   |       |  | 2,424      |        |  |         |                 |  |          | 67       |   |               |   |        |        |  |   |               |   |  |       |       |   |  |   |      |   |  |   | 67      |  
|Adjustment to stock issued in business combination                                                                |  |                        |        |   |                                        |       |              |   |       |  | (63        | )      |  |         |                 |  |          | (1       | ) |               |   |        |        |  |   |               |   |  |       |       |   |  |   |      |   |  |   | (1      | )
|Stock-based compensation expense                                                                                  |  |                        |        |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          | 214      |   |               |   |        |        |  |   |               |   |  |       |       |   |  |   |      |   |  |   | 214     |  
|ESOP activity                                                                                                     |  |                        |        |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   | 16      |        |  |   |               |   |  |       |       |   |  |   |      |   |  |   | 16      |  
|Dividends on common stock ($0.05 per share)                                                                       |  |                        |        |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   | (1,664  | )      |  |   |               |   |  |       |       |   |  |   |      |   |  |   | (1,664  | )
|Dividends on preferred stock                                                                                      |  |                        |        |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   | (1,353  | )      |  |   |               |   |  |       |       |   |  |   |      |   |  |   | (1,353  | )
|Preferred stock discount and accretion                                                                            |  |                        |        |   |                                        |       |              |   | 206    |  |           |        |  |         |                 |  |          |         |   |               |   | (206    | )      |  |   |               |   |  |       |       |   |  |   |      |   |  |   |        |  
|Cash distributions to noncontrolling interest                                                                     |  |                        |        |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   |        |        |  |   |               |   |  |       |       |   |  |   | (319  | ) |  |   | (319    | )
|Comprehensive income:                                                                                             |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Net income                                                                                                        |  | $                      | 10,026 |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   | 10,003  |        |  |   |               |   |  |       |       |   |  |   | 23    |   |  |   | 10,026  |  
|Other comprehensive income (loss):                                                                                |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Unrealized gains on securities available for sale, net of tax of $60.9                                            |  |                        | 118    |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Unrealized losses on securities held in trust for the Supplemental Executive Retirement Plan, net of tax of $67.0 |  |                        | (130   | ) |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Unrealized losses on customer-related cash flow hedges, net of tax of $1.7                                        |  |                        | (3     | ) |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|                                                                                                                  |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Other comprehensive loss                                                                                          |  |                        | (15    | ) |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   |        |        |  |   | (15            | ) |  |       |       |   |  |   |      |   |  |   | (15     | )
|                                                                                                                  |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Total comprehensive income                                                                                        |  | $                      | 10,011 |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|                                                                                                                  |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Balance, March 31, 2009                                                                                           |  |                        |        |   |                                        | 92,013 |              | $ | 87,837 |  | 31,575,879 |        |  | $       | 32               |  | $        | 147,725  |   |               | $ | 174,661 |        |  | $ | 316            |   |  | $     | (3,489 | ) |  | $ | 1,413 |   |  | $ | 408,495 |  
|                                                                                                                  |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|                                                                                                                  |  |                        |        |   |                                        |        |              |   |        |  |           
|Balance, January 1, 2010                                                                                          |  |                        |        |   |                                        | 92,013 |              | $ | 88,400 |  | 31,613,010 |        |  | $       | 32               |  | $        | 150,626  |   |               | $ | 186,743 |        |  | $ | (300           | ) |  | $     | (3,001 | ) |  | $ | 1,610 |   |  | $ | 424,110 |  
|Stock option plans activity, including compensation expense                                                      |  |                        |        |   |                                        |       |              |   |       |  | 65,706     |        |  |         |                 |  |          | 303      |   |               |   |        |        |  |   |               |   |  |       |       |   |  |   |      |   |  |   | 303     |  
|Vesting of stock-based compensation                                                                               |  |                        |        |   |                                        |       |              |   |       |  | 75,419     |        |  |         |                 |  |          |         |   |               |   |        |        |  |   |               |   |  |       |       |   |  |   |      |   |  |   |        |  
|Stock-based compensation expense                                                                                  |  |                        |        |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          | 217      |   |               |   |        |        |  |   |               |   |  |       |       |   |  |   |      |   |  |   | 217     |  
|ESOP activity                                                                                                     |  |                        |        |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   | 14      |        |  |   |               |   |  |       |       |   |  |   |      |   |  |   | 14      |  
|Dividends on common stock ($0.05 per share)                                                                       |  |                        |        |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   | (1,697  | )      |  |   |               |   |  |       |       |   |  |   |      |   |  |   | (1,697  | )
|Dividends on preferred stock                                                                                      |  |                        |        |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   | (1,194  | )      |  |   |               |   |  |       |       |   |  |   |      |   |  |   | (1,194  | )
|Preferred stock discount and accretion                                                                            |  |                        |        |   |                                        |       |              |   | 193    |  |           |        |  |         |                 |  |          |         |   |               |   | (193    | )      |  |   |               |   |  |       |       |   |  |   |      |   |  |   |        |  
|Cash distributions to noncontrolling interest                                                                     |  |                        |        |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   |        |        |  |   |               |   |  |       |       |   |  |   | (78   | ) |  |   | (78     | )
|Comprehensive income:                                                                                             |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Net income                                                                                                        |  | $                      | 1,751  |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   | 1,686   |        |  |   |               |   |  |       |       |   |  |   | 65    |   |  |   | 1,751   |  
|Other comprehensive income (loss):                                                                                |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Unrealized gains on securities available for sale, net of tax of $210.4                                           |  |                        | 391    |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Unrealized gains on securities held in trust for the Supplemental Executive Retirement Plan, net of tax of $82.9  |  |                        | 144    |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Unrealized losses on customer-related cash flow hedges, net of tax of $1.6                                        |  |                        | (3     | ) |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|                                                                                                                  |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Other comprehensive income                                                                                        |  |                        | 532    |   |                                        |       |              |   |       |  |           |        |  |         |                 |  |          |         |   |               |   |        |        |  |   | 532            |   |  |       |       |   |  |   |      |   |  |   | 532     |  
|                                                                                                                  |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Total comprehensive income                                                                                        |  | $                      | 2,283  |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|                                                                                                                  |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  
|Balance, March 31, 2010                                                                                           |  |                        |        |   |                                        | 92,013 |              | $ | 88,593 |  | 31,754,135 |        |  | $       | 32               |  | $        | 151,146  |   |               | $ | 185,359 |        |  | $ | 232            |   |  | $     | (3,001 | ) |  | $ | 1,597 |   |  | $ | 423,958 |  
|                                                                                                                  |  |                        |        |   |                                        |        |              |   |        |  |            |        |  |         |                  |  |          |          |   |               |   |         |        |  |   |                |   |  |       |        |   |  |   |       |   |  |   |         |  

See accompanying notes.



5



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##### Table of Contents

PlainsCapital Corporation and Subsidiaries

Consolidated Statements of Cash Flows - Unaudited

(In thousands)



|                                                                                          |  |                              |            |   |      |   |            |  
|----------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                          |  | Three Months Ended March 31, |           
|                                                                                          |  | 2010                         |            |   | 2009 |  
|Operating Activities                                                                      |  |                              |            |   |      |   |            |  
|Net income                                                                                |  | $                            | 1,751      |   |      | $ | 10,026     |  
|Adjustments to reconcile net income to net cash used in operating activities              |  |                              |            |   |      |   |            |  
|Provision for loan losses                                                                 |  |                              | 22,955     |   |      |   | 14,013     |  
|Net losses on other real estate owned                                                     |  |                              | 712        |   |      |   | 725        |  
|Depreciation and amortization                                                             |  |                              | 2,630      |   |      |   | 2,597      |  
|Stock-based compensation expense                                                          |  |                              | 253        |   |      |   | 269        |  
|Net realized gains on sale of securities                                                  |  |                              | (1,612     | ) |      |   | (301       | )
|Loss on sale of premises and equipment                                                    |  |                              | 18         |   |      |   | 1          |  
|Stock dividends received on securities                                                    |  |                              | (16        | ) |      |   | (25        | )
|Deferred income taxes                                                                     |  |                              | (366       | ) |      |   | 2,920      |  
|Changes in prepaid FDIC assessments                                                       |  |                              | 1,116      |   |      |   |           |  
|Changes in assets segregated for regulatory purposes                                      |  |                              |           |   |      |   | (18,500    | )
|Changes in trading securities                                                             |  |                              | (48,761    | ) |      |   | (5,183     | )
|Changes in broker-dealer and clearing organization receivables                            |  |                              | (47,176    | ) |      |   | (23,443    | )
|Changes in fee award receivable                                                           |  |                              | 320        |   |      |   | 319        |  
|Changes in broker-dealer and clearing organization payables                               |  |                              | 100,856    |   |      |   | 24,214     |  
|Changes in other assets                                                                   |  |                              | (38,941    | ) |      |   | 10,583     |  
|Changes in other liabilities                                                              |  |                              | (26,385    | ) |      |   | (1,644     | )
|Net gains from loan origination and sale of loans                                         |  |                              | (47,402    | ) |      |   | (48,419    | )
|Loans originated for sale                                                                 |  |                              | (1,152,337 | ) |      |   | (1,305,074 | )
|Proceeds from loans sold                                                                  |  |                              | 1,143,368  |   |      |   | 1,278,601  |  
|                                                                                          |  |                              |            |   |      |   |            |  
|Net cash used in operating activities                                                     |  |                              | (89,017    | ) |      |   | (58,321    | )
|                                                                                          |  |                              |            |   |      |   |            |  
|                                                                                          |  |                             
|Investing Activities                                                                      |  |                              |            |   |      |   |            |  
|Proceeds from maturities and principal reductions of securities held to maturity          |  |                              | 23,187     |   |      |   | 1,092      |  
|Proceeds from sales, maturities and principal reductions of securities available for sale |  |                              | 83,689     |   |      |   | 42,219     |  
|Purchases of securities held to maturity                                                  |  |                              | (4,911     | ) |      |   | (40,131    | )
|Purchases of securities available for sale                                                |  |                              | (167,760   | ) |      |   | (55,111    | )
|Net (increase) decrease in loans                                                          |  |                              | 31,271     |   |      |   | (49,792    | )
|Purchases of premises and equipment and other assets                                      |  |                              | (4,649     | ) |      |   | (5,192     | )
|Proceeds from sales of premises and equipment and other real estate owned                 |  |                              | 1,542      |   |      |   | 1,986      |  
|Net cash received (paid) for Federal Home Loan Bank and Federal Reserve Bank stock        |  |                              | (326       | ) |      |   | 2,606      |  
|                                                                                          |  |                              |            |   |      |   |            |  
|Net cash used in investing activities                                                     |  |                              | (37,957    | ) |      |   | (102,323   | )
|                                                                                          |  |                              |            |   |      |   |            |  
|                                                                                          |  |                             
|Financing Activities                                                                      |  |                              |            |   |      |   |            |  
|Net increase (decrease) in deposits                                                       |  |                              | 67,678     |   |      |   | (191,493   | )
|Net increase in short-term borrowings                                                     |  |                              | 122,933    |   |      |   | 445,763    |  
|Proceeds from notes payable                                                               |  |                              | 1,200      |   |      |   |           |  
|Payments on notes payable                                                                 |  |                              | (2,143     | ) |      |   | (79,733    | )
|Proceeds from issuance of common stock                                                    |  |                              | 267        |   |      |   | 12         |  
|Dividends paid                                                                            |  |                              | (2,891     | ) |      |   | (3,017     | )
|Cash distributions to noncontrolling interest                                             |  |                              | (78        | ) |      |   | (319       | )
|Other, net                                                                                |  |                              | (106       | ) |      |   | (69        | )
|                                                                                          |  |                              |            |   |      |   |            |  
|Net cash provided by financing activities                                                 |  |                              | 186,860    |   |      |   | 171,144    |  
|                                                                                          |  |                              |            |   |      |   |            |  
|                                                                                          |  |                             
|Net increase in cash and cash equivalents                                                 |  |                              | 59,886     |   |      |   | 10,500     |  
|Cash and cash equivalents at beginning of period                                          |  |                              | 160,318    |   |      |   | 114,571    |  
|                                                                                          |  |                              |            |   |      |   |            |  
|Cash and cash equivalents at end of period                                                |  | $                            | 220,204    |   |      | $ | 125,071    |  
|                                                                                          |  |                              |            |   |      |   |            |  
|                                                                                          |  |                             
|Supplemental Disclosures of Cash Flow Information                                         |  |                              |            |   |      |   |            |  
|Cash paid during the period for:                                                          |  |                              |            |   |      |   |            |  
|Interest                                                                                  |  | $                            | 9,355      |   |      | $ | 13,075     |  
|                                                                                          |  |                              |            |   |      |   |            |  
|                                                                                          |  |                             
|Supplemental Schedule of Noncash Activities                                               |  |                              |            |   |      |   |            |  
|Conversion of loans to other real estate owned                                            |  | $                            | 4,115      |   |      | $ | 4,546      |  
|                                                                                          |  |                              |            |   |      |   |            |  

See accompanying notes.



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##### Table of Contents

PlainsCapital Corporation and Subsidiaries

Notes to Consolidated Interim Financial Statements  Unaudited

March 31, 2010

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, 2010 and 2009 have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (the
SEC).

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, capital equipment leasing, fixed income sales and trading, 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 60.9% 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., PCB-ARC, Inc. and 90% of the outstanding stock of Plains Financial Corporation (PFC). The Bank has a 100% interest in First Southwest Holdings, LLC (First Southwest), PlainsCapital Leasing, LLC and PlainsCapital
Securities, LLC, as well as a 51% voting interest in PlainsCapital Insurance Services, LLC.

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 Original 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.

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).



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##### Table of Contents

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 under 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 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 26, 2010. Results for interim periods are not necessarily indicative of results to be expected for a full year or any future period.

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. The allowance for loan losses is particularly subject to change.

Common Stock

On August 27, 2009, PlainsCapital shareholders authorized a change to the name of our existing class of common stock to
Original Common Stock and the creation of a new class of common stock with 150 million authorized shares. In addition, shareholders authorized a three-for-one split of PlainsCapital Original Common Stock and a change in the par
value of the Original Common Stock from $10 per share to $0.001 per share. These changes became effective August 28, 2009 when PlainsCapital filed its Third Amended and Restated Certificate of Formation with the Texas Secretary of
State. PlainsCapital has retrospectively adjusted previously reported share and per share amounts to reflect the stock split and the change in the par value of the Original Common Stock for all periods presented.

Comprehensive Income (Loss)

PlainsCapitals comprehensive income (loss) consists of its net income and unrealized holding gains (losses) on its available for sale securities,
investments held in trust for the Supplemental Executive Retirement Plan and derivative instruments designated as cash flow hedges.

The
components of accumulated other comprehensive income (loss), net of taxes, at March 31, 2010 and December 31, 2009 are shown in the following table (in thousands):



|                                                                                           |  |               |      |   |                  |   |      |  
|------------------------------------------------------------------------------------------ |  | ------------- | ---- | - | ---------------- | - | ---- | -
|                                                                                           |  | March 31,2010 |      |   | December 31,2009 |  
|Unrealized loss on securities available for sale                                           |  | $             | (330 | ) |                  | $ | (721 | )
|Unrealized gain on securities held in trust for the Supplemental Executive Retirement Plan |  |               | 438  |   |                  |   | 294  |  
|Unrealized gain on customer-related cash flow hedges                                       |  |               | 124  |   |                  |   | 127  |  
|                                                                                           |  |               |      |   |                  |   |      |  
|                                                                                           |  | $             | 232  |   |                  | $ | (300 | )
|                                                                                           |  |               |      |   |                  |   |      |  

Subsequent Events

PlainsCapital has applied the provisions of the Subsequent Events Topic of the ASC to its consolidated interim financial statements for periods ended
after June 15, 2009. The Subsequent Event Topic establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or available to be issued.



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##### Table of Contents

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



Reclassification

Certain items in the 2009 financial statements have been reclassified to conform to the 2010 presentation.

2. Securities

The amortized cost and
fair value of securities, excluding trading securities, as of March 31, 2010, and December 31, 2009 are summarized as follows (in thousands):



|                                    |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|----------------------------------- |  | ------------------ | ------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | -------
|                                    |  | Held to Maturity  
|                                    |  | AmortizedCost      |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|As of March 31, 2010                |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|U. S. government agencies           |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|Mortgage-backed securities          |  | $                  | 15,202  |                      | $ | 834                   |  | $ | (8         | ) |  | $ | 16,028 
|Collateralized mortgage obligations |  |                    | 48,695  |                      |   | 440                   |  |   | (1,061     | ) |  |   | 48,074 
|States and political subdivisions   |  |                    | 124,136 |                      |   | 2,587                 |  |   | (1,116     | ) |  |   | 125,607
|Auction rate bonds                  |  |                    | 89,394  |                      |   |                      |  |   | (4,290     | ) |  |   | 85,104 
|                                    |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|Totals                              |  | $                  | 277,427 |                      | $ | 3,861                 |  | $ | (6,475     | ) |  | $ | 274,813
|                                    |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|                                    |  |                    |         |                     
|As of December 31, 2009             |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|U. S. government agencies           |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|Mortgage-backed securities          |  | $                  | 16,963  |                      | $ | 831                   |  | $ | (8         | ) |  | $ | 17,786 
|Collateralized mortgage obligations |  |                    | 50,533  |                      |   | 764                   |  |   | (1,042     | ) |  |   | 50,255 
|States and political subdivisions   |  |                    | 120,818 |                      |   | 2,626                 |  |   | (948       | ) |  |   | 122,496
|Auction rate bonds                  |  |                    | 105,699 |                      |   | 1,735                 |  |   | (3,084     | ) |  |   | 104,350
|                                    |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|Totals                              |  | $                  | 294,013 |                      | $ | 5,956                 |  | $ | (5,082     | ) |  | $ | 294,887
|                                    |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|                                    | 
|                                    |  | Available for Sale
|                                    |  | AmortizedCost      |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|As of March 31, 2010                |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|U. S. government agencies           |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|Mortgage-backed securities          |  | $                  | 14,270  |                      | $ | 403                   |  | $ | (220       | ) |  | $ | 14,453 
|Collateralized mortgage obligations |  |                    | 266,925 |                      |   | 2,273                 |  |   | (2,972     | ) |  |   | 266,226
|States and political subdivisions   |  |                    | 9,977   |                      |   | 172                   |  |   |           |   |  |   | 10,149 
|Auction rate bonds                  |  |                    | 22,887  |                      |   |                      |  |   | (164       | ) |  |   | 22,723 
|                                    |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|Totals                              |  | $                  | 314,059 |                      | $ | 2,848                 |  | $ | (3,356     | ) |  | $ | 313,551
|                                    |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|                                    |  |                    |         |                     
|As of December 31, 2009             |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|U. S. government agencies           |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|Mortgage-backed securities          |  | $                  | 27,696  |                      | $ | 587                   |  | $ | (269       | ) |  | $ | 28,014 
|Collateralized mortgage obligations |  |                    | 146,765 |                      |   | 1,679                 |  |   | (3,083     | ) |  |   | 145,361
|States and political subdivisions   |  |                    | 9,568   |                      |   | 44                    |  |   |           |   |  |   | 9,612  
|Auction rate bonds                  |  |                    | 44,622  |                      |   | 66                    |  |   | (134       | ) |  |   | 44,554 
|                                    |  |                    |         |                      |   |                       |  |   |            |   |  |   |        
|Totals                              |  | $                  | 228,651 |                      | $ | 2,376                 |  | $ | (3,486     | ) |  | $ | 227,541
|                                    |  |                    |         |                      |   |                       |  |   |            |   |  |   |        



9



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##### Table of Contents

2. Securities (continued)

Information regarding securities that were in an unrealized loss position as of March 31, 2010, is shown in the following tables (dollars in
thousands):



|                                            |  |                      |  |            |         |                  |   |      
|------------------------------------------- |  | -------------------- |  | ---------- | ------- | ---------------- | - | -----
|                                            |  | As of March 31, 2010
|                                            |  | Number ofSecurities  |  | Fair Value |         | UnrealizedLosses
|Held to maturity                            |  |                      |  |            |         |                  |   |      
|U. S. government agencies                   |  |                      |  |            |         |                  |   |      
|Mortgage-backed securities                  |  |                      |  |            |         |                  |   |      
|Unrealized loss for less than twelve months |  |                     |  | $          |        |                  | $ |     
|Unrealized loss for more than twelve months |  | 1                    |  |            | 495     |                  |   | 8    
|                                            |  |                      |  |            |         |                  |   |      
|                                            |  | 1                    |  |            | 495     |                  |   | 8    
|Collateralized mortgage obligations         |  |                      |  |            |         |                  |   |      
|Unrealized loss for less than twelve months |  | 7                    |  |            | 35,024  |                  |   | 1,061
|Unrealized loss for more than twelve months |  |                     |  |            |        |                  |   |     
|                                            |  |                      |  |            |         |                  |   |      
|                                            |  | 7                    |  |            | 35,024  |                  |   | 1,061
|States and political subdivisions           |  |                      |  |            |         |                  |   |      
|Unrealized loss for less than twelve months |  | 45                   |  |            | 24,090  |                  |   | 402  
|Unrealized loss for more than twelve months |  | 27                   |  |            | 11,923  |                  |   | 714  
|                                            |  |                      |  |            |         |                  |   |      
|                                            |  | 72                   |  |            | 36,013  |                  |   | 1,116
|Auction rate bonds                          |  |                      |  |            |         |                  |   |      
|Unrealized loss for less than twelve months |  | 2                    |  |            | 25,813  |                  |   | 189  
|Unrealized loss for more than twelve months |  | 3                    |  |            | 59,291  |                  |   | 4,101
|                                            |  |                      |  |            |         |                  |   |      
|                                            |  | 5                    |  |            | 85,104  |                  |   | 4,290
|Total held to maturity                      |  |                      |  |            |         |                  |   |      
|Unrealized loss for less than twelve months |  | 54                   |  |            | 84,927  |                  |   | 1,652
|Unrealized loss for more than twelve months |  | 31                   |  |            | 71,709  |                  |   | 4,823
|                                            |  |                      |  |            |         |                  |   |      
|                                            |  | 85                   |  | $          | 156,636 |                  | $ | 6,475
|                                            |  |                      |  |            |         |                  |   |      
|Available for sale                          |  |                      |  |            |         |                  |   |      
|U. S. government agencies                   |  |                      |  |            |         |                  |   |      
|Mortgage-backed securities                  |  |                      |  |            |         |                  |   |      
|Unrealized loss for less than twelve months |  |                     |  | $          |        |                  | $ |     
|Unrealized loss for more than twelve months |  | 1                    |  |            | 4,970   |                  |   | 220  
|                                            |  |                      |  |            |         |                  |   |      
|                                            |  | 1                    |  |            | 4,970   |                  |   | 220  
|Collateralized mortgage obligations         |  |                      |  |            |         |                  |   |      
|Unrealized loss for less than twelve months |  | 12                   |  |            | 137,232 |                  |   | 2,972
|Unrealized loss for more than twelve months |  |                     |  |            |        |                  |   |     
|                                            |  |                      |  |            |         |                  |   |      
|                                            |  | 12                   |  |            | 137,232 |                  |   | 2,972
|Auction rate bonds                          |  |                      |  |            |         |                  |   |      
|Unrealized loss for less than twelve months |  |                     |  |            |        |                  |   |     
|Unrealized loss for more than twelve months |  | 1                    |  |            | 22,723  |                  |   | 164  
|                                            |  |                      |  |            |         |                  |   |      
|                                            |  | 1                    |  |            | 22,723  |                  |   | 164  
|Total available for sale                    |  |                      |  |            |         |                  |   |      
|Unrealized loss for less than twelve months |  | 12                   |  |            | 137,232 |                  |   | 2,972
|Unrealized loss for more than twelve months |  | 2                    |  |            | 27,693  |                  |   | 384  
|                                            |  |                      |  |            |         |                  |   |      
|                                            |  | 14                   |  | $          | 164,925 |                  | $ | 3,356
|                                            |  |                      |  |            |         |                  |   |      



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##### Table of Contents

2. Securities (continued)

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, 2010, management does not intend to sell any of the securities classified as available for sale in the previous table and it believes that it is more likely than not that PlainsCapital will not
have to sell any such securities before a recovery of cost. As of March 31, 2010, management believes the impairments detailed in the table are temporary and relate primarily to changes in interest rates. Accordingly, no other-than-temporary
impairment loss has been recognized in PlainsCapitals consolidated statements of income.

The amortized cost and fair value of
securities, excluding trading securities, as of March 31, 2010, are shown by contractual maturity below (in thousands).



|                                       |  |                             |         |                               |   |               |  |            |         |  |   |        
|-------------------------------------- |  | --------------------------- | ------- | ----------------------------- | - | ------------- |  | ---------- | ------- |  | - | -------
|                                       |  | Securities Held to Maturity |         | Securities Available for Sale
|                                       |  | AmortizedCost               |         | Fair Value                    |   | AmortizedCost |  | Fair Value
|Due in one year or less                |  | $                           | 1,784   |                               | $ | 1,816         |  | $          |        |  | $ |       
|Due after one year through five years  |  |                             | 3,005   |                               |   | 3,096         |  |            |        |  |   |       
|Due after five years through ten years |  |                             | 15,885  |                               |   | 16,193        |  |            |        |  |   |       
|Due after ten years                    |  |                             | 192,856 |                               |   | 189,606       |  |            | 32,864  |  |   | 32,872 
|                                       |  |                             |         |                               |   |               |  |            |         |  |   |        
|                                       |  |                             | 213,530 |                               |   | 210,711       |  |            | 32,864  |  |   | 32,872 
|                                       |  |                             |         |                              
|Mortgage-backed securities             |  |                             | 15,202  |                               |   | 16,028        |  |            | 14,270  |  |   | 14,453 
|Collateralized mortgage obligations    |  |                             | 48,695  |                               |   | 48,074        |  |            | 266,925 |  |   | 266,226
|                                       |  |                             |         |                               |   |               |  |            |         |  |   |        
|                                       |  | $                           | 277,427 |                               | $ | 274,813       |  | $          | 314,059 |  | $ | 313,551
|                                       |  |                             |         |                               |   |               |  |            |         |  |   |        

For the three months ended March 31, 2010, the Bank received
proceeds from the sale of available for sale securities of $54.3 million and realized gross gains of $1.6 million. The Bank determines the cost of securities sold by specific identification. For the three months ended March 31, 2009, the
Bank received proceeds from the sale of available for sale securities of $21.3 million and recognized gross gains of $0.3 million.

FSC
realized net gains from its trading operations of $0.5 million and $0.4 million for the three months ended March 31, 2010 and 2009, respectively.

During the first quarter of 2010, auction rate bonds with a par value of approximately $13.4 million and an unaccreted discount of approximately $1.2
million were called by the issuer. In order to address a change in the interpretation of the regulatory requirements regarding the maximum level of investments in certain securities, the Bank agreed to reimburse the issuer approximately $1.0 million
for costs the issuer incurred related to the call. As a result of the accelerated discount accretion and the reimbursement to the issuer, the Bank realized a gain on the call transaction of approximately $0.2 million. In addition, the Bank tendered
$24.0 million par value of available for sale auction rate bonds of a second issuer, receiving $21.6 million of gross proceeds. No gain or loss resulted from the transaction.

Also in the first quarter of 2010, auction rate bonds with a par value of $4.5 million and an unaccreted discount of approximately $0.4 million were
called at par by the issuer. Since First Southwest provides related financing to the issuer, the Bank began accreting the discount over the expected term of financing in the first quarter of 2010.

In the aggregate, the par value of the Banks holdings of auction rate bonds decreased by $41.9 million from December 31, 2009 to
March 31, 2010.

Securities with a carrying amount of approximately $355.6 million and $365.2 million (fair value of approximately $355.5
million and $366.5 million) at March 31, 2010 and December 31, 2009, 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. In addition, the Bank had secured a letter of credit from the Federal Home Loan Bank (FHLB) in the amount of $149.0 million at both March 31, 2010 and December 31, 2009, in lieu of pledging
securities to secure certain public deposits.



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##### Table of Contents

3. Loans and Allowance for Loan Losses

Loans summarized by category as of March 31, 2010 and December 31, 2009, are as follows (in thousands):



|                                    |  |               |           |   |                  |   |           |  
|----------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                    |  | March 31,2010 |           |   | December 31,2009 |  
|Commercial and industrial           |  | $             | 1,197,949 |   |                  | $ | 1,264,735 |  
|Lease financing                     |  |               | 67,196    |   |                  |   | 78,088    |  
|Construction and land development   |  |               | 397,602   |   |                  |   | 402,876   |  
|Real estate                         |  |               | 1,114,641 |   |                  |   | 1,125,134 |  
|Securities (primarily margin loans) |  |               | 187,472   |   |                  |   | 152,145   |  
|Consumer                            |  |               | 46,423    |   |                  |   | 48,791    |  
|                                    |  |               |           |   |                  |   |           |  
|                                    |  |               | 3,011,283 |   |                  |   | 3,071,769 |  
|Allowance for loan losses           |  |               | (49,971   | ) |                  |   | (52,092   | )
|                                    |  |               |           |   |                  |   |           |  
|                                    |  | $             | 2,961,312 |   |                  | $ | 3,019,677 |  
|                                    |  |               |           |   |                  |   |           |  

Impaired (non-accrual) loans totaled approximately $80.1 million and $69.0 million at March 31, 2010 and
December 31, 2009, respectively. At March 31, 2010, an allowance for loan loss of approximately $12.1 million was associated with $71.2 million of impaired loans. At December 31, 2009, an allowance for loan loss of approximately $9.2
million was associated with $63.7 million of impaired loans. The average aggregate balance of impaired loans for the three months ended March 31, 2010 and 2009 was approximately $79.4 million and $50.2 million, respectively. Interest
income recorded on impaired loans for the three months ended March 31, 2010 and 2009 was nominal.

At March 31, 2010 and
December 31, 2009, the Bank had loans of approximately $0.1 million and $0.1 million, respectively that were more than 90 days past due, but upon which the Bank continued to accrue interest.

Net investment in lease financing at March 31, 2010 and December 31, 2009 is shown in the following table (in thousands).



|                                          |  |               |        |   |                  |   |        |  
|----------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                          |  | March 31,2010 |        |   | December 31,2009 |  
|Future minimum lease payments             |  | $             | 71,670 |   |                  | $ | 83,390 |  
|Unguaranteed residual value               |  |               | 268    |   |                  |   | 580    |  
|Guaranteed residual value                 |  |               | 2,189  |   |                  |   | 2,310  |  
|Initial direct costs, net of amortization |  |               | 285    |   |                  |   | 348    |  
|Unearned income                           |  |               | (7,216 | ) |                  |   | (8,540 | )
|                                          |  |               |        |   |                  |   |        |  
|                                          |  | $             | 67,196 |   |                  | $ | 78,088 |  
|                                          |  |               |        |   |                  |   |        |  



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##### Table of Contents

3. Loans and Allowance for Loan Losses (continued)

Changes in the allowance for loan losses for the three months ended March 31, 2010 and 2009 were as follows (in thousands):



|                                |  |                              |         |   |      |   |         |  
|------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                |  | Three Months Ended March 31, |        
|                                |  | 2010                         |         |   | 2009 |  
|Balance at beginning of period  |  | $                            | 52,092  |   |      | $ | 40,672  |  
|Provision charged to operations |  |                              | 22,955  |   |      |   | 14,013  |  
|Loans charged-off               |  |                              | (25,347 | ) |      |   | (25,773 | )
|Recoveries on charged-off loans |  |                              | 271     |   |      |   | 211     |  
|                                |  |                              |         |   |      |   |         |  
|Balance at end of period        |  | $                            | 49,971  |   |      | $ | 29,123  |  
|                                |  |                              |         |   |      |   |         |  

4. Deposits

Deposits at March 31, 2010 and December 31, 2009 are summarized as follows (in thousands):



|                           |  |               |           |                  |   |          
|-------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                           |  | March 31,2010 |           | December 31,2009
|Noninterest-bearing demand |  | $             | 236,172   |                  | $ | 223,551  
|Interest-bearing:          |  |               |           |                  |   |          
|NOW accounts               |  |               | 54,291    |                  |   | 56,697   
|Money market               |  |               | 1,648,458 |                  |   | 1,638,763
|Demand                     |  |               | 60,001    |                  |   | 46,156   
|Savings                    |  |               | 139,775   |                  |   | 135,962  
|In foreign branches        |  |               | 160,569   |                  |   | 166,746  
|Time - $100,000 and over   |  |               | 693,238   |                  |   | 684,939  
|Time - brokered            |  |               | 122,169   |                  |   | 106,790  
|Time - other               |  |               | 219,827   |                  |   | 218,435  
|                           |  |               |           |                  |   |          
|                           |  | $             | 3,334,500 |                  | $ | 3,278,039
|                           |  |               |           |                  |   |          



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5. Short-Term Borrowings

Short-term borrowings at March 31, 2010 and December 31, 2009 were as follows (in thousands):



|                                               |  |               |          |                  |   |         
|---------------------------------------------- |  | ------------- | -------- | ---------------- | - | --------
|                                               |  | March 31,2010 |          | December 31,2009
|Federal funds purchased                        |  | $             | 145,050  |                  | $ | 150,075 
|Securities sold under agreements to repurchase |  |               | 69,526   |                  |   | 59,927  
|Federal Home Loan Bank notes                   |  |               | 350,000  |                  |   | 275,000 
|Treasury tax and loan note option account      |  |               | 3,035    |                  |   | 3,076   
|Short-term bank loans                          |  |               | 43,400   |                  |   |        
|                                               |  |               |          |                  |   |         
|                                               |  |               | $611,011 |                  |   | $488,078
|                                               |  |               |          |                  |   |         

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, |        
|                                                      |  | 2010                         |         |   | 2009             |  
|Average balance during the period                     |  | $                            | 237,276 |   |                  | $ | 244,731 |  
|Average interest rate during the period               |  |                              | 0.22    | % |                  |   | 0.36    | %
|                                                      |  |                             
|                                                      |  | March 31,2010                |         |   | December 31,2009 |  
|Average interest rate at end of period                |  |                              | 0.24    | % |                  |   | 0.21    | %
|Securities underlying the agreements at end of period |  |                              |         |   |                  |   |         |  
|Carrying value                                        |  | $                            | 71,478  |   |                  | $ | 65,838  |  
|Estimated fair value                                  |  | $                            | 71,337  |   |                  | $ | 67,075  |  

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, |        
|                                        |  | 2010                         |         |   | 2009             |  
|Average balance during the period       |  | $                            | 331,111 |   |                  | $ | 7,778 |  
|Average interest rate during the period |  |                              | 0.70    | % |                  |   | 0.55  | %
|                                        |  |                             
|                                        |  | March 31,2010                |         |   | December 31,2009 |  
|Average interest rate at end of period  |  |                              | 0.68    | % |                  |   | 0.75  | %

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, 2010 was 1.32%. No short-term bank loans were outstanding at December 31, 2009.



14



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##### Table of Contents

6. Notes Payable

Notes payable at March 31, 2010 and December 31, 2009 consisted of the following (in thousands):



|                                                                                                                                                                                                           |  |               |        |                  |   |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                                                                                                                                                                                           |  | March 31,2010 |        | December 31,2009
|Federal Home Loan Bank Dallas advances                                                                                                                                                                     |  | $             | 1,505  |                  | $ | 1,534 
|Revolving credit line with JPMorgan Chase not to exceed $20 million. Facility matures July 31, 2010, with interest payable
quarterly                                                                       |  |               | 17,200 |                  |   | 17,000
|Revolving credit line with JPMorgan Chase not to exceed $10 million. Advances under the facility are related to PlainsCapital
Equity, LLC. Facility matures July 31, 2010, with interest payable quarterly |  |               | 7,650  |                  |   | 7,650 
|Term note with JPMorgan Chase, due July 31, 2010, with interest payable semi-annually                                                                                                                      |  |               | 3,000  |                  |   | 3,500 
|Term note with JPMorgan Chase, due October 27, 2015, with interest payable quarterly                                                                                                                       |  |               | 500    |                  |   | 500   
|Subordinated note with JPMorgan Chase, not to exceed $20 million. Facility matures October 27, 2015 with interest payable
quarterly                                                                        |  |               | 20,000 |                  |   | 20,000
|First Southwest nonrecourse notes, due January 25, 2035 with interest payable quarterly                                                                                                                    |  |               | 17,752 |                  |   | 18,366
|                                                                                                                                                                                                           |  |               |        |                  |   |       
|                                                                                                                                                                                                           |  | $             | 67,607 |                  | $ | 68,550
|                                                                                                                                                                                                           |  |               |        |                  |   |       

In the second quarter of 2010, PlainsCapital secured an amendment of
the covenant regarding the Banks non-performing asset ratio that is included in the agreements underlying the JPMorgan Chase revolving credit lines. The amendment increased the acceptable non-performing asset ratio for the Bank to 3.50% from
2.50%, effective for compliance as of March 31, 2010. The amendment will remain in effect for the remainder of the term of the revolving credit agreements. As a result of the amendment, PlainsCapital was in compliance with all the covenants
included in the revolving credit line agreements at March 31, 2010.

7. Income Taxes

PlainsCapitals effective tax rate was 24.9% and 35.9% for the three months ended March 31, 2010 and 2009, respectively. The reduction in
the effective tax rate relates to higher levels of tax-exempt income for the three months ended March 31, 2010, compared to the corresponding period in 2009.

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 2007.



15



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##### Table of Contents

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 $7.4 million and $8.5 million at
March 31, 2010 and December 31, 2009, respectively.

Legal Matters

In November 2006, FSC received subpoenas from the SEC and the U.S. 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. To the extent that its participation is requested, FSC will continue to cooperate with these investigations.

As a result of these SEC and DOJ investigations into industry-wide practices, FSC was named as a co-defendant in a series of civil lawsuits filed during
2008 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. A similar set of lawsuits were filed in California state
courts by various local governmental entities suing only on behalf of themselves and not on behalf of a putative class. The California state court suits were removed to federal court, and all of the cases have been transferred to federal court in
New York. On April 29, 2009, the federal court judge dismissed all claims asserted against FSC and nearly all other defendants from the consolidated putative class action case and granted the lead class plaintiffs until June 18, 2009 to
file an amended complaint citing specific instances of alleged anti-competitive behavior by specific individuals at specific defendants.

On
June 18, 2009, the lead class plaintiffs filed a second consolidated amended class action complaint. This amended complaint did not name FSC as a defendant and did not make any specific allegations of misconduct against FSC or any of its
employees. As a result, FSC is no longer a party to the putative class action case. However, FSC is identified in this consolidated amended class action complaint as an alleged co-conspirator with the named defendants. The remaining defendants filed
motions to dismiss the second consolidated amended class action complaint, but on March 25, 2010, the Court denied those motions, thus allowing the consolidated class action to proceed against the remaining defendants.

With respect to putative class actions filed in federal court by California plaintiffs that opted not to join in the consolidated class action case, the
federal court judge granted those plaintiffs until September 15, 2009 to file an amended complaint. In their amended complaint, these California putative class plaintiffs also did not name FSC as a defendant and did not make any specific
allegations of misconduct against FSC or any of its employees. As a result, FSC is no longer a party to these California putative class actions. However, FSC is identified in this complaint as an alleged co-conspirator with the named defendants. The
remaining defendants filed motions to dismiss the amended complaint in the California class action. On April 26, 2010, the Court granted those motions in part and denied them in part, allowing certain claims to proceed against the remaining
defendants.

With respect to the removed California suits that do not seek class action status, the federal court judge gave the plaintiffs
until September 15, 2009 to file an amended complaint. These California plaintiffs, all of which are represented by the Cotchett, Pitre, and McCarthy law firm, filed amended complaints continuing to identify FSC as a named defendant. The few
allegations against FSC are very limited in scope.

On November 12, 2009, Sacramento Municipal Utility District, City of Riverside, The
Redevelopment Agency of the City of Riverside, and The Public Financing Authority of the City of Riverside filed new lawsuits on behalf of themselves, but not on behalf of a putative class, in federal court. Additionally, on December 10, 2009,
The Redevelopment Agency of the City of Stockton and The Public Financing Authority of the City of Stockton, County of Tulare, Los Angeles World Airports and Sacramento Suburban Water District filed new lawsuits on behalf of themselves, but not on
behalf of a putative class, in federal court. Similar to the other five cases previously brought by California public entities that do not seek to certify a class, FSC is named as a defendant, the plaintiffs are represented by the Cotchett, Pitre,
and McCarthy law firm, and the few allegations against FSC are very limited in scope. The eleven individual California actions are referred to herein as the Cotchett Complaints.

On February 9, 2010, the defendants in the Cotchett Complaints, except Bank of America, The Goldman Sachs Group, Inc., Goldman Sachs Mitsui Marine
Derivative Products, L.P. and Goldman Sachs Bank USA, filed a Joint Motion to Dismiss the Cotchett Complaints along with a Memorandum in Support of Defendants Joint Motion to Dismiss the Cotchett Complaints. Additionally, FSC filed a
Supplemental Memorandum in Support of the Motion to Dismiss the Cotchett Complaints setting forth specific reasons why the Cotchett Complaints should be dismissed as to FSC.



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##### Table of Contents

8. Commitments and Contingencies (continued)



On March 26, 2010, the California plaintiffs filed a response to the motion to dismiss. On
April 16, 2010, the moving defendants filed a joint reply in support of the motion to dismiss, and FSC filed a Supplemental Reply Memorandum in Support of its Motion to Dismiss. On April 28, 2010, the court denied the motion to dismiss as
to FSC and nearly every other defendant named in the Cotchett Complaints. The Court is expected to hold a case management conference in the near future to discuss scheduling and discovery issues.

As part of an industry-wide inquiry by FINRA into sales practices related to auction rate bonds, FSC executed a term sheet in 2008 in which it agreed to
pay a fine and to buy back $41.6 million of auction rate bonds at par from a defined class of customers. The fine was paid in 2008, and the auction rate bonds were purchased from these customers in February 2009. FSC recorded a liability of
$3.8 million as of December 31, 2008 representing the loss relating to this settlement. In addition, for a 60-day period commencing June 16, 2009, FSC agreed to use its best efforts to provide liquidity to certain other customers not
otherwise part of the defined class referenced above. This 60-day period expired on August 14, 2009, and on September 11, 2009, FSC certified to FINRA the results of its best efforts obligation.

PlainsCapital and 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 will not materially affect the consolidated financial statements.

8. Commitments
and Contingencies (continued)

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 19 years and under capital leases with remaining terms of 12 to 19 years. Future minimum payments under these leases have not changed significantly from the amounts reported at December 31,
2009 in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 26, 2010. Rental expense under the operating leases was approximately $5.2 million and $4.1 million
for the three months ended March 31, 2010 and 2009, respectively.

9. Financial Instruments with Off-Balance Sheet Risk

The Bank and PrimeLending are parties to financial instruments with off-balance sheet risk that are used in the normal course of business
to meet the financing needs of their 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 and PrimeLending have 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 and PrimeLending had in the aggregate outstanding unused commitments to extend credit of $849.1 million at March 31, 2010. The Bank had
outstanding standby letters of credit of $48.6 million at March 31, 2010.

The Bank and PrimeLending use the same credit policies in
making commitments and standby letters of credit as they do 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.



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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 First Southwest, clearing agreements between First Southwest and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.

10. Stock-Based Compensation

PlainsCapital and subsidiaries have four stock option plans (the Stock Option Plans) that provide for the granting of stock options to
officers and key employees. In addition, PlainsCapital has granted restricted stock to a group of officers and key employees.

On
March 18, 2010, PlainsCapitals board of directors adopted the PlainsCapital Corporation 2010 Long-Term Incentive Plan (the 2010 Plan). The 2010 Plan allows 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. In the aggregate, 1.0 million shares of
Original Common Stock may be delivered pursuant to awards granted under the 2010 Plan.

Following the adoption of the 2010 Plan, 8,281 shares
of restricted stock were granted to outside directors of PlainsCapital as a component of their annual directors fees. The restricted stock grants vest in one year.

Compensation cost related to the Stock Option Plans and the 2010 Plan was approximately $0.3 million and $0.3 million for the three months ended
March 31, 2010 and 2009, respectively.

At March 31, 2010, unrecognized cost related to the Stock Option Plans was approximately
$0.1 million. At March 31, 2010, PlainsCapital had 460,862 shares of unvested restricted stock. Unrecognized cost related to the restricted stock was $5.0 million at March 31, 2010. Substantially all of the unrecognized cost will be
recognized as compensation cost ratably over the next six years. Except for those restricted shares granted to outside directors, the vesting of the restricted stock will automatically accelerate in full upon a change in control or the date upon
which our common stock is listed and traded on an exchange registered under the Securities Exchange Act of 1934, as amended (the Exchange Act). If the restricted stock vests on an accelerated basis, the entire unrecognized cost related
to the restricted stock would be recognized in noninterest expense immediately.

At March 31, 2010, a total of 81,258 shares were
available for grant under the Stock Option Plans and 991,719 shares were available for grant under the 2010 Plan. PlainsCapital typically issues new shares upon exercise of option grants.

Information regarding the stock option plans for the three months ended March 31, 2010 is as follows:



|                              |  |         |   |  |                              |     
|----------------------------- |  | ------- | - |  | ---------------------------- | ----
|                              |  | 2010   
|                              |  | Shares  |   |  | WeightedAverageExercisePrice
|Outstanding, January 1        |  | 943,515 |   |  | $                            | 8.50
|Exercised                     |  | (87,606 | ) |  |                              | 3.06
|Cancellations and expirations |  | (75,477 | ) |  |                              | 3.66
|                              |  |         |   |  |                              |     
|Outstanding, March 31         |  | 780,432 |   |  |                              | 9.58
|                              |  |         |   |  |                              |     

Following adoption of the 2010 Plan, certain PrimeLending employees were granted, effective April 1, 2010, an
aggregate of 50,000 shares of restricted stock. The grants to the PrimeLending employees vest in five years. In addition, certain employees of PlainsCapital and its subsidiaries were granted, effective April 1, 2010, an aggregate of 278,057
restricted stock units. The restricted stock units vest in five years.



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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 the companies 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, 2010    |        
|                                         |  | Required             |         |       | Actual |  
|                                         |  | Amount               |         | Ratio |        |   | Amount |   | Ratio   | 
|PlainsCapital Bank:                      |  |                      |         |       |        |   |        |   |         |  |       |  
|Tier 1 capital (to average assets)       |  | $                    | 184,348 |       | 4      | % |        | $ | 458,945 |  | 9.96  | %
|Tier 1 capital (to risk-weighted assets) |  |                      | 146,909 |       | 4      | % |        |   | 458,945 |  | 12.50 | %
|Total capital (to risk-weighted assets)  |  |                      | 293,819 |       | 8      | % |        |   | 504,908 |  | 13.75 | %
|                                         |  |                      |         |      
|PlainsCapital Corporation:               |  |                      |         |       |        |   |        |   |         |  |       |  
|Tier 1 capital (to average assets)       |  | $                    | 185,231 |       | 4      | % |        | $ | 437,230 |  | 9.44  | %
|Tier 1 capital (to risk-weighted assets) |  |                      | 147,532 |       | 4      | % |        |   | 437,230 |  | 11.85 | %
|Total capital (to risk-weighted assets)  |  |                      | 295,065 |       | 8      | % |        |   | 503,390 |  | 13.65 | %
|                                         | 
|                                         |  | At December 31, 2009 |        
|                                         |  | Required             |         |       | Actual |  
|                                         |  | Amount               |         | Ratio |        |   | Amount |   | Ratio   | 
|PlainsCapital Bank:                      |  |                      |         |       |        |   |        |   |         |  |       |  
|Tier 1 capital (to average assets)       |  | $                    | 184,958 |       | 4      | % |        | $ | 461,109 |  | 9.97  | %
|Tier 1 capital (to risk-weighted assets) |  |                      | 144,012 |       | 4      | % |        |   | 461,109 |  | 12.81 | %
|Total capital (to risk-weighted assets)  |  |                      | 288,024 |       | 8      | % |        |   | 506,148 |  | 14.06 | %
|                                         |  |                      |         |      
|PlainsCapital Corporation:               |  |                      |         |       |        |   |        |   |         |  |       |  
|Tier 1 capital (to average assets)       |  | $                    | 185,146 |       | 4      | % |        | $ | 437,393 |  | 9.45  | %
|Tier 1 capital (to risk-weighted assets) |  |                      | 144,589 |       | 4      | % |        |   | 437,393 |  | 12.10 | %
|Total capital (to risk-weighted assets)  |  |                      | 289,179 |       | 8      | % |        |   | 502,617 |  | 13.90 | %



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##### Table of Contents

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, 2010    |        
|                                         |  | Required             |         |       | Actual |  
|                                         |  | Amount               |         | Ratio |        |   | Amount |   | Ratio   | 
|PlainsCapital Bank:                      |  |                      |         |       |        |   |        |   |         |  |       |  
|Tier 1 capital (to average assets)       |  | $                    | 230,436 |       | 5      | % |        | $ | 458,945 |  | 9.96  | %
|Tier 1 capital (to risk-weighted assets) |  |                      | 220,364 |       | 6      | % |        |   | 458,945 |  | 12.50 | %
|Total capital (to risk-weighted assets)  |  |                      | 367,273 |       | 10     | % |        |   | 504,908 |  | 13.75 | %
|                                         | 
|                                         |  | At December 31, 2009 |        
|                                         |  | Required             |         |       | Actual |  
|                                         |  | Amount               |         | Ratio |        |   | Amount |   | Ratio   | 
|PlainsCapital Bank:                      |  |                      |         |       |        |   |        |   |         |  |       |  
|Tier 1 capital (to average assets)       |  | $                    | 231,197 |       | 5      | % |        | $ | 461,109 |  | 9.97  | %
|Tier 1 capital (to risk-weighted assets) |  |                      | 216,018 |       | 6      | % |        |   | 461,109 |  | 12.81 | %
|Total capital (to risk-weighted assets)  |  |                      | 360,030 |       | 10     | % |        |   | 506,148 |  | 14.06 | %

Pursuant to the net capital
requirements of Rule 15c3-1 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, 2010, FSC had net capital of $44.8 million; the minimum net capital requirement was $2.9 million; net capital maintained by FSC at March 31, 2010 was 31%
of aggregate debits; and net capital in excess of the minimum requirement at March 31, 2010 was $41.9 million.

As a mortgage originator,
PrimeLending is subject to minimum net worth requirements established by the United States Department of Housing and Urban Development (HUD). PrimeLending determines its compliance with the minimum net worth requirements on an annual
basis. As of December 31, 2009, PrimeLending was required to have net worth of $1.0 million. PrimeLendings adjusted net worth as defined by the Consolidated Audit Guide for Audits of HUD Programs was $35.3 million as of
December 31, 2009, resulting in adjusted net worth above the required amount of $34.3 million.

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,
2010, approximately $31.1 million of retained earnings was available for dividend declaration without prior approval from the Federal Reserve.

PlainsCapital must receive the consent of the U.S. Treasury Department to increase the per share amount of dividends paid on our common stock until
December 19, 2011, unless we redeem the preferred stock issued pursuant to the Troubled Asset Relief Program (TARP) Capital Purchase Program.



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##### Table of Contents

13. Broker-Dealer and Clearing Organization Receivables and Payables

Broker/dealer and clearing organization receivables and payables at March 31, 2010 and December 31, 2009 consisted of the following (in
thousands):



|                             |  |               |         |                  |   |        
|---------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                             |  | March 31,2010 |         | December 31,2009
|Receivables                  |  |               |         |                  |   |        
|Securities borrowed          |  | $             | 117,317 |                  | $ | 73,139 
|Securities failed to deliver |  |               | 10,415  |                  |   | 6,110  
|Clearing organizations       |  |               | 1,983   |                  |   | 3,275  
|Due from dealers             |  |               | 175     |                  |   | 190    
|                             |  |               |         |                  |   |        
|                             |  | $             | 129,890 |                  | $ | 82,714 
|                             |  |               |         |                  |   |        
|Payables                     |  |               |         |                  |   |        
|Securities loaned            |  | $             | 121,787 |                  | $ | 86,207 
|Correspondents               |  |               | 50,738  |                  |   | 17,370 
|Securities failed to receive |  |               | 8,916   |                  |   | 4,433  
|Clearing organizations       |  |               | 27,687  |                  |   | 262    
|                             |  |               |         |                  |   |        
|                             |  | $             | 209,128 |                  | $ | 108,272
|                             |  |               |         |                  |   |        

14. 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 (Fair Value Topic). The
Fair Value Topic defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands 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.

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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

14. Fair Value Measurements (continued)

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, 2010, the aggregate fair value of PrimeLending loans held for sale accounted for under the Fair Value Option was $486.8 million, while
the unpaid principal balance of those loans was $474.7 million. At December 31, 2009, the aggregate fair value of PrimeLending loans held for sale accounted for under the Fair Value Option was $430.8 million, while the unpaid principal balance
of those loans was $419.5 million. The fair value excludes interest, which 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, 2010, the Bank held two collateralized mortgage
obligations and two bonds issued by political subdivisions of the State of Texas that the Bank was unable to price due to the terms and conditions of the instruments. As a result, the Bank determined that fair value approximated book value using
Level 3 inputs. In addition, the Bank holds auction rate bonds purchased as a result of the First Southwest acquisition. The estimated fair value of the auction rate bonds was determined by a third-party valuation specialist using Level 3 inputs,
primarily due to the lack of observable market data. Inputs for the valuation were developed using 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. The following table reconciles the beginning and ending balances of assets measured at fair value using Level 3 inputs (in thousands).



|                                                     |  |                                   |        |                                 |   |                   |  |   |         |   |  |   |        |  
|---------------------------------------------------- |  | --------------------------------- | ------ | ------------------------------- | - | ----------------- |  | - | ------- | - |  | - | ------ | -
|                                                     |  | CollateralizedMortgageObligations |        | States andPoliticalSubdivisions |   | AuctionRate Bonds |  |   | Total   |  
|Balance, January 1, 2010                             |  | $                                 |       |                                 | $ | 3,839             |  | $ | 44,554  |   |  | $ | 48,393 |  
|Unrealized losses in other comprehensive income, net |  |                                   |       |                                 |   |                  |  |   | (96     | ) |  |   | (96    | )
|Purchases, issuances and settlements, net            |  |                                   | 20,166 |                                 |   |                  |  |   | (21,735 | ) |  |   | (1,569 | )
|                                                     |  |                                   |        |                                 |   |                   |  |   |         |   |  |   |        |  
|Balance, March 31, 2010                              |  | $                                 | 20,166 |                                 | $ | 3,839             |  | $ | 22,723  |   |  | $ | 46,728 |  
|                                                     |  |                                   |        |                                 |   |                   |  |   |         |   |  |   |        |  

In the table above, settlements include premium amortization and discount accretion.



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##### Table of Contents

14. Fair Value Measurements (continued)

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, 2010
|                              |  | Level 1Inputs     |   | Level 2Inputs |   | Level 3Inputs |  | Total FairValue
|Loans held for sale           |  | $                 |  |               | $ | 486,790       |  | $               |       |  | $ | 486,790
|Securities available for sale |  |                   |  |               |   | 266,823       |  |                 | 46,728 |  |   | 313,551
|Trading securities            |  |                   |  |               |   | 72,944        |  |                 |       |  |   | 72,944 
|Derivative assets             |  |                   |  |               |   | 4,297         |  |                 |       |  |   | 4,297  
|Time deposits                 |  |                   |  |               |   | 924           |  |                 |       |  |   | 924    
|Trading liabilities           |  |                   |  |               |   | 1,521         |  |                 |       |  |   | 1,521  
|Derivative liabilities        |  |                   |  |               |   | 485           |  |                 |       |  |   | 485    



|                    |  |                                                                                                  |     |                        |                                   |    |                           |  |   |                             |   |                        |   |     |                           |   |     |   |  |   |     |  
|------------------- |  | ------------------------------------------------------------------------------------------------ | --- | ---------------------- | --------------------------------- | -- | ------------------------- |  | - | --------------------------- | - | ---------------------- | - | --- | ------------------------- | - | --- | - |  | - | --- | -
|                    |  | Changes in Fair Value for Assets and Liabilities Reported 
at Fair Value under Fair Value Option |    
|                    |  | Three Months Ended March 31, 2010                                                                |     |                        | Three Months Ended March 31, 2009 |   
|                    |  | Net Gains fromSale of Loans                                                                      |     | OtherNoninterestIncome |                                   |    | TotalChanges inFair Value |  |   | Net Gains fromSale of Loans |   | OtherNoninterestIncome |   |     | TotalChanges inFair Value |  
|Loans held for sale |  | $                                                                                                | 829 |                        | $                                 |   |                           |  | $ | 829                         |   |                        | $ | 632 |                           | $ |    |   |  | $ | 632 |  
|Time deposits       |  |                                                                                                  |    |                        |                                   | (1 | )                         |  |   | (1                          | ) |                        |   |    |                           |   | (57 | ) |  |   | (57 | )

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 (Non-accrual) Loans  PlainsCapital reports non-accrual loans at fair value through allocations of the
allowance for loan losses. PlainsCapital determines fair value using Level 2 inputs consisting of observable loss experience for similar loans. At March 31, 2010, loans with a carrying amount of $71.2 million had been reduced by allocations of
the allowance for loan losses of $12.1 million, resulting in a reported fair value of $59.1 million.

Other Real Estate Owned 
PlainsCapital reports other real estate owned at fair value through use of valuation allowances that are 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 allowances are charged against earnings. PlainsCapital determines fair value using Level 2 inputs consisting of independent appraisals. At March 31, 2010, the estimated fair value of other real estate owned was
$19.1 million.

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 22 to the consolidated financial statements
included in our Annual Report on Form 10-K filed with the SEC on March 26, 2010.



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##### Table of Contents

14. Fair Value Measurements (continued)

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



|                                                                 |  |                   |           |                      |   |                |  |   |                     |   |  |   |           |  
|---------------------------------------------------------------- |  | ----------------- | --------- | -------------------- | - | -------------- |  | - | ------------------- | - |  | - | --------- | -
|                                                                 |  | At March 31, 2010 |           | At December 31, 2009 |  
|                                                                 |  | CarryingAmount    |           | EstimatedFair Value  |   | CarryingAmount |  |   | EstimatedFair Value |  
|Financial assets                                                 |  |                   |           |                      |   |                |  |   |                     |   |  |   |           |  
|Cash and short-term investments                                  |  | $                 | 220,204   |                      | $ | 220,204        |  | $ | 160,318             |   |  | $ | 160,318   |  
|Loans held for sale                                              |  |                   | 488,206   |                      |   | 488,206        |  |   | 432,202             |   |  |   | 432,202   |  
|Securities                                                       |  |                   | 663,922   |                      |   | 661,308        |  |   | 545,737             |   |  |   | 546,611   |  
|Loans, net                                                       |  |                   | 2,961,312 |                      |   | 2,995,903      |  |   | 3,019,677           |   |  |   | 3,053,759 |  
|Broker-dealer and clearing organization receivables              |  |                   | 129,890   |                      |   | 129,890        |  |   | 82,714              |   |  |   | 82,714    |  
|                                                                 |  |                   |           |                     
|Fee award receivable                                             |  |                   | 20,184    |                      |   | 20,184         |  |   | 20,504              |   |  |   | 20,504    |  
|Cash surrender value of life insurance policies                  |  |                   | 21,629    |                      |   | 21,629         |  |   | 21,379              |   |  |   | 21,379    |  
|Interest rate swaps and interest rate lock commitments (IRLCs) |  |                   | 4,297     |                      |   | 4,297          |  |   | 1,851               |   |  |   | 1,851     |  
|Accrued interest receivable                                      |  |                   | 15,032    |                      |   | 15,032         |  |   | 15,876              |   |  |   | 15,876    |  
|                                                                 |  |                   |           |                     
|Financial liabilities                                            |  |                   |           |                      |   |                |  |   |                     |   |  |   |           |  
|Deposits                                                         |  |                   | 3,334,500 |                      |   | 3,341,167      |  |   | 3,278,039           |   |  |   | 3,285,796 |  
|Broker-dealer and clearing organization payables                 |  |                   | 209,128   |                      |   | 209,128        |  |   | 108,272             |   |  |   | 108,272   |  
|Other trading liabilities                                        |  |                   | 1,521     |                      |   | 1,521          |  |   | 3,019               |   |  |   | 3,019     |  
|Short-term borrowings                                            |  |                   | 611,011   |                      |   | 611,011        |  |   | 488,078             |   |  |   | 488,078   |  
|Debt                                                             |  |                   | 134,619   |                      |   | 134,619        |  |   | 135,562             |   |  |   | 135,562   |  
|                                                                 |  |                   |           |                     
|Forward purchase commitments                                     |  |                   | 485       |                      |   | 485            |  |   | (271                | ) |  |   | (271      | )
|Accrued interest payable                                         |  |                   | 5,940     |                      |   | 5,940          |  |   | 5,661               |   |  |   | 5,661     |  

15. 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.

Cash Flow Hedges

The Bank entered into
interest rate swap agreements to manage interest rate risk associated with certain customer contracts. The swaps were originally designated as cash flow hedges. The swaps were highly effective in offsetting future cash flow volatility caused by
changes in interest rates. The Bank has recorded the fair value of the swaps in other assets and unrealized gains (losses) associated with the swaps in other comprehensive income.

Non-Hedging Derivative Instruments and the Fair Value Option

As discussed in Note 14, 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. Changes in the fair values of these
derivative instruments produced net gains of approximately $1.6 million and $1.0 million for the three months ended March 31, 2010 and 2009, respectively. The net gains were recorded as a component of gain on sale of loans.



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15. Derivative Financial Instruments (continued)

Derivative positions at March 31, 2010 and December 31, 2009 are presented in the following table (in thousands):



|                                   |  |                   |         |                      |   |                |  |                     |         |  |   |       |  
|---------------------------------- |  | ----------------- | ------- | -------------------- | - | -------------- |  | ------------------- | ------- |  | - | ----- | -
|                                   |  | At March 31, 2010 |         | At December 31, 2009 |  
|                                   |  | NotionalAmount    |         | EstimatedFair 
Value |   | NotionalAmount |  | EstimatedFair Value |        
|Non-hedging derivative instruments |  |                   |         |                      |   |                |  |                     |         |  |   |       |  
|IRLCs                              |  | $                 | 532,975 |                      | $ | 1,800          |  | $                   | 256,285 |  | $ | (511  | )
|Interest rate swaps                |  |                   | 9,469   |                      |   | 85             |  |                     | 9,469   |  |   | (1    | )
|Forward purchase commitments       |  |                   | 394,145 |                      |   | 1,927          |  |                     | 200,467 |  |   | 2,634 |  

The Bank recorded unrealized gains
(losses), net of reclassifications adjustments, on the swaps designated as cash flow hedges in other comprehensive income as shown in the following table (in thousands).



|                                  |  |                                   |    |   |                                   |   |                 |  |   |                  |   |  |                      |    |                 |  |   |   |  |   |    |  
|--------------------------------- |  | --------------------------------- | -- | - | --------------------------------- | - | --------------- |  | - | ---------------- | - |  | -------------------- | -- | --------------- |  | - | - |  | - | -- | -
|                                  |  | Three Months Ended March 31, 2010 |    |   | Three Months Ended March 31, 2009 |  
|                                  |  | Before-TaxAmount                  |    |   | Tax Benefit(Expense)              |   | After-TaxAmount |  |   | Before-TaxAmount |   |  | Tax Benefit(Expense) |    | After-TaxAmount | 
|Change in market value            |  | $                                 |   |   |                                   | $ |                |  | $ |                 |   |  | $                    |   |                 |  | $ |  |  | $ |   |  
|Reclassification adjustments      |  |                                   | (5 | ) |                                   |   | 2               |  |   | (3               | ) |  |                      | (5 | )               |  |   | 2 |  |   | (3 | )
|                                  |  |                                   |    |   |                                   |   |                 |  |   |                  |   |  |                      |    |                 |  |   |   |  |   |    |  
|Other comprehensive income (loss) |  | $                                 | (5 | ) |                                   | $ | 2               |  | $ | (3               | ) |  | $                    | (5 | )               |  | $ | 2 |  | $ | (3 | )
|                                  |  |                                   |    |   |                                   |   |                 |  |   |                  |   |  |                      |    |                 |  |   |   |  |   |    |  

16. 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 and PlainsCapital Leasing, LLC. The operations of PrimeLending comprise the mortgage origination segment. The financial advisory segment is composed of Hester Capital and First Southwest.

During the third quarter of 2009, PlainsCapital changed its reporting of segment results. Previously, the operations of PlainsCapital and its
remaining subsidiaries not discussed in the previous paragraph, (collectively, the Holding Company) were not allocated to the segments. Beginning in the third quarter, we adopted a new procedure for determining segment results. First, we
eliminated intercompany transactions from the segments and certain noninterest expenses from the Bank. Second, we allocated the net expenses of the Holding Company among the three reporting segments based upon each segments relative net
income. Finally, we reallocated the noninterest expenses of the Bank, removed above, among the three segments based upon the annual determination of senior managers regarding the allocation of management time and resources. Senior management
believes this procedure assists with the allocation of corporate resources and decisions regarding capital investment.

Balance sheet amounts
for the Holding Company are included in All Other and Eliminations. We have adjusted segment results for prior periods for comparison purposes to reflect the change described above.



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16. Segment and Related Information (continued)

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



|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       
|----------------------------------------------------------- |  | --------------------------------- | ------ | ------------------- | - | ------ | ----------------- |  | - | ------------------------- | - |  | - | ------
|                                                            |  | Three Months Ended March 31, 2010
|                                                            |  | Banking                           |        | MortgageOrigination |   |        | FinancialAdvisory |  |   | PlainsCapitalConsolidated
|Interest income                                             |  | $                                 | 48,955 |                     | $ | 2,150  |                   |  | $ | 1,203                     |   |  | $ | 52,308
|Interest expense                                            |  |                                   | 7,103  |                     |   | 2,893  |                   |  |   | (361                      | ) |  |   | 9,635 
|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       
|                                                            |  |                                   |        |                    
|Net interest income (expense)                               |  |                                   | 41,852 |                     |   | (743   | )                 |  |   | 1,564                     |   |  |   | 42,673
|Provision for loan losses                                   |  |                                   | 22,955 |                     |   |       |                   |  |   |                          |   |  |   | 22,955
|Noninterest income                                          |  |                                   | 9,049  |                     |   | 45,564 |                   |  |   | 20,819                    |   |  |   | 75,432
|Noninterest expense                                         |  |                                   | 24,057 |                     |   | 47,576 |                   |  |   | 21,186                    |   |  |   | 92,819
|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       
|                                                            |  |                                   |        |                    
|Net income (loss) before taxes                              |  |                                   | 3,889  |                     |   | (2,755 | )                 |  |   | 1,197                     |   |  |   | 2,331 
|Income tax provision (benefit)                              |  |                                   | 968    |                     |   | (686   | )                 |  |   | 298                       |   |  |   | 580   
|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       
|                                                            |  |                                   |        |                    
|Consolidated net income (loss)                              |  |                                   | 2,921  |                     |   | (2,069 | )                 |  |   | 899                       |   |  |   | 1,751 
|Less: net income attributable to noncontrolling interest    |  |                                   |       |                     |   |       |                   |  |   | 65                        |   |  |   | 65    
|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       
|                                                            |  |                                   |        |                    
|Net income (loss) attributable to PlainsCapital Corporation |  | $                                 | 2,921  |                     | $ | (2,069 | )                 |  | $ | 834                       |   |  | $ | 1,686 
|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       
|                                                            | 
|                                                            |  | Three Months Ended March 31, 2009
|                                                            |  | Banking                           |        | MortgageOrigination |   |        | FinancialAdvisory |  |   | PlainsCapitalConsolidated
|Interest income                                             |  | $                                 | 45,167 |                     | $ | 733    |                   |  | $ | 1,734                     |   |  | $ | 47,634
|Interest expense                                            |  |                                   | 9,760  |                     |   | 805    |                   |  |   | 712                       |   |  |   | 11,277
|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       
|                                                            |  |                                   |        |                    
|Net interest income (expense)                               |  |                                   | 35,407 |                     |   | (72    | )                 |  |   | 1,022                     |   |  |   | 36,357
|Provision for loan losses                                   |  |                                   | 14,013 |                     |   |       |                   |  |   |                          |   |  |   | 14,013
|Noninterest income                                          |  |                                   | 4,054  |                     |   | 47,420 |                   |  |   | 19,092                    |   |  |   | 70,566
|Noninterest expense                                         |  |                                   | 21,051 |                     |   | 36,748 |                   |  |   | 19,465                    |   |  |   | 77,264
|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       
|                                                            |  |                                   |        |                    
|Net income before taxes                                     |  |                                   | 4,397  |                     |   | 10,600 |                   |  |   | 649                       |   |  |   | 15,646
|Income tax provision                                        |  |                                   | 947    |                     |   | 4,410  |                   |  |   | 263                       |   |  |   | 5,620 
|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       
|                                                            |  |                                   |        |                    
|Consolidated net income                                     |  |                                   | 3,450  |                     |   | 6,190  |                   |  |   | 386                       |   |  |   | 10,026
|Less: net income attributable to noncontrolling interest    |  |                                   |       |                     |   |       |                   |  |   | 23                        |   |  |   | 23    
|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       
|                                                            |  |                                   |        |                    
|Net income attributable to PlainsCapital Corporation        |  | $                                 | 3,450  |                     | $ | 6,190  |                   |  | $ | 363                       |   |  | $ | 10,003
|                                                            |  |                                   |        |                     |   |        |                   |  |   |                           |   |  |   |       



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16. Segment and Related Information (continued)



|                                                    |  |                   |           |                     |   |                   |  |                           |         |  |                           |          |   |  |   |          
|--------------------------------------------------- |  | ----------------- | --------- | ------------------- | - | ----------------- |  | ------------------------- | ------- |  | ------------------------- | -------- | - |  | - | ---------
|                                                    |  | March 31, 2010   
|                                                    |  | Banking           |           | MortgageOrigination |   | FinancialAdvisory |  | All Other andEliminations |         |  | PlainsCapitalConsolidated
|Cash and due from banks                             |  | $                 | 204,729   |                     | $ | 30,929            |  | $                         | 5,254   |  | $                         | (33,208  | ) |  | $ | 207,704  
|Loans held for sale                                 |  |                   | 1,416     |                     |   | 486,790           |  |                           |        |  |                           |         |   |  |   | 488,206  
|Securities                                          |  |                   | 590,978   |                     |   |                  |  |                           | 72,944  |  |                           |         |   |  |   | 663,922  
|Loans, net                                          |  |                   | 2,772,345 |                     |   |                  |  |                           | 190,165 |  |                           | (1,198   | ) |  |   | 2,961,312
|Broker-dealer and clearing organization receivables |  |                   |          |                     |   |                  |  |                           | 129,890 |  |                           |         |   |  |   | 129,890  
|Investment in subsidiaries                          |  |                   | 698,504   |                     |   |                  |  |                           |        |  |                           | (698,504 | ) |  |   |         
|Goodwill and other intangible assets, net           |  |                   | 7,869     |                     |   | 23,706            |  |                           | 19,378  |  |                           |         |   |  |   | 50,953   
|Other assets                                        |  |                   | 203,704   |                     |   | 21,134            |  |                           | 78,254  |  |                           | 29,776   |   |  |   | 332,868  
|                                                    |  |                   |           |                     |   |                   |  |                           |         |  |                           |          |   |  |   |          
|                                                    |  |                   |           |                     |  
|Total assets                                        |  | $                 | 4,479,545 |                     | $ | 562,559           |  | $                         | 495,885 |  | $                         | (703,134 | ) |  | $ | 4,834,855
|                                                    |  |                   |           |                     |   |                   |  |                           |         |  |                           |          |   |  |   |          
|                                                    |  |                   |           |                     |  
|Deposits                                            |  | $                 | 3,298,739 |                     | $ |                  |  | $                         | 94,693  |  | $                         | (58,932  | ) |  | $ | 3,334,500
|Broker-dealer and clearing organization payables    |  |                   |          |                     |   |                  |  |                           | 209,128 |  |                           |         |   |  |   | 209,128  
|Short-term borrowings                               |  |                   | 562,821   |                     |   |                  |  |                           | 48,190  |  |                           |         |   |  |   | 611,011  
|Notes payable                                       |  |                   | 57,879    |                     |   | 459,935           |  |                           | 21,444  |  |                           | (471,651 | ) |  |   | 67,607   
|Junior subordinated debentures                      |  |                   |          |                     |   |                  |  |                           |        |  |                           | 67,012   |   |  |   | 67,012   
|Other liabilities                                   |  |                   | 43,917    |                     |   | 37,736            |  |                           | 45,652  |  |                           | (5,666   | ) |  |   | 121,639  
|PlainsCapital Corporation shareholders equity      |  |                   | 516,189   |                     |   | 64,888            |  |                           | 76,778  |  |                           | (235,494 | ) |  |   | 422,361  
|Noncontrolling interest                             |  |                   |          |                     |   |                  |  |                           |        |  |                           | 1,597    |   |  |   | 1,597    
|                                                    |  |                   |           |                     |   |                   |  |                           |         |  |                           |          |   |  |   |          
|                                                    |  |                   |           |                     |  
|Total liabilities and shareholders equity          |  | $                 | 4,479,545 |                     | $ | 562,559           |  | $                         | 495,885 |  | $                         | (703,134 | ) |  | $ | 4,834,855
|                                                    |  |                   |           |                     |   |                   |  |                           |         |  |                           |          |   |  |   |          
|                                                    | 
|                                                    |  | December 31, 2009
|                                                    |  | Banking           |           | MortgageOrigination |   | FinancialAdvisory |  | All Other andEliminations |         |  | PlainsCapitalConsolidated
|Cash and due from banks                             |  | $                 | 139,579   |                     | $ | 42,544            |  | $                         | 11,017  |  | $                         | (44,866  | ) |  | $ | 148,274  
|Loans held for sale                                 |  |                   | 1,442     |                     |   | 430,760           |  |                           |        |  |                           |         |   |  |   | 432,202  
|Securities                                          |  |                   | 521,554   |                     |   |                  |  |                           | 24,183  |  |                           |         |   |  |   | 545,737  
|Loans, net                                          |  |                   | 2,866,803 |                     |   |                  |  |                           | 154,123 |  |                           | (1,249   | ) |  |   | 3,019,677
|Broker-dealer and clearing organization receivables |  |                   |          |                     |   |                  |  |                           | 82,714  |  |                           |         |   |  |   | 82,714   
|Investment in subsidiaries                          |  |                   | 655,830   |                     |   |                  |  |                           |        |  |                           | (655,830 | ) |  |   |         
|Goodwill and other intangible assets, net           |  |                   | 7,871     |                     |   | 23,706            |  |                           | 19,919  |  |                           |         |   |  |   | 51,496   
|Other assets                                        |  |                   | 198,927   |                     |   | 14,626            |  |                           | 45,254  |  |                           | 31,813   |   |  |   | 290,620  
|                                                    |  |                   |           |                     |   |                   |  |                           |         |  |                           |          |   |  |   |          
|                                                    |  |                   |           |                     |  
|Total assets                                        |  | $                 | 4,392,006 |                     | $ | 511,636           |  | $                         | 337,210 |  | $                         | (670,132 | ) |  | $ | 4,570,720
|                                                    |  |                   |           |                     |   |                   |  |                           |         |  |                           |          |   |  |   |          
|                                                    |  |                   |           |                     |  
|Deposits                                            |  | $                 | 3,274,900 |                     | $ |                  |  | $                         | 64,911  |  | $                         | (61,772  | ) |  | $ | 3,278,039
|Broker-dealer and clearing organization payables    |  |                   |          |                     |   |                  |  |                           | 108,272 |  |                           |         |   |  |   | 108,272  
|Short-term borrowings                               |  |                   | 488,078   |                     |   |                  |  |                           |        |  |                           |         |   |  |   | 488,078  
|Notes payable                                       |  |                   | 68,511    |                     |   | 407,430           |  |                           | 22,329  |  |                           | (429,720 | ) |  |   | 68,550   
|Junior subordinated debentures                      |  |                   |          |                     |   |                  |  |                           |        |  |                           | 67,012   |   |  |   | 67,012   
|Other liabilities                                   |  |                   | 42,297    |                     |   | 38,529            |  |                           | 66,276  |  |                           | (10,443  | ) |  |   | 136,659  
|PlainsCapital Corporation shareholders equity      |  |                   | 518,220   |                     |   | 65,677            |  |                           | 75,422  |  |                           | (236,819 | ) |  |   | 422,500  
|Noncontrolling interest                             |  |                   |          |                     |   |                  |  |                           |        |  |                           | 1,610    |   |  |   | 1,610    
|                                                    |  |                   |           |                     |   |                   |  |                           |         |  |                           |          |   |  |   |          
|                                                    |  |                   |           |                     |  
|Total liabilities and shareholders equity          |  | $                 | 4,392,006 |                     | $ | 511,636           |  | $                         | 337,210 |  | $                         | (670,132 | ) |  | $ | 4,570,720
|                                                    |  |                   |           |                     |   |                   |  |                           |         |  |                           |          |   |  |   |          



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17. 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, 2010 and 2009 (in
thousands, except per share data).



|                                                                                                       |  |                              |            |   |      |   |           
|------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ----------
|                                                                                                       |  | Three Months Ended March 31,
|                                                                                                       |  | 2010                         |            |   | 2009
|Income applicable to PlainsCapital Corporation common shareholders                                     |  | $                            | 298        |   |      | $ | 8,444     
|Less: income (loss) applicable to particpating securities                                              |  |                              | (40        | ) |      |   | 402       
|                                                                                                       |  |                              |            |   |      |   |           
|Income applicable to PlainsCapital Corporation common shareholders for basic earnings per common share |  | $                            | 338        |   |      | $ | 8,042     
|                                                                                                       |  |                              |            |   |      |   |           
|                                                                                                       |  |                             
|Weighted-average shares outstanding                                                                    |  |                              | 31,458,109 |   |      |   | 31,254,576
|Less: participating securities included in weighted-average shares outstanding                         |  |                              | 2,181,602  |   |      |   | 1,697,430 
|                                                                                                       |  |                              |            |   |      |   |           
|Weighted-average shares outstanding for basic earnings per common share                                |  |                              | 29,276,507 |   |      |   | 29,557,146
|                                                                                                       |  |                              |            |   |      |   |           
|                                                                                                       |  |                             
|Basic earnings per common share                                                                        |  | $                            | 0.01       |   |      | $ | 0.27      
|                                                                                                       |  |                              |            |   |      |   |           
|                                                                                                       |  |                             
|Income applicable to PlainsCapital Corporation common shareholders                                     |  | $                            | 298        |   |      | $ | 8,444     
|                                                                                                       |  |                              |            |   |      |   |           
|                                                                                                       |  |                             
|Weighted-average shares outstanding                                                                    |  |                              | 31,458,109 |   |      |   | 31,254,576
|Dilutive effect of contingently issuable shares due to First Southwest acquisition                     |  |                              | 1,548,666  |   |      |   | 1,188,201 
|Dilutive effect of stock options and non-vested stock awards                                           |  |                              | 297,136    |   |      |   | 278,628   
|                                                                                                       |  |                              |            |   |      |   |           
|                                                                                                       |  |                             
|Weighted-average shares outstanding for diluted earnings per common share                              |  |                              | 33,303,911 |   |      |   | 32,721,405
|                                                                                                       |  |                              |            |   |      |   |           
|                                                                                                       |  |                             
|Diluted earnings per common share                                                                      |  | $                            | 0.01       |   |      | $ | 0.26      
|                                                                                                       |  |                              |            |   |      |   |           

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.

The weighted-average shares outstanding used to compute diluted earnings per common share do not include outstanding
options of 57,000 and 98,663 for the three months ended March 31, 2010 and 2009, 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.



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18. Recently Issued Accounting Standards

Business Combinations

In December 2007,
the FASB issued the Business Combinations Topic of the ASC. The Business Combinations Topic replaces previously issued guidance regarding business combinations, and applies to all transactions and other events in which one entity obtains control
over one or more other businesses. Departing from the cost-allocation process of previous guidance, the Business Combinations Topic requires an acquirer to recognize the assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date. In particular, this provision would prohibit an acquirer of a financial institution from carrying over the acquired entitys allowance for loan losses. In
addition, contingent consideration is recognized and measured at fair value at the acquisition date, and acquisition related costs are expensed as incurred. The Business Combinations Topic also distinguishes between assets acquired and liabilities
assumed arising from contractual contingencies as of the acquisition date and assets or liabilities arising from all other contingencies, requiring different treatment for each type of contingency. The Business Combinations Topic was effective for
PlainsCapital on January 1, 2009. To the extent business combinations occur on or after the effective date, PlainsCapitals accounting for those transactions will be significantly affected by the provisions of the Business Combinations
Topic. The First Southwest acquisition closed prior to the effective date and is being accounted for in accordance with previously issued guidance regarding business combinations.

Fair Value Determination

In April 2009,
the FASB issued guidance (Fair Value Determination Guidance) in the Fair Value Measurements and Disclosures Topic of the ASC regarding the determination of fair value in instances where market conditions result in either inactive markets
for assets and liabilities or disorderly transactions within markets. The Fair Value Determination Guidance affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in
an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. The Fair Value Determination Guidance
requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence and expands certain disclosure requirements. The Fair Value Determination Guidance became effective for PlainsCapital in the quarter
ended June 30, 2009, and its adoption did not have a significant effect on PlainsCapitals financial position, results of operations or cash flows.

Other-Than Temporary Impairments

In
April 2009, the FASB issued guidance in the Investments-Debt and Equity Securities Topic of the ASC regarding the recognition and presentation of Other-Than-Temporary Impairments (OTTI Guidance). The OTTI Guidance (i) changes
existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entitys management assert it has both the intent and ability to hold an impaired
security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under the
OTTI Guidance, declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to
credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. The OTTI Guidance became effective for PlainsCapital in the quarter ended June 30, 2009, and its adoption did not have a
significant effect on PlainsCapitals financial position, results of operations or cash flows.



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18. Recently Issued Accounting Standards (continued)

Interim Disclosure about Fair Value of Financial Instruments

In April 2009, the FASB amended the Fair Value of Financial Instruments Subsection of the ASC to require an entity to provide disclosures about fair value
of financial instruments in interim financial information (Fair Value Disclosure Amendment). The Fair Value Disclosure Amendment requires a publicly traded company to include disclosures about the fair value of its financial instruments
whenever it issues summarized financial information for interim reporting periods. In addition, entities must disclose, in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its
financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position. The Fair Value Disclosure
Amendment became effective for PlainsCapital in the quarter ended June 30, 2009, and its adoption did not have a significant effect on PlainsCapitals financial position, results of operations or cash flows. PlainsCapital has included the
disclosures required by the Fair Value Disclosure Amendment in Note 14.

Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities

In December 2009, the FASB amended the Consolidations Topic of the ASC to change how a company determines when
an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated (Variable Interest Entities Amendment). The determination of whether a company is required to consolidate an
entity is based on, among other things, an entitys purpose and design and a companys ability to direct the activities of the entity that most significantly impact the entitys economic performance. Companies are required to disclose
the reporting entitys involvement with variable-interest entities and any significant changes in risk exposure due to that involvement, as well as its effect on the entitys financial statements. The Variable Interest Entities Amendment
became effective for PlainsCapital on January 1, 2010, and its adoption did not have a significant effect on PlainsCapitals financial position, results of operations or cash flows.

Improving Disclosures about Fair Value Measurements

In January 2010, the FASB amended the Fair Value Measurements and Disclosures Topic of the ASC to expand required disclosures related to fair value
measurements (Improved Fair Value Disclosure Amendment). The Improved Fair Value Disclosure Amendment requires disclosures regarding significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for the
transfers, reasons for transfers in or out of Level 3 of the fair value hierarchy, as well as separate disclosure of significant transfers, and policies for determining when transfers between levels of the fair value hierarchy are recognized. In
addition, the Improved Fair Value Disclosure Amendment requires gross presentation of purchases, sales, issuances and settlements of financial instruments that are measured on a recurring basis using Level 3 inputs.

The Improved Fair Value Disclosure Amendment also clarifies that fair value measurement disclosures should be provided for each class of assets and
liabilities, rather than major category, and that valuation techniques and inputs used to measure fair value on a recurring or nonrecurring basis should be provided for each class of assets and liabilities included in Levels 2 and 3 of the fair
value hierarchy. The Improved Fair Value Disclosure Amendment became effective for PlainsCapital on January 1, 2010, except for the provisions relating to gross presentation of purchases, sales, issuances and settlements of assets and
liabilities included in Level 3 of the fair value hierarchy, which become effective January 1, 2011. The adoption of the Improved Fair Value Disclosure Amendment did not have a significant effect on PlainsCapitals financial position,
results of operations or cash flows. PlainsCapital has included the disclosures required by the Improved Fair Value Disclosure Amendment in Note 14.



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|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 wholly owned subsidiary of PlainsCapital Corporation), references to First Southwest refer to First Southwest Holdings, LLC (a wholly owned subsidiary of the Bank) and its subsidiaries as a whole, references to
FSC refer to First Southwest Company (a wholly owned subsidiary of First Southwest Holdings, LLC) and references to PrimeLending refer to PrimeLending, a PlainsCapital Company (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 attached unaudited condensed consolidated financial statements and
notes thereto for the three months ended March 31, 2010, and with our consolidated financial statements and notes thereto for the year ended December 31, 2009 included in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission (the SEC) on March 26, 2010 (the 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 such as expect, estimate,
project, budget, forecast, anticipate, intend, plan, may, will, could, should, believes, predicts,
potential, continue 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, anticipated changes in our revenues or earnings, expectations regarding financial or other market conditions, government regulation applicable to our operations, litigation, the adequacy of our
allowance for loan losses and provision for loan losses, and our anticipated amount of future loan charge-offs.

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 general economic, market and business conditions in areas or
markets where we compete;

(2) 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 and capital requirements;

(3) changes in the
interest rate environment;

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

(5) changes in the auction rate securities markets, including ongoing liquidity problems related thereto;

(6) cost and availability of capital;

(7) 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;

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

(9) our participation in governmental programs implemented under the Emergency Economic Stabilization Act of 2008 (the EESA)
and the American Recovery and Reinvestment Act, including without limitation the Troubled Asset Relief Program (TARP), the Capital Purchase Program, and the Temporary Liquidity Guarantee Program, including the Transaction Account
Guarantee Program, and the impact of such programs and related regulations on us and on international, national and local economic and financial markets and conditions; and



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(10) future legislative or administrative changes to the TARP Capital Purchase Program
enacted under the EESA.

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, the discussion under the caption Risk Factors set forth in Item 1A of Part II below 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 exclusive, 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, 2010, on a consolidated basis, we had total assets of approximately $4.8
billion, total deposits of approximately $3.3 billion, total loans, including loans held for sale, of approximately $3.5 billion and shareholders equity of approximately $422.4 million. The Bank, one of our wholly owned subsidiaries, provides
a broad array of 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.

We have experienced significant balance sheet growth since our inception. During the first quarter of 2010, our assets increased by 5.8% driven by growth
in cash and our investment portfolio, both of which were funded by increased deposits and short-term borrowings, partially offset by lower loan levels. During the first quarter of 2010, our deposits increased by 1.7%, short-term borrowings increased
25.2% as part of an effort to manage interest rate sensitivity and loans, net of unearned income, decreased by 2.0%.

We generate revenue from
net interest income and from noninterest income. Net interest income is the difference between interest income we earn on loans and securities and interest expense we incur on deposits and borrowings. Net interest income is a significant contributor
to revenues and net income. 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 three months of 2010, we generated $42.7
million in net interest income, a 17.4% increase over the three-month period ending March 31, 2009. The increase in net interest income was primarily due to the growth in the principal amount of securities and loans that we own. Net interest
margin is a measure of net interest income as a percentage of average interest-earning assets, which is comprised primarily of loans and securities we own. Our taxable equivalent net interest margin was 4.00% for the three months ended
March 31, 2010 versus 4.03% for the three months ended March 31, 2009. The decrease in net interest margin was primarily due to changes in the composition of, and yield on, our earning assets.

The contribution of noninterest income to revenue has increased significantly since we expanded our product and service offerings starting with our 1998
acquisition of a Lubbock-based mortgage company. Our noninterest income is primarily comprised of three components:



| | (i) | Income from mortgage loan origination and net gains from sale of loans. Through our wholly owned subsidiary, PrimeLending, we generate noninterest income by
originating and selling mortgage loans. During the first three months of 2010, we generated $47.4 million in income from loan origination and net gains from sale of loans, a 2.1% decrease compared to the three months ended March 31, 2009.
This decrease in income was primarily due to a lower level of mortgage refinancings during the first three months of 2010 compared to the corresponding period of 2009. Interest rates have remained relatively stable, but our demand from borrowers
seeking to refinance decreased in the first quarter of 2010 compared to the first quarter of 2009.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (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 earned $21.2 million and $18.8 million in investment advisory fees and commissions and securities brokerage fees and commissions during the three months ended March 31,
2010 and March 31, 2009, respectively.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Service charges on depositor accounts. We generate fees associated with offering depository services to our banking customers. We earned $2.1 million and $2.2
million in service charges on depositor accounts during the three months ended March 31, 2010 and March 31, 2009, respectively.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the aggregate, we generated $75.4 million and $70.6 million in noninterest income during the three months ended March 31, 2010 and 2009,
respectively. The increase in noninterest income was primarily due to an increase in fees and commissions earned from investment advisory and securities brokerage activities and an increase in realized gains from the sale of securities. The
contribution of noninterest income to net revenues (net interest income plus noninterest income) was approximately 63.87% during the three months ended March 31, 2010 versus 66.00% during the three months ended March 31, 2009.

Offsetting our revenues are noninterest expenses we incur through the operations of our businesses. Our businesses engage in labor intensive activities
and, consequently, employees compensation and benefits represent the majority of our noninterest expenses.

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 and PlainsCapital Leasing, LLC. The operations of PrimeLending comprise the mortgage origination segment. The financial advisory segment is comprised of Hester Capital and
First Southwest. The principal subsidiaries of First Southwest are First Southwest Company, 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.

Our reportable segments also serve as reporting units for the purpose of testing our goodwill for impairment. None of our
reporting units is at risk of failing the Step 1 impairment test prescribed in the Goodwill Subtopic of the FASB Accounting Standards Codification.

During 2009, PlainsCapital changed its reporting of segment results. We describe this change in Note 16 to our consolidated financial statements. Segment
net revenue percentages reflect net revenue from external customers.

How We Generate Revenue and Net Income

We are substantially dependent on our banking segment for revenue, which provides primarily business banking and personal banking products and services.
Approximately 43.10% and 36.91% of our net revenue was derived from the banking segment for the three months ended March 31, 2010 and 2009, respectively. The banking segment generates revenue from earning assets, and its results of operations
are primarily dependent on net interest income. Net interest income represents the difference between the income earned on the banking segments assets, including its loans and investment securities, and the banking segments cost of
funds, including the interest paid by the banking segment on its deposits and borrowings that are used to support the banking segments assets. The banking segment also derives revenue from other sources, primarily service charges on customer
deposit accounts and trust fees.

Our mortgage origination segments operations have historically represented our second largest source
of net revenue. The mortgage origination segment generated approximately 37.95% and 44.28% of our net revenue for the three months ended March 31, 2010 and 2009, respectively. The mortgage origination segment offers a variety of loan products
from offices in 32 states, and generates revenue primarily from fees charged on the origination of loans and from selling these loans in the secondary market.

We generate the remainder of our net revenue primarily from our financial advisory services. The financial advisory segment generated approximately
18.95% of our total net revenue for the three months ended March 31, 2010 and 18.81% of our total net revenue for the three months ended March 31, 2009. 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.



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The fluctuations in the share of total net revenue provided by our banking and mortgage origination segments
for the three months ended March 31, 2010 compared with the three months ended March 31, 2009 generally reflect substantial revenue growth in the banking segment and reduced revenues in the mortgage origination segment. The banking segment
experienced revenue growth primarily as a result of increased income from loans, including fees, and the increase in income on the securities portfolio, both of which were attributable to higher yields. Revenues declined in the mortgage origination
segment due to lower loan origination volume, although the number of mortgage originations increased in March 2010. We describe the operating results of each of our segments more fully in the sections that follow.

Operating Results

Consolidated
net income for the three months ended March 31, 2010 was $1.7 million, or $0.01 per diluted share, compared with $10.0 million, or $0.26 per diluted share, for the three months ended March 31, 2009.

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



|                                         |  |                                  |   |  |                            |  
|---------------------------------------- |  | -------------------------------- | - |  | -------------------------- | -
|                                         |  | Three Months EndedMarch 
31,2010 |   |  | Year EndedDecember 31,2009 |  
|Return on average shareholders equity   |  | 1.61                             | % |  | 7.50                       | %
|                                         |  |                                 
|Return on average assets                 |  | 0.14                             | % |  | 0.71                       | %
|                                         |  |                                 
|Net interest margin (taxable equivalent) |  | 4.00                             | % |  | 4.00                       | %
|                                         |  |                                 
|Leverage ratio                           |  | 9.44                             | % |  | 9.45                       | %
|                                         |  |                                 
|Efficiency ratio                         |  | 78.59                            | % |  | 77.14                      | %

The return on average
shareholders equity ratio is calculated by dividing net income by average shareholders equity for the period. The return on average assets ratio is calculated by dividing net income by average total assets for the period. Net
interest margin is calculated by dividing net interest income (taxable equivalent) by average interest-earning assets. The leverage ratio is discussed in the Liquidity and Capital Resources section below. The efficiency ratio is
calculated by dividing noninterest expenses by the sum of total noninterest income and net interest income for the period. The efficiency ratio is generally considered a measure of how well we utilize our resources and manage our expenses.

The changes in our earnings during the periods described above are primarily attributable to the factors listed below (in thousands).



|                                                              |  |                                         |         |  
|------------------------------------------------------------- |  | --------------------------------------- | ------- | -
|                                                              |  | Earnings Increase (Decrease)            |        
|                                                              |  | Three Months
EndedMarch 31,2010 v. 2009 |        
|Net interest income                                           |  | $                                       | 6,316   |  
|Provision for loan loss                                       |  |                                         | (8,942  | )
|Income from loan origination and net gains from sale of loans |  |                                         | (1,017  | )
|Investment advisory and brokerage fees and commissions        |  |                                         | 2,443   |  
|Noninterest expense                                           |  |                                         | (15,555 | )
|All other (including tax effects)                             |  |                                         | 8,438   |  
|                                                              |  |                                         |         |  
|                                                              |  | $                                       | (8,317  | )
|                                                              |  |                                         |         |  



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Net Interest Income

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



|                                     |  |                              |        |      |   |              |  |   |        |  
|------------------------------------ |  | ---------------------------- | ------ | ---- | - | ------------ |  | - | ------ | -
|                                     |  | Three Months Ended March 31, |       
|                                     |  |                              |        |      |   | Variance     | 
|                                     |  | 2010                         |        | 2009 |   | 2010 v. 2009 | 
|Interest income                      |  |                              |        |      |   |              |  |   |        |  
|Loans, including fees                |  | $                            | 44,624 |      | $ | 42,336       |  | $ | 2,288  |  
|Securities                           |  |                              | 6,255  |      |   | 4,121        |  |   | 2,134  |  
|Federal funds sold                   |  |                              | 9      |      |   | 7            |  |   | 2      |  
|Interest-bearing deposits with banks |  |                              | 243    |      |   | 12           |  |   | 231    |  
|Other securities                     |  |                              | 1,177  |      |   | 1,158        |  |   | 19     |  
|                                     |  |                              |        |      |   |              |  |   |        |  
|Total interest income                |  |                              | 52,308 |      |   | 47,634       |  |   | 4,674  |  
|                                     |  |                              |       
|Interest expense                     |  |                              |        |      |   |              |  |   |        |  
|Deposits                             |  |                              | 7,144  |      |   | 8,784        |  |   | (1,640 | )
|Notes payable and other borrowings   |  |                              | 2,491  |      |   | 2,493        |  |   | (2     | )
|                                     |  |                              |        |      |   |              |  |   |        |  
|Total interest expense               |  |                              | 9,635  |      |   | 11,277       |  |   | (1,642 | )
|                                     |  |                              |        |      |   |              |  |   |        |  
|                                     |  |                              |       
|Net interest income                  |  | $                            | 42,673 |      | $ | 36,357       |  | $ | 6,316  |  
|                                     |  |                              |        |      |   |              |  |   |        |  

Net interest income increased $6.3 million for the first quarter of 2010 compared with the three months ended March 31,
2009. The increase in net interest income was primarily due to fluctuations within the banking segment and is discussed further in the Lines of Business section below.

Noninterest Income

Noninterest income was $75.4 million for the first quarter of 2010 compared with $70.6 million for the three months ended March 31, 2009, an increase
of $4.8 million. The increase was primarily due to increased income from investment advisory fees and commissions and securities brokerage fees and commissions in the financial advisory segment. Also contributing to the increase in noninterest
income during the first quarter of 2010 was an increase in income derived from the banking segment, which was due mostly to the gain on sale of securities.

Noninterest Expense

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



|                                     |  |                              |        |      |   |              |  |   |       
|------------------------------------ |  | ---------------------------- | ------ | ---- | - | ------------ |  | - | ------
|                                     |  | Three Months Ended March 31,
|                                     |  |                              |        |      |   | Variance    
|                                     |  | 2010                         |        | 2009 |   | 2010 v. 2009
|Noninterest expense                  |  |                              |        |      |   |              |  |   |       
|Employees compensation and benefits |  | $                            | 56,795 |      | $ | 48,508       |  | $ | 8,287 
|Occupancy and equipment, net         |  |                              | 13,837 |      |   | 11,372       |  |   | 2,465 
|Professional services                |  |                              | 5,791  |      |   | 4,040        |  |   | 1,751 
|Deposit insurance premium            |  |                              | 1,275  |      |   | 561          |  |   | 714   
|Repossession and foreclosure         |  |                              | 1,452  |      |   | 1,034        |  |   | 418   
|Other                                |  |                              | 13,669 |      |   | 11,749       |  |   | 1,920 
|                                     |  |                              |        |      |   |              |  |   |       
|Total noninterest expense            |  | $                            | 92,819 |      | $ | 77,264       |  | $ | 15,555
|                                     |  |                              |        |      |   |              |  |   |       

Noninterest expense increased $15.6 million for the first quarter of
2010 compared with the three months ended March 31, 2009. The largest components of this increase were employees compensation and benefits, occupancy and equipment expenses, net of rental income, professional services and other expenses.



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Employees compensation and benefits increased $8.3 million for the first quarter of 2010 compared to
the three months ended 2009. The increase was primarily attributable to increased costs in the mortgage origination segment due to increased staffing levels for the additional mortgage banking offices opened during 2009 and 2010.

Occupancy and equipment expenses, net of rental income, increased $2.5 million for the first quarter of 2010 compared with the three months ended
March 31, 2009. The increase was primarily attributable to the mortgage origination segment due to costs incurred on the additional mortgage banking offices added during 2009 and 2010.

Professional services were $5.8 million for the first quarter of 2010, an increase of $1.8 million compared to the three months ended March 31,
2009. Among the factors contributing to the increase in professional services were higher volume-related professional services fees, legal fees and appraisal and inspection fees attributable to the mortgage origination segment and higher legal fees
attributable to the banking segment.

Other expenses increased $1.9 million for the first quarter of 2010 compared with the three months ended
March 31, 2009. The increase was primarily attributable to the mortgage origination segment due to increases in loan origination-related expenses and to amortization of intangible assets in the financial advisory segment.

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     | 
|                          |  | 2010                         |        | 2009 |   | 2010 v. 2009 | 
|Net interest income       |  | $                            | 41,852 |      | $ | 35,407       |  | $ | 6,445 |  
|Provision for loan losses |  |                              | 22,955 |      |   | 14,013       |  |   | 8,942 |  
|Noninterest income        |  |                              | 9,049  |      |   | 4,054        |  |   | 4,995 |  
|Noninterest expense       |  |                              | 24,057 |      |   | 21,051       |  |   | 3,006 |  
|                          |  |                              |        |      |   |              |  |   |       |  
|Net income before taxes   |  |                              | 3,889  |      |   | 4,397        |  |   | (508  | )
|Income tax provision      |  |                              | 968    |      |   | 947          |  |   | 21    |  
|                          |  |                              |        |      |   |              |  |   |       |  
|Net income                |  | $                            | 2,921  |      | $ | 3,450        |  | $ | (529  | )
|                          |  |                              |        |      |   |              |  |   |       |  

Net income was $2.9 million for the first quarter of 2010, a decrease of $0.5 million compared to the three months ended
March 31, 2009. The decrease was primarily due to increases in the provision for loan losses and noninterest expense, partially offset by an increase in net revenue.

Provision for loan losses increased by $8.9 million for the first quarter of 2010 compared with the three months ended March 31, 2009. The increase
in the provision for loan losses was primarily a result of an increase in non-performing loans and loan charge-offs due to challenging economic conditions. Noninterest expense increased by $3.0 million for the first quarter of 2010 compared to the
three months ended March 31, 2009. The increases were primarily due to increases in employees compensation and benefits, deposit insurance premiums and professional services expenses.



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The following table summarizes the changes in the banking segments taxable equivalent 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 31,2010 v. 2009 |      
|                                                          |  | Change Due To(1)                         |       |   |            |  
|                                                          |  | Volume                                   |       |   | Yield/Rate |   |        | Change | 
|Interest income                                           |  |                                          |       |   |            |   |        |        |  |   |        |  
|Loans                                                     |  | $                                        | 40    |   |            | $ | 2,552  |        |  | $ | 2,592  |  
|Investment securities(2)                                  |  |                                          | 1,464 |   |            |   | 1,042  |        |  |   | 2,506  |  
|Federal funds sold                                        |  |                                          |      |   |            |   | 2      |        |  |   | 2      |  
|Interest-bearing deposits in other financial institutions |  |                                          | 138   |   |            |   | 101    |        |  |   | 239    |  
|Other securities                                          |  |                                          | 32    |   |            |   | 73     |        |  |   | 105    |  
|                                                          |  |                                          |       |   |            |   |        |        |  |   |        |  
|Total interest income(2)                                  |  |                                          | 1,674 |   |            |   | 3,770  |        |  |   | 5,444  |  
|                                                          |  |                                          |      
|Interest expense                                          |  |                                          |       |   |            |   |        |        |  |   |        |  
|Deposits                                                  |  |                                          | 1,061 |   |            |   | (2,634 | )      |  |   | (1,573 | )
|Notes payable and other borrowings                        |  |                                          | 659   |   |            |   | (678   | )      |  |   | (19    | )
|                                                          |  |                                          |       |   |            |   |        |        |  |   |        |  
|Total interest expense                                    |  |                                          | 1,720 |   |            |   | (3,312 | )      |  |   | (1,592 | )
|                                                          |  |                                          |       |   |            |   |        |        |  |   |        |  
|Net interest income(2)                                    |  | $                                        | (46   | ) |            | $ | 7,082  |        |  | $ | 7,036  |  
|                                                          |  |                                          |       |   |            |   |        |        |  |   |        |  



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

|(2) | Taxable equivalent.
|--- | -------------------

Taxable equivalent net
interest income increased $7.0 million for the first quarter of 2010 compared with the three months ended March 31, 2009. Changes in yields earned and rates paid increased taxable equivalent net interest income by $7.1 million. Yields on the
loan portfolio increased due to increased spreads relative to the Wall Street Journal Prime Rate on renewed loans. Yields on the investment securities portfolio increased due to historically higher yields on tax-exempt securities issued by political
subdivisions of the State of Texas. The $3.3 million decrease in the rates paid on interest-bearing liabilities was primarily due to the decrease in market interest rates compared with the prevailing market rates in the first quarter of 2009.
Increases in the volume of interest-earning assets, primarily in the investment securities portfolio, increased taxable equivalent net interest income by $1.7 million, while increases in the volume of interest-bearing liabilities reduced taxable
equivalent net interest income by $1.7 million.



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The tables below provide additional details regarding the banking segments net interest income (dollar
amounts in thousands).



|                                                          |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|--------------------------------------------------------- |  | ------------------------------- | --------- | - | ------------------------------- | - | ---------------------- |  | ---- | ------------------------- |  | - | --------------------- | - | ---------------------- | - | ------ |  | ---- | -
|                                                          |  | Three Months EndedMarch 31,2010 |           |   | Three Months EndedMarch 31,2009 |  
|                                                          |  | AverageOutstandingBalance       |           |   | InterestEarned orPaid           |   | AnnualizedYield orRate |  |      | AverageOutstandingBalance |  |   | InterestEarned orPaid |   | AnnualizedYield orRate |  
|Assets                                                    |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Interest-earning assets                                   |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Loans, gross(1)                                           |  | $                               | 2,857,073 |   |                                 | $ | 44,552                 |  | 6.32 | %                         |  | $ | 2,854,411             |   |                        | $ | 41,960 |  | 5.96 | %
|Investment securities - taxable                           |  |                                 | 325,448   |   |                                 |   | 3,688                  |  | 4.53 | %                         |  |   | 259,146               |   |                        |   | 3,030  |  | 4.68 | %
|Investment securities - non-taxable(2)                    |  |                                 | 217,208   |   |                                 |   | 3,332                  |  | 6.14 | %                         |  |   | 148,338               |   |                        |   | 1,484  |  | 4.00 | %
|Federal funds sold                                        |  |                                 | 12,421    |   |                                 |   | 9                      |  | 0.29 | %                         |  |   | 12,801                |   |                        |   | 7      |  | 0.22 | %
|Interest-bearing deposits in other financial institutions |  |                                 | 253,418   |   |                                 |   | 244                    |  | 0.39 | %                         |  |   | 8,960                 |   |                        |   | 5      |  | 0.23 | %
|Other securities                                          |  |                                 | 25,857    |   |                                 |   | 164                    |  | 2.54 | %                         |  |   | 16,773                |   |                        |   | 59     |  | 1.41 | %
|                                                          |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Interest-earning assets, gross                            |  |                                 | 3,691,425 |   |                                 |   | 51,989                 |  | 5.71 | %                         |  |   | 3,300,429             |   |                        |   | 46,545 |  | 5.72 | %
|Allowance for loan losses                                 |  |                                 | (51,781   | ) |                                 |   |                        |  |      |                           |  |   | (29,518               | ) |                        |   |        |  |      |  
|                                                          |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Interest-earning assets, net                              |  |                                 | 3,639,644 |   |                                 |   |                        |  |      |                           |  |   | 3,270,911             |   |                        |   |        |  |      |  
|Noninterest-earning assets                                |  |                                 | 836,104   |   |                                 |   |                        |  |      |                           |  |   | 722,930               |   |                        |   |        |  |      |  
|                                                          |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Total assets                                              |  | $                               | 4,475,748 |   |                                 |   |                        |  |      |                           |  | $ | 3,993,841             |   |                        |   |        |  |      |  
|                                                          |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|                                                          |  |                                 |           |   |                                 |  
|Liabilities and Shareholders Equity                      |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Interest-bearing liabilities                              |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Interest-bearing deposits                                 |  | $                               | 2,970,211 |   |                                 |   | 7,176                  |  | 0.98 | %                         |  | $ | 2,652,819             |   |                        |   | 8,749  |  | 1.34 | %
|Notes payable and other borrowings                        |  |                                 | 645,372   |   |                                 |   | 1,484                  |  | 0.93 | %                         |  |   | 450,587               |   |                        |   | 1,503  |  | 1.35 | %
|                                                          |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Total interest-bearing liabilities                        |  |                                 | 3,615,583 |   |                                 |   | 8,660                  |  | 0.97 | %                         |  |   | 3,103,406             |   |                        |   | 10,252 |  | 1.34 | %
|Noninterest-bearing liabilities                           |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Noninterest-bearing deposits                              |  |                                 | 164,488   |   |                                 |   |                        |  |      |                           |  |   | 195,597               |   |                        |   |        |  |      |  
|Other liabilities                                         |  |                                 | 172,254   |   |                                 |   |                        |  |      |                           |  |   | 187,510               |   |                        |   |        |  |      |  
|                                                          |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Total liabilities                                         |  |                                 | 3,952,325 |   |                                 |   |                        |  |      |                           |  |   | 3,486,513             |   |                        |   |        |  |      |  
|Shareholders equity                                      |  |                                 | 523,423   |   |                                 |   |                        |  |      |                           |  |   | 507,328               |   |                        |   |        |  |      |  
|                                                          |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|Total liabilities and shareholders equity                |  | $                               | 4,475,748 |   |                                 |   |                        |  |      |                           |  | $ | 3,993,841             |   |                        |   |        |  |      |  
|                                                          |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|                                                          |  |                                 |           |   |                                 |  
|Net interest income(2)                                    |  |                                 |           |   |                                 | $ | 43,329                 |  |      |                           |  |   |                       |   |                        | $ | 36,293 |  |      |  
|                                                          |  |                                 |           |   |                                 |   |                        |  |      |                           |  |   |                       |   |                        |   |        |  |      |  
|                                                          |  |                                 |           |   |                                 |  
|Net interest spread(2)                                    |  |                                 |           |   |                                 |   |                        |  | 4.74 | %                         |  |   |                       |   |                        |   |        |  | 4.38 | %
|                                                          |  |                                 |           |   |                                 |  
|Net interest margin(2)                                    |  |                                 |           |   |                                 |   |                        |  | 4.76 | %                         |  |   |                       |   |                        |   |        |  | 4.46 | %



|(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 and $0.5 million for the three months ended
March 31, 2010 and 2009, 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.



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##### Table of Contents

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     | 
|                               |  | 2010                         |        |   | 2009 |   |        | 2010 v. 2009 | 
|Net interest expense           |  | $                            | (743   | ) |      | $ | (72    | )            |  | $ | (671    | )
|Noninterest income             |  |                              | 45,564 |   |      |   | 47,420 |              |  |   | (1,856  | )
|Noninterest expense            |  |                              | 47,576 |   |      |   | 36,748 |              |  |   | 10,828  |  
|                               |  |                              |        |   |      |   |        |              |  |   |         |  
|Net income (loss) before taxes |  |                              | (2,755 | ) |      |   | 10,600 |              |  |   | (13,355 | )
|Income tax provision (benefit) |  |                              | (686   | ) |      |   | 4,410  |              |  |   | (5,096  | )
|                               |  |                              |        |   |      |   |        |              |  |   |         |  
|Net income (loss)              |  | $                            | (2,069 | ) |      | $ | 6,190  |              |  | $ | (8,259  | )
|                               |  |                              |        |   |      |   |        |              |  |   |         |  

Net loss was $2.1 million for the first quarter of 2010, a decrease of $8.3 million compared to net income of $6.2 million
for the three months ended March 31, 2009. The decrease was due primarily to an increase in noninterest expense and a decrease in noninterest income. Employees compensation and benefits and other expenses accounted for the majority
of the increase in noninterest expense.

Employees compensation and benefits increased $5.2 million for the first quarter of 2010
compared to the three months ended March 31, 2009. The increase was attributable to increased staffing levels to support the additional mortgage banking offices opened during 2009 and 2010. Other expenses increased $5.7 million for the first
quarter of 2010 compared to the three months ended March 31, 2009, which was primarily attributable to $4.3 million of intercompany financing costs.

Mortgage loan origination volume was $1.174 billion for the first quarter of 2010 compared to $1.305 billion for the three months ended March 31,
2009, a decrease of 10.04%. During the first quarter of 2010, mortgage loan origination volume decreased primarily due to less mortgage refinancing activity compared to the first quarter of 2009. Interest rates have remained relatively stable, but
our demand from borrowers seeking to refinance decreased in the first quarter of 2010 compared to the first quarter of 2009. While origination volume declined in the first quarter of 2010 compared to the corresponding period in 2009, the number of
originations increased in March 2010. During the first quarter of 2010, refinancings and home purchases accounted by dollar volume for 34.28% and 65.72%, respectively, of the total mortgage loan origination volume.



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##### Table of Contents

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    
|                        |  | 2010                         |        | 2009 |   | 2010 v. 2009
|Net interest income     |  | $                            | 1,564  |      | $ | 1,022        |  | $ | 542  
|Noninterest income      |  |                              | 20,819 |      |   | 19,092       |  |   | 1,727
|Noninterest expense     |  |                              | 21,186 |      |   | 19,465       |  |   | 1,721
|                        |  |                              |        |      |   |              |  |   |      
|Net income before taxes |  |                              | 1,197  |      |   | 649          |  |   | 548  
|Income tax provision    |  |                              | 298    |      |   | 263          |  |   | 35   
|                        |  |                              |        |      |   |              |  |   |      
|Net income              |  | $                            | 899    |      | $ | 386          |  | $ | 513  
|                        |  |                              |        |      |   |              |  |   |      

Net income was $0.9 million for the first quarter of 2010, an increase
of $0.5 million compared to the three months ended March 31, 2009. The increase was due primarily to increases in net interest income and noninterest income, partially offset by an increase in noninterest expense.

Net interest income increased $0.5 million for the three months ended March 31, 2010 compared to the corresponding period in 2009. The increase
resulted from higher customer margin loan balances and from an increased level of trading securities used to support sales and underwriting activities.

The majority of noninterest income is generated from fees and commissions earned from investment advisory and securities brokerage activities, which
increased $2.4 million for the first quarter of 2010 compared to the three months ended March 31, 2009.

Noninterest expense increased
$1.7 million for the first quarter of 2010 compared to the three months ended March 31, 2009. Employees compensation and benefits and other expenses accounted for the majority of the increase in noninterest expense. Employees
compensation and benefits increased $1.3 million for the first quarter of 2010 compared to the three months ended March 31, 2009. The increase was attributable to higher commission expenses related to increased commission revenue and a slight
increase in staffing levels during the first quarter of 2010 compared to the first quarter of 2009. Other expenses increased $0.7 million for the first quarter of 2010 compared to the three months ended March 31, 2009, which was due primarily
to various expenses paid to support two new offices that opened during the first quarter of 2010, as well as amortization of intangible assets that began in the second half of 2009.



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Financial Condition

The following discussion contains a more detailed analysis of our financial condition at March 31, 2010 and as compared to December 31, 2009.

Securities Portfolio

The securities portfolio plays a role in the management of interest rate sensitivity and generates additional interest income. In addition, the securities
portfolio is used to meet collateral requirements and the available for sale portion thereof 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 two major components: securities held to maturity and securities available for
sale. 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. 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. The
table below summarizes our securities portfolio (in thousands).



|                                               |  |               |         |                  |   |        
|---------------------------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                                               |  | March 31,2010 |         | December 31,2009
|Securities available for sale, at fair value   |  |               |         |                  |   |        
|U. S. Treasury securities                      |  | $             |        |                  | $ |       
|U. S. government agencies                      |  |               |         |                  |   |        
|Bonds                                          |  |               |        |                  |   |       
|Mortgage-backed securities                     |  |               | 14,453  |                  |   | 28,014 
|Collateralized mortgage obligations            |  |               | 266,226 |                  |   | 145,361
|States and political subdivisions              |  |               | 10,149  |                  |   | 9,612  
|Auction rate bonds                             |  |               | 22,723  |                  |   | 44,554 
|                                               |  |               |         |                  |   |        
|                                               |  |               | 313,551 |                  |   | 227,541
|                                               |  |              
|Securities held to maturity, at amortized cost |  |               |         |                  |   |        
|U. S. government agencies                      |  |               |         |                  |   |        
|Mortgage-backed securities                     |  |               | 15,202  |                  |   | 16,963 
|Collateralized mortgage obligations            |  |               | 48,695  |                  |   | 50,533 
|States and political subdivisions              |  |               | 124,136 |                  |   | 120,818
|Auction rate bonds                             |  |               | 89,394  |                  |   | 105,699
|                                               |  |               |         |                  |   |        
|                                               |  |               | 277,427 |                  |   | 294,013
|                                               |  |              
|Trading securities, at fair value              |  |               | 72,944  |                  |   | 24,183 
|                                               |  |               |         |                  |   |        
|Total securities portfolio                     |  | $             | 663,922 |                  | $ | 545,737
|                                               |  |               |         |                  |   |        

We had a net unrealized loss of $0.5 million related to the available
for sale investment portfolio at March 31, 2010, compared with a net unrealized loss of $1.1 million at December 31, 2009.

The
market value of securities held to maturity at March 31, 2010 was $2.6 million below book value. At December 31, 2009, the market value of held to maturity securities was $0.9 million above book value.



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##### Table of Contents

We hold securities issued by Access to Loans for Learning Student Loan Corporation that exceed 10% of our
shareholders equity. The aggregate book value and aggregate market value of these securities at March 31, 2010, was $112.3 million and $107.8 million, respectively.

Loan Portfolio

Loans held for investment in our banking and financial advisory segments are detailed in the table below (in thousands) and classified by type.



|                                    |  |               |           |   |                  |   |           |  
|----------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                    |  | March 31,2010 |           |   | December 31,2009 |  
|Commercial and industrial           |  | $             | 1,197,949 |   |                  | $ | 1,264,735 |  
|Lease financing                     |  |               | 67,196    |   |                  |   | 78,088    |  
|Construction and land development   |  |               | 397,602   |   |                  |   | 402,876   |  
|Real estate                         |  |               | 1,114,641 |   |                  |   | 1,125,134 |  
|Securities (including margin loans) |  |               | 187,472   |   |                  |   | 152,145   |  
|Consumer                            |  |               | 46,423    |   |                  |   | 48,791    |  
|                                    |  |               |           |   |                  |   |           |  
|Loans, gross                        |  |               | 3,011,283 |   |                  |   | 3,071,769 |  
|Allowance for loan losses           |  |               | (49,971   | ) |                  |   | (52,092   | )
|                                    |  |               |           |   |                  |   |           |  
|Loans, net                          |  | $             | 2,961,312 |   |                  | $ | 3,019,677 |  
|                                    |  |               |           |   |                  |   |           |  

Banking Segment

The banking segments loan portfolio constitutes the major earning asset of the banking segment and typically offers the banking segment its best
alternative for obtaining the maximum interest spread above the 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 $2.8 billion and $2.9 billion as of March 31, 2010 and December 31, 2009, respectively. The $94.5 million decrease in net loans at March 31, 2010 compared with December 31, 2009, was primarily
attributable to declines in commercial and industrial loans and real estate loans that reflect efforts to control the growth of the loan portfolio in response to current economic conditions.

The banking segment does not generally participate in syndicated loan transactions and has no foreign loans in its portfolio. At March 31,
2010, the banking segment had loan concentrations (loans to borrowers engaged in similar activities) which 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, 2010, construction and land development loans were 13% 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, 2010.

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, which does not include pipeline loans, were $486.8 million and $430.8 million as of March 31, 2010 and December 31, 2009, respectively. The $56.0 million increase in net loans at March 31,
2010 compared with December 31, 2009 was primarily attributable to internally generated growth that resulted in the opening of additional offices and market conditions that led to increased home purchases. Most of the growth during the first
quarter of 2010 occurred in March 2010. PrimeLending was able to service the increased demand for home purchases due to the availability of warehouse financing through our banking segment.



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##### Table of Contents

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



|                         |  |               |         |                  |   |         |  
|------------------------ |  | ------------- | ------- | ---------------- | - | ------- | -
|                         |  | March 31,2010 |         | December 31,2009 |  
|Loans held for sale      |  |               |         |                  |   |         |  
|Unpaid principal balance |  | $             | 474,674 |                  | $ | 419,473 |  
|Fair value adjustment    |  |               | 12,115  |                  |   | 11,287  |  
|                         |  |               |         |                  |   |         |  
|                         |  | $             | 486,789 |                  | $ | 430,760 |  
|                         |  |               |         |                  |   |         |  
|Pipeline loans           |  |               |         |                  |   |         |  
|Unpaid principal balance |  | $             | 532,975 |                  | $ | 256,285 |  
|Fair value adjustment    |  |               | 1,801   |                  |   | (512    | )
|                         |  |               |         |                  |   |         |  
|                         |  | $             | 534,776 |                  | $ | 255,773 |  
|                         |  |               |         |                  |   |         |  

Although origination volume declined in the first quarter of 2010 compared to the corresponding period in 2009, the number
of originations increased in March 2010, resulting in higher levels of loans held for sale and pipeline loans at March 31, 2010, compared to December 31, 2009.

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 collectability 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 $190.2 million as of March 31, 2010 and $154.1 million as of December 31, 2009. The $36.1 million increase from December 31, 2009 to March 31, 2010 is
primarily attributable to increased borrowings in margin accounts held by First Southwest customers and correspondents in response to improving conditions in securities markets.

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 that have been incurred within the existing portfolio of loans. Our
management has responsibility for determining the level of the allowance for loan losses, subject to review by our board of directors. Among other factors, management, on a quarterly basis, considers our historical loss experience, the size and
composition of the loan portfolio, the value and adequacy of collateral and guarantors, delinquencies, non-performing credits, including impaired loans and our risk-rating-based loan watch list, along with national and local economic
conditions.

There are additional risks of loan losses that cannot be precisely quantified or attributed to particular loans or classes of
loans. Since those factors include general economic trends as well as conditions affecting individual borrowers, the allowance for loan losses is an estimate. The sum of these elements is our managements recommended level for the allowance.
The unallocated portion of the allowance is based on loss factors that cannot be associated with specific loans or loan categories. These factors include managements subjective evaluation of such conditions as credit quality trends, collateral
values, portfolio concentrations, delinquency levels, specific industry conditions in the regional economy, regulatory examination results, loan review findings and recent loss experiences in particular portfolio segments. The unallocated portion of
the allowance for losses reflects managements attempt to ensure that the overall reserve appropriately reflects a margin for the imprecision necessarily inherent in estimates of credit losses.



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We have developed a methodology that seeks to determine an allowance to absorb probable loan losses inherent
in the portfolio based on evaluations of the collectability of loans, historical loss experience, peer bank loss experience, delinquency trends, economic conditions, portfolio composition and specific loss estimates for loans considered substandard
or doubtful. We design our loan review program to review, on an annual basis, loan relationships that account for approximately 60% of the dollar amount of our loan portfolio, regardless of risk. We review all loan relationships 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 our desired coverage ratio. Based on managements evaluation, estimated loan loss
allowances are assigned to the individual loans that present a greater risk of loan loss. If necessary, reserves would be allocated to individual loans based on managements estimate of the borrowers ability to repay the loan given the
availability and value of collateral and other sources of cash flow. Any reserves for impaired loans are measured based on the present value of the expected future cash flow discounted at the loans effective interest rate or the fair value of
the underlying collateral. We evaluate the collectability of both principal and interest when assessing the need for a loss accrual. A composite allowance factor that considers our and other peer bank loss experience ratios, delinquency trends,
economic conditions and portfolio composition is applied to the total of commercial and commercial real estate loans not specifically evaluated.

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 in comparison to peer banks identified by regulatory agencies. Homogenous loans, such as consumer installment, 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 a current trend in delinquencies, losses or historical experience and general
economic conditions. As of March 31, 2010, we had no material delinquencies in these types of loans.

Our regular safety and soundness
examination, performed jointly by the Federal Reserve Bank of Dallas and the Texas Department of Banking, is currently underway. A major component of this examination is a detailed review of our loan portfolio.

While we believe we have sufficient allowance for our existing portfolio as of March 31, 2010, additional provisions for losses on existing loans
may be necessary in the future. We recorded net charge-offs in the amount of $25.1 million for the first quarter of 2010 compared to $25.6 million for the first quarter of 2009. Our allowance for loan losses totaled $50.0 million at March 31,
2010 and $52.1 million at December 31, 2009. The ratio of the allowance for loan losses to total loans held for investment at March 31, 2010 and December 31, 2009 was 1.66% and 1.70%, respectively.

Provision for Loan Losses

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 $23.0 million for the first quarter of 2010, an increase of $8.9 million compared to
the three months ended March 31, 2009. The increase was primarily a result of a significant increase in non-performing loans and charge-offs due to the broad downturn in the U.S. economy. These challenging economic conditions have resulted, at
times, in sudden deterioration in the creditworthiness of some seasoned borrowers, and we have significantly increased the loan loss provision, as well as the allowance for loan losses, to address these circumstances. Conditions in the first quarter
of 2010 were similar to those in 2009, but, over the remainder of 2010, we believe we may experience a declining level of net-charge-offs relative to the prior five quarters. Additional information regarding the allowance for loan losses can be
found under the heading Allowance for Loan Losses above.



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



|                                             |  |                             |         |   |                        |   |         |                             |  |   |         |  
|-------------------------------------------- |  | --------------------------- | ------- | - | ---------------------- | - | ------- | --------------------------- |  | - | ------- | -
|                                             |  | Three Months EndedMarch 31, |         |   | Year EndedDecember 31, |   |         | Three Months EndedMarch 31, | 
|                                             |  | 2010                        |         |   | 2009                   |   |         | 2009                        | 
|Balance at beginning of period               |  | $                           | 52,092  |   |                        | $ | 40,672  |                             |  | $ | 40,672  |  
|Provisions charged to operating expenses     |  |                             | 22,955  |   |                        |   | 66,673  |                             |  |   | 14,013  |  
|Recoveries of loans previously charged off   |  |                             |         |   |                        |   |         |                             |  |   |         |  
|Commercial and industrial                    |  |                             | 164     |   |                        |   | 901     |                             |  |   | 200     |  
|Real estate                                  |  |                             | 2       |   |                        |   | 94      |                             |  |   |        |  
|Construction and land development            |  |                             | 6       |   |                        |   | 32      |                             |  |   |        |  
|Lease financing                              |  |                             |        |   |                        |   | 10      |                             |  |   |        |  
|Consumer                                     |  |                             | 99      |   |                        |   | 47      |                             |  |   | 11      |  
|                                             |  |                             |         |   |                        |   |         |                             |  |   |         |  
|Total recoveries                             |  |                             | 271     |   |                        |   | 1,084   |                             |  |   | 211     |  
|                                             |  |                             |         |   |                        |   |         |                             |  |   |         |  
|Loans charged off                            |  |                             |         |   |                        |   |         |                             |  |   |         |  
|Commercial and industrial                    |  |                             | 17,164  |   |                        |   | 46,822  |                             |  |   | 22,917  |  
|Real estate                                  |  |                             | 7,698   |   |                        |   | 2,987   |                             |  |   | 828     |  
|Construction and land development            |  |                             | 196     |   |                        |   | 3,586   |                             |  |   | 377     |  
|Lease financing                              |  |                             | 127     |   |                        |   | 1,628   |                             |  |   | 547     |  
|Consumer                                     |  |                             | 162     |   |                        |   | 1,314   |                             |  |   | 1,104   |  
|                                             |  |                             |         |   |                        |   |         |                             |  |   |         |  
|Total charge-offs                            |  |                             | 25,347  |   |                        |   | 56,337  |                             |  |   | 25,773  |  
|                                             |  |                             |         |   |                        |   |         |                             |  |   |         |  
|Net charge-offs                              |  |                             | (25,076 | ) |                        |   | (55,253 | )                           |  |   | (25,562 | )
|                                             |  |                             |         |   |                        |   |         |                             |  |   |         |  
|Balance at end of period                     |  | $                           | 49,971  |   |                        | $ | 52,092  |                             |  | $ | 29,123  |  
|                                             |  |                             |         |   |                        |   |         |                             |  |   |         |  
|Net charge-offs to average loans outstanding |  |                             | 3.35    | % |                        |   | 1.82    | %                           |  |   | 3.50    | %

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 (dollar amounts in thousands). Amounts shown in Unallocated include the portion of the
allowance that is attributable to factors that cannot be distributed by type. Those factors include credit concentrations, trends in loan growth, and various other market, economic and regulatory considerations.



|                                                          |  |               |        |       |                  |   |         |   |        |  |        |  
|--------------------------------------------------------- |  | ------------- | ------ | ----- | ---------------- | - | ------- | - | ------ |  | ------ | -
|                                                          |  | March 31,2010 |        |       | December 31,2009 |  
|                                                          |  |               |        | % of  |                  |   |         |   | % of   | 
|                                                          |  |               |        | Gross |                  |   |         |   | Gross  | 
|                                                          |  | Reserve       |        | Loans |                  |   | Reserve |   | Loans  | 
|Commercial and industrial                                 |  | $             | 21,964 |       | 39.78            | % |         | $ | 28,580 |  | 41.17  | %
|Real estate (including construction and land development) |  |               | 16,911 |       | 50.22            | % |         |   | 12,357 |  | 49.74  | %
|Lease financing                                           |  |               | 1,673  |       | 2.23             | % |         |   | 1,114  |  | 2.54   | %
|Securities (including margin loans)                       |  |               | 1,280  |       | 6.23             | % |         |   | 1,280  |  | 4.95   | %
|Consumer                                                  |  |               | 385    |       | 1.54             | % |         |   | 469    |  | 1.60   | %
|Unallocated                                               |  |               | 7,758  |       |                  |   |         |   | 8,292  |  |        |  
|                                                          |  |               |        |       |                  |   |         |   |        |  |        |  
|Total                                                     |  | $             | 49,971 |       | 100.00           | % |         | $ | 52,092 |  | 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, 2010, we had
26 credit relationships totaling $54.8 million in loans of this type which are not included in either the non-accrual or 90 days past due loan categories.



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Non-Performing Assets

The following table presents our components of non-performing assets at the dates indicated (dollar amounts in thousands).



|                                                      |  |           |         |   |              |   |        |           |  |   |        |  
|----------------------------------------------------- |  | --------- | ------- | - | ------------ | - | ------ | --------- |  | - | ------ | -
|                                                      |  | March 31, |         |   | December 31, |   |        | March 31, | 
|                                                      |  | 2010      |         |   | 2009         |   |        | 2009      | 
|Loans accounted for on a non-accrual basis            |  |           |         |   |              |   |        |           |  |   |        |  
|Commercial and industrial                             |  | $         | 43,561  |   |              | $ | 38,592 |           |  | $ | 21,573 |  
|Lease financing                                       |  |           | 5,598   |   |              |   | 3,835  |           |  |   | 2,843  |  
|Construction and land development                     |  |           | 17,228  |   |              |   | 16,317 |           |  |   | 13,693 |  
|Real estate                                           |  |           | 13,692  |   |              |   | 10,279 |           |  |   | 11,565 |  
|Consumer                                              |  |           |        |   |              |   |       |           |  |   |       |  
|                                                      |  |           |         |   |              |   |        |           |  |   |        |  
|                                                      |  | $         | 80,079  |   |              | $ | 69,023 |           |  | $ | 49,674 |  
|                                                      |  |           |         |   |              |   |        |           |  |   |        |  
|                                                      |  |           |        
|Non-performing loans as a percentage of total loans   |  |           | 2.29    | % |              |   | 1.97   | %         |  |   | 1.53   | %
|                                                      |  |           |         |   |              |   |        |           |  |   |        |  
|                                                      |  |           |        
|Other Real Estate Owned                               |  | $         | 19,112  |   |              | $ | 17,532 |           |  | $ | 10,817 |  
|                                                      |  |           |         |   |              |   |        |           |  |   |        |  
|                                                      |  |           |        
|Other repossessed assets                              |  | $         | 2,773   |   |              | $ | 2,538  |           |  | $ | 1,894  |  
|                                                      |  |           |         |   |              |   |        |           |  |   |        |  
|                                                      |  |           |        
|Non-performing assets                                 |  | $         | 101,964 |   |              | $ | 89,093 |           |  | $ | 62,385 |  
|                                                      |  |           |         |   |              |   |        |           |  |   |        |  
|                                                      |  |           |        
|Non-performing assets as a percentage of total assets |  |           | 2.11    | % |              |   | 1.95   | %         |  |   | 1.50   | %
|                                                      |  |           |         |   |              |   |        |           |  |   |        |  
|                                                      |  |           |        
|Loans past due 90 days or more and still accruing     |  | $         | 122     |   |              | $ | 150    |           |  | $ | 1,184  |  
|                                                      |  |           |         |   |              |   |        |           |  |   |        |  

At March 31, 2010, total non-performing assets increased $12.9 million to $102.0 million compared to $89.1 million at
December 31, 2009. Non-accrual loans increased by $11.1 million to $80.1 million at March 31, 2010 compared to $69.0 million at December 31, 2009. Of these non-accrual loans, $43.6 million were characterized as commercial and
industrial loans as of March 31, 2010, an increase of $5.0 million compared to December 31, 2009. The commercial and industrial loans included a $10.8 million business loan secured principally by the guarantor. Approximately $9.7 million
in business loans were included in commercial and industrial loans, which are for investment properties arising primarily from a single customer relationship and secured principally by the inventory and property, plant and equipment of a group of
related borrowers. Also included in the commercial and industrial loan category were two business loans each from a single customer relationship totaling $4.5 million and $3.4 million and secured by each borrowers accounts receivable and
inventory, a $1.8 million business loan secured by livestock, a $1.4 million business loan secured by accounts receivable and inventory, and a $1.4 million business loan secured by oil and gas properties.

Non-accrual loans at March 31, 2010 also included $17.2 million characterized as construction and land development loans. This included two real
estate loans totaling approximately $5.8 million from a single customer relationship and secured by assisted living centers, two residential real estate development loans totaling approximately $4.4 million from a single customer relationship and
secured by unimproved land, and a $1.4 million residential real estate loan from a single customer relationship secured by commercial land development. Non-accrual loans also included $13.7 million characterized as real estate loans. This included a
$2.0 million commercial real estate loan secured by unoccupied residential property, a $1.2 million commercial real estate loan secured by occupied residential property, two commercial real estate loans from a single customer relationship totaling
approximately $1.1 million and secured by unoccupied townhomes, and a $1.0 million commercial real estate loan secured by a retirement center.

Loans in troubled debt restructurings bearing market rates of interest at the time of restructuring and performing in compliance with their modified
terms are considered impaired in the calendar year of the restructuring. At March 31, 2010, troubled debt restructurings totaled $15.0 million, of which $0.5 million were included in performing loans and $14.5 million were included in
non-accrual loans.



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Other Real Estate Owned increased $1.6 million to $19.1 million at March 31, 2010 compared to $17.5
million at December 31, 2009. The increase in Other Real Estate Owned was due primarily to the economic downturn affecting the housing market. At March 31, 2010, Other Real Estate Owned included $18.0 million of commercial real estate
property consisting of single family residences under development and $1.1 million of residential lots at various levels of completion.

Additional interest income that would have been recorded if the non-accrual loans had been current during the three months ended March 31, 2010
totaled $1.8 million and $2.8 million during the three months ended March 31, 2009.

Borrowings

Our borrowings as of March 31, 2010 and December 31, 2009 are shown in the table below (in thousands).



|                               |  |           |         |              |   |              |  |   |         |  
|------------------------------ |  | --------- | ------- | ------------ | - | ------------ |  | - | ------- | -
|                               |  | March 31, |         | December 31, |   | Variance     | 
|                               |  | 2010      |         | 2009         |   | 2010 v. 2009 | 
|Short-term borrowings          |  | $         | 611,011 |              | $ | 488,078      |  | $ | 122,933 |  
|Notes payable                  |  |           | 67,607  |              |   | 68,550       |  |   | (943    | )
|Junior subordinated debentures |  |           | 67,012  |              |   | 67,012       |  |   |        |  
|Other borrowings               |  |           | 12,022  |              |   | 12,128       |  |   | (106    | )
|                               |  |           |         |              |   |              |  |   |         |  
|                               |  | $         | 757,652 |              | $ | 635,768      |  | $ | 121,884 |  
|                               |  |           |         |              |   |              |  |   |         |  

Short-term borrowings consist of federal funds purchased and securities sold under agreements to repurchase, as well as
borrowings at the Federal Home Loan Bank. The $122.9 million increase in short-term borrowings at March 31, 2010 compared with December 31, 2009 was due mostly to increased borrowing of $75.0 million from the Federal Home Loan Bank, which
had favorable pricing relative to the brokered deposit market, providing an alternative source of funding for the Bank. Also contributing to the increase in short-term borrowings was the borrowing of approximately $43.4 million in unaffiliated notes
payable, which represent overnight borrowing on uncommitted broker lines of credit used to finance marketable securities, customer margin loans and correspondent inventories held at First Southwest. Our brokered deposits were $122.2 million at
March 31, 2010, an increase of $15.4 million from December 31, 2009.

We have revolving lines of credit for up to $30.0 million with
JP Morgan Chase Bank, N.A. At March 31, 2010, we had $5.2 million of additional borrowing capacity under those revolving lines of credit.

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 3, Quantitative and Qualitative Disclosures about Market Risk, below.

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 Federal Home Loan Bank. To supply liquidity over the longer term, we have access to
brokered certificates of deposit, term loans at the Federal Home Loan Bank and borrowings under lines of credit with other financial institutions.



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On December 19, 2008, we sold approximately $87.6 million of Fixed Rate Cumulative Perpetual Preferred
Stock, Series A, and Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the Series A and Series B Preferred Stock), the aggregate liquidation preference of which is $92.0 million, to the U.S. Treasury pursuant to the TARP Capital
Purchase Program. The shares of Series B Preferred Stock were issued to the U.S. Treasury upon the exercise of a warrant issued in conjunction with the Series A Preferred Stock. The Series A and Series B Preferred Stock are senior to shares of our
Original Common Stock with respect to dividends and liquidation preference. Under the terms of the Series A Preferred Stock, we are obligated to pay a 5% per annum cumulative dividend on the stated value of the preferred stock until
February 14, 2014 and thereafter at a rate of 9% per annum. As long as shares of the Series A and Series B Preferred Stock remain outstanding, we may not pay dividends to our common shareholders (nor may we repurchase or redeem any shares
of our common stock) unless all accrued and unpaid dividends on the preferred stock have been paid in full. Furthermore, prior to December 19, 2011, unless we have redeemed all of the preferred stock, the consent of the U.S. Treasury will be
required to, among other things, increase the per share amount of dividends paid on our common stock. After December 19, 2011 and thereafter until December 19, 2018, the consent of the U.S. Treasury (if it still holds our preferred stock)
will be required for any increase in the aggregate common stock dividends per share greater than 3% per annum. After December 19, 2018, we will be prohibited from paying dividends on, or repurchasing any common stock until the preferred
stock issued to the U.S. Treasury is redeemed in whole or the U.S. Treasury has transferred all of its preferred stock to third parties. If dividends on the preferred stock are not paid in full for six dividend periods, whether or not consecutive,
the U.S. Treasury will have the right to elect two directors to our board of directors until all unpaid cumulative dividends are paid in full. The terms of the Series B Preferred Stock are identical to those described above for the Series A
Preferred Stock except that (i) the dividend rate is 9% per annum and (ii) the Series B Preferred Stock may not be redeemed unless all of the Series A Preferred Stock is redeemed.

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, 2010, we exceeded all
regulatory capital requirements and were considered to be well-capitalized with a total capital to risk weighted assets ratio of 13.65%, Tier 1 capital to risk weighted assets ratio of 11.85% and a Tier 1 capital to average assets, or
leverage, ratio of 9.44%. At March 31, 2010, the Bank was also considered to be well-capitalized. We discuss regulatory capital requirements in more detail in Note 11 to our consolidated financial statements.

Cash and cash equivalents (consisting of cash and due from banks and federal funds sold), totaled $220.2 million at March 31, 2010, an increase of
$95.1 million, or 76.1%, from $125.1 million at March 31, 2009. This increase was primarily due to an increase in deposits, partially offset by an increase in loans held for investment and purchases of securities.

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 2010 was $89.0 million, an increase in cash used of $30.7 million compared with March 31, 2009.
Cash used in operations increased due to increases in trading securities and broker-dealer and clearing receivables which related to higher volumes at First Southwest.

Our primary use of funds is for the origination of loans, primarily commercial and industrial loans and real estate loans. Our loan portfolio at
March 31, 2010, excluding loans held for sale and the allowance for loan losses, and net of unearned income, was $3.0 billion, a decrease of $60.5 million compared with $3.1 billion at December 31, 2009. The decrease in net loan
originations was concentrated in commercial and industrial loans and reflects efforts to control the growth and risk of the loan portfolio in response to current economic conditions.



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Cash used in our investment activities included net purchases of securities for our investment portfolio
during the three months ended March 31, 2010, which were $65.8 million compared with net purchases of $51.9 million during the three months ended March 31, 2009. The increase in net purchases of securities during the first quarter of 2010
compared to the first quarter of 2009 resulted from the purchase of both municipal securities and collateralized mortgage obligations to take advantage of attractive yields and provide collateral for pledging and, with respect to collateralized
mortgage obligations, repurchase agreements. We sold approximately $54.3 million and $21.3 million of available for sale securities during the first quarter of 2010 and 2009, respectively.

Cash provided by financing activities was $186.9 million for the three months ended March 31, 2010 compared with $171.1 million for the three months
ended March 31, 2009. The $15.8 million increase was due mostly to the net increase in deposits and payments on notes payable.

We had
deposits of $3.3 billion at March 31, 2010, an increase of $56.5 million, or 1.72%, from the level of deposits at December 31, 2009. 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 deposit portfolio, brokered deposits, interest-bearing demand deposits and money market deposits increased $15.4 million, $13.9 million and $9.7 million at March 31,
2010 compared to the December 31, 2009 level, respectively.

Our 15 largest depositors, excluding First Southwest, our indirect wholly
owned subsidiary, accounted for approximately 25.30% of our total deposits, and our five largest depositors, excluding First Southwest, accounted for approximately 16.60% of our total deposits at March 31, 2010. 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, would adversely affect our liquidity and 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, albeit currently at slightly higher rates, 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 maintained with the Bank. 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.

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 commercial banks of up to $160.0 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, 2010, First Southwest had
borrowed approximately $43.4 million under these credit arrangements.

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 in determining the level of the allowance for possible loan losses.

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.



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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, 2009, which are included in our Annual Report on Form 10-K filed with the SEC on March 26, 2010. You are encouraged to read in its entirety Note 1 to our consolidated financial
statements for the year ended December 31, 2009 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 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 adequate 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 adequate to absorb losses. Managements judgment regarding the adequacy 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 a complete discussion of allowance for loan losses and provisions for loan losses, see the section entitled
Allowance for Loan Losses earlier in this Item 2.



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|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.

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.

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, 2010 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.



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As illustrated in the table below, the banking segment is asset sensitive overall. Loans which 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. It also attempts to match longer term assets with certificates of deposit with terms of three to five years.



|                                               |  |                               |           |   |               |   |         |             |  |   |              |   |  |           |         |   |       |   |         |   |  |   |          
|---------------------------------------------- |  | ----------------------------- | --------- | - | ------------- | - | ------- | ----------- |  | - | ------------ | - |  | --------- | ------- | - | ----- | - | ------- | - |  | - | ---------
|                                               |  | March 31, 2010               
|                                               |  | (Dollar amounts in thousands)
|                                               |  | 3 Months or                   |           |   | > 3 Months to |   |         | > 1 Year to |  |   | > 3 Years to |   |  |           |         |   |      
|                                               |  | Less                          |           |   | 1 Year        |   |         | 3 Years     |  |   | 5 Years      |   |  | > 5 Years |         |   | Total
|Interest sensitive assets:                     |  |                               |           |   |               |   |         |             |  |   |              |   |  |           |         |   |       |   |         |   |  |   |          
|Loans                                          |  | $                             | 2,394,709 |   |               | $ | 354,748 |             |  | $ | 320,455      |   |  | $         | 98,121  |   |       | $ | 136,172 |   |  | $ | 3,304,205
|Securities                                     |  |                               | 139,515   |   |               |   | 101,372 |             |  |   | 184,346      |   |  |           | 14,681  |   |       |   | 151,064 |   |  |   | 590,978  
|Federal funds sold                             |  |                               | 12,500    |   |               |   |        |             |  |   |             |   |  |           |        |   |       |   |        |   |  |   | 12,500   
|Other interest sensitive assets                |  |                               | 139,749   |   |               |   |        |             |  |   |             |   |  |           |        |   |       |   |        |   |  |   | 139,749  
|                                               |  |                               |           |   |               |   |         |             |  |   |              |   |  |           |         |   |       |   |         |   |  |   |          
|Total interest sensitive assets                |  |                               | 2,686,473 |   |               |   | 456,120 |             |  |   | 504,801      |   |  |           | 112,802 |   |       |   | 287,236 |   |  |   | 4,047,432
|                                               |  |                               |           |   |               |  
|Interest sensitive liabilities:                |  |                               |           |   |               |   |         |             |  |   |              |   |  |           |         |   |       |   |         |   |  |   |          
|Interest bearing checking                      |  | $                             | 1,436,924 |   |               | $ |        |             |  | $ |             |   |  | $         |        |   |       | $ |        |   |  | $ | 1,436,924
|Savings                                        |  |                               | 139,775   |   |               |   |        |             |  |   |             |   |  |           |        |   |       |   |        |   |  |   | 139,775  
|Time deposits                                  |  |                               | 712,194   |   |               |   | 269,058 |             |  |   | 47,377       |   |  |           | 3,893   |   |       |   | 2,712   |   |  |   | 1,035,234
|Notes payable & other borrowings               |  |                               | 463,028   |   |               |   | 102,225 |             |  |   | 2,015        |   |  |           | 1,094   |   |       |   | 7,986   |   |  |   | 576,348  
|                                               |  |                               |           |   |               |   |         |             |  |   |              |   |  |           |         |   |       |   |         |   |  |   |          
|Total interest sensitive liabilities           |  |                               | 2,751,921 |   |               |   | 371,283 |             |  |   | 49,392       |   |  |           | 4,987   |   |       |   | 10,698  |   |  |   | 3,188,281
|                                               |  |                               |           |   |               |   |         |             |  |   |              |   |  |           |         |   |       |   |         |   |  |   |          
|                                               |  |                               |           |   |               |  
|Interest sensitivity gap                       |  | $                             | (65,448   | ) |               | $ | 84,837  |             |  | $ | 455,409      |   |  | $         | 107,815 |   |       | $ | 276,538 |   |  | $ | 859,151  
|                                               |  |                               |           |   |               |   |         |             |  |   |              |   |  |           |         |   |       |   |         |   |  |   |          
|                                               |  |                               |           |   |               |  
|Cumulative interest sensitivity gap            |  | $                             | (65,448   | ) |               | $ | 19,389  |             |  | $ | 474,798      |   |  | $         | 582,613 |   |       | $ | 859,151 |   |  |   |          
|                                               |  |                               |           |   |               |   |         |             |  |   |              |   |  |           |         |   |       |   |         |   |  |   |          
|                                               |  |                               |           |   |               |  
|Percentage of cumulative gap to total interest |  |                               |           |   |               |   |         |             |  |   |              |   |  |           |         |   |       |   |         |   |  |   |          
|Sensitive assets                               |  |                               | -1.62     | % |               |   | 0.48    | %           |  |   | 11.73        | % |  |           | 14.39   | % |       |   | 21.23   | % |  |   |          

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. Loan and 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. The projected changes in net interest income at March 31, 2010 were in compliance with established policy guidelines.



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The table below shows the estimated impact of increases and decreases in interest rates of 1%, 2% and 3% on
net interest income and on market value of portfolio equity for the banking segment as of March 31, 2010 (dollar amounts in thousands).



|                         |  |                               |         |   |                                   |       |   |        |   |          |         |  |        |  
|------------------------ |  | ----------------------------- | ------- | - | --------------------------------- | ----- | - | ------ | - | -------- | ------- |  | ------ | -
|                         |  | March 31, 2010                |        
|                         |  | Changes InNet Interest
Income |         |   | Changes in Market Value 
ofEquity |      
|Change in Interest Rates |  | Amount                        |         |   | Percent                           |       |   | Amount |   |          | Percent | 
|Up 3%                    |  | $                             | (8,384  | ) |                                   | -5.14 | % |        | $ | (9,031   | )       |  | -1.60  | %
|Up 2%                    |  | $                             | (10,873 | ) |                                   | -6.67 | % |        | $ | (9,065   | )       |  | -1.60  | %
|Up 1%                    |  | $                             | (7,886  | ) |                                   | -4.84 | % |        | $ | (9,164   | )       |  | -1.62  | %
|Down 1%                  |  | $                             | (2,689  | ) |                                   | -1.65 | % |        | $ | (35,882  | )       |  | -6.34  | %
|Down 2%                  |  | $                             | (6,903  | ) |                                   | -4.24 | % |        | $ | (78,727  | )       |  | -13.91 | %
|Down 3%                  |  | $                             | (9,147  | ) |                                   | -5.61 | % |        | $ | (120,730 | )       |  | -21.33 | %

The projected changes in net
interest income and market value of equity to changes in interest rates at March 31, 2010 were in compliance with established policy guidelines. These projected changes in net interest income results 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.

Due to historically low interest rates, the table above may not predict the full effect of decreasing interest rates upon our net interest income that
would occur in a more traditional, higher interest rate environment. This is because short-term interest rates are near zero percent and certain modeling assumptions, such as the restriction that deposit and loan rates cannot fall below zero
percent, may distort the models results.



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|Item 4T. | Controls and Procedures
|-------- | -----------------------

Our management,
with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and has concluded that our disclosure
controls and procedures as of the end of the period covered by this report were designed to ensure that material information relating to us is made known to the Chief Executive Officer and Chief Financial Officer by others within our Company, and,
based on their evaluations, our controls and procedures were effective as of the end of the period covered by this report.

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

In November 2006, FSC
received subpoenas from the SEC and 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. To the extent that its participation is requested, FSC will
continue to cooperate with these investigations.

As a result of these SEC and DOJ investigations into industry-wide practices, FSC was named
as a co-defendant in a series of civil lawsuits filed during 2008 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. A
similar set of lawsuits were filed in California state courts by various local governmental entities suing only on behalf of themselves and not on behalf of a putative class. The California state court suits were removed to federal court, and all of
the cases have been transferred to federal court in New York. On April 29, 2009, the federal court judge dismissed all claims asserted against FSC and nearly all other defendants from the consolidated putative class action case and granted the
lead class plaintiffs until June 18, 2009 to file an amended complaint citing specific instances of alleged anti-competitive behavior by specific individuals at specific defendants.

On June 18, 2009, the lead class plaintiffs filed a second consolidated amended class action complaint. This amended complaint did not name FSC as a
defendant and did not make any specific allegations of misconduct against FSC or any of its employees. As a result, FSC is no longer a party to the putative class action case. However, FSC is identified in this consolidated amended class action
complaint as an alleged co-conspirator with the named defendants. The remaining defendants filed motions to dismiss the second consolidated amended class action complaint, but on March 25, 2010, the Court denied those motions, thus allowing the
consolidated class action to proceed against the remaining defendants.

With respect to putative class actions filed in federal court by
California plaintiffs that opted not to join in the consolidated class action case, the federal court judge granted those plaintiffs until September 15, 2009 to file an amended complaint. In their amended complaint, these California putative
class plaintiffs also did not name FSC as a defendant and did not make any specific allegations of misconduct against FSC or any of its employees. As a result, FSC is no longer a party to these California putative class actions. However, FSC is
identified in this complaint as an alleged co-conspirator with the named defendants. The remaining defendants filed motions to dismiss the amended complaint in the California class action. On April 26, 2010, the Court granted those motions in
part and denied them in part, allowing certain claims to proceed against the remaining defendants.

With respect to the removed California
suits that do not seek class action status, the federal court judge gave the plaintiffs until September 15, 2009 to file an amended complaint. These California plaintiffs, all of which are represented by the Cotchett, Pitre, and McCarthy law
firm, filed amended complaints continuing to identify FSC as a named defendant. The few allegations against FSC are very limited in scope.



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On November 12, 2009, Sacramento Municipal Utility District, City of Riverside, The Redevelopment
Agency of the City of Riverside, and The Public Financing Authority of the City of Riverside filed new lawsuits on behalf of themselves, but not on behalf of a putative class, in federal court. Additionally, on December 10, 2009, The
Redevelopment Agency of the City of Stockton and The Public Financing Authority of the City of Stockton, County of Tulare, Los Angeles World Airports and Sacramento Suburban Water District filed new lawsuits on behalf of themselves, but not on
behalf of a putative class, in federal court. Similar to the other five cases previously brought by California public entities that do not seek to certify a class, FSC is named as a defendant, the plaintiffs are represented by the Cotchett, Pitre,
and McCarthy law firm, and the few allegations against FSC are very limited in scope. The eleven individual California actions are referred to herein as the Cotchett Complaints.

On February 9, 2010, the defendants in the Cotchett Complaints, except Bank of America, The Goldman Sachs Group, Inc., Goldman Sachs Mitsui Marine
Derivative Products, L.P. and Goldman Sachs Bank USA, filed a Joint Motion to Dismiss the Cotchett Complaints along with a Memorandum in Support of Defendants Joint Motion to Dismiss the Cotchett Complaints. Additionally, FSC filed a
Supplemental Memorandum in Support of the Motion to Dismiss the Cotchett Complaints setting forth specific reasons why the Cotchett Complaints should be dismissed as to FSC.

On March 26, 2010, the California plaintiffs filed a response to the motion to dismiss. On April 16, 2010, the moving defendants filed a joint
reply in support of the motion to dismiss, and FSC filed a Supplemental Reply Memorandum in Support of its Motion to Dismiss. On April 28, 2010, the court denied the motion to dismiss as to FSC and nearly every other defendant named in the
Cotchett Complaints. The Court is expected to hold a case management conference in the near future to discuss scheduling and discovery issues.

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 borrowers 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.



|Item 1A. | Risk Factors
|-------- | ------------

The following risk factors
constitute material amendments 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.

We are subject to extensive supervision and regulation that could restrict our activities and impose financial requirements or limitations on the
conduct of our business and limit our ability to generate income.

We are subject to extensive federal and state regulation and
supervision, including that of the Board of Governors of the Federal Reserve System (the Federal Reserve Board), the Texas Department of Banking, the Federal Deposit Insurance Corporation (the FDIC), the SEC and the Financial
Industry Regulatory Authority (FINRA). Banking regulations are primarily intended to protect depositors funds, federal deposit insurance funds and the banking system as a whole, not security holders. Likewise, regulations
promulgated by FINRA are primarily intended to protect customers of broker-dealer businesses rather than security holders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among
other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties or reputational damage, which could have a material adverse effect on our business, financial condition and
results of operations. While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.



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The U.S. Congress and federal regulatory agencies continually review banking and securities laws,
regulations and policies for possible changes. It is possible that there will be significant changes to the banking and financial institutions regulatory regimes in the near future in light of the recent performance of, and government intervention
in, the financial services sector. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. For
instance, on June 17, 2009, President Barack Obama laid out a comprehensive regulatory reform plan aiming to modernize and protect the integrity of the U.S. financial system. In response to the Presidents financial regulatory reform plan,
the House of Representatives passed the Wall Street Reform and Consumer Protection Act of 2009 on December 11, 2009. The Senates version of the regulatory reform package, entitled the Restoring American Financial
Stability Act, was released by the Senate Committee on Banking, Housing & Urban Affairs on March 15, 2010, and is currently being debated on the floor of the Senate. We cannot predict whether or in what form any proposed
regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute. Such changes could subject our business to additional costs, limit the types of financial services and products we may offer
and increase the ability of non-banks to offer competing financial services and products, among other things.

In November 2009, the Federal
Reserve Board issued a final rule that, effective July 1, 2010, prohibits financial institutions from charging consumers fees for paying overdrafts on automated teller machine and one-time debit card transactions, unless a consumer consents, or
opts in, to the overdraft service for those types of transactions. Consumers must be provided a notice that explains the financial institutions overdraft services, including the fees associated with the service, and the consumers
choices. Because the Banks customers must provide advance consent to the overdraft service for automated teller machine and one-time debit card transactions, we cannot provide any assurance as to the ultimate impact of this rule on the amount
of overdraft/insufficient funds charges reported in future periods.

We have been advised by the Federal Reserve that the Banks 2008
Community Reinvestment Act (CRA) and compliance exams have been completed. Although a final, written report has not been issued concerning the results of such exams, we have been advised by staff at the Federal Reserve Bank of Dallas
that, despite satisfactory or better findings in the various components of the CRA rating, the Bank will receive a Needs to Improve CRA rating, primarily as a result of alleged fair lending issues associated with PrimeLending in prior
years. A CRA rating of less than satisfactory could adversely affect the Banks ability to establish new branches or acquire other financial institutions and could adversely affect our ability as a financial holding company to
commence new activities, or acquire companies engaged in certain activities, otherwise permitted by financial holding companies having a satisfactory or better CRA rating. In addition, an adverse finding by the Federal Reserve regarding
compliance with consumer protection laws and regulations, including but not limited to, fair lending laws, flood insurance laws or any other matters associated with a compliance exam of the Bank, could result in the imposition of civil money
penalties, restitution, punitive damages and/or damage to our reputation.

We are subject to losses due to fraudulent and negligent
acts.

Our business is subject to potential losses resulting from fraudulent activities. Our banking segment is subject to the risk
that our customers may engage in fraudulent activities, including fraudulent access to legitimate customer accounts or the use of a false identity to open an account, or the use of forged or counterfeit checks for payment. The banking segment is
subject to the risk of higher than expected charge offs for loans it holds to maturity on its balance sheet if its borrowers supply fraudulent information. Such types of fraud may be difficult to prevent or detect, and we may not be able to recover
the losses caused by such activities. Any such losses could have a material adverse effect on our business, financial condition and operating results.

In our mortgage origination segment, we rely heavily upon information supplied by third parties including the information contained in the loan
application, property appraisal, title information and employment and income documentation. If any of this information is intentionally or negligently misrepresented and such misrepresentation is not detected prior to loan funding, the investment
value of the loan may be significantly lower than expected. Whether a misrepresentation is made by the loan applicant, another third party or one of our own employees, we generally bear the risk of loss associated with the misrepresentation. A
mortgage loan subject to a material misrepresentation is typically unsaleable to investors in the secondary market. If we have already sold the loan when the material misrepresentation is discovered, then the loan is subject to repurchase, but we
will often instead agree to indemnify the purchaser for any losses arising from such loan because in the general course of business we do not seek to hold for investment the mortgage loans we originate. Even though we may have rights against persons
and entities who made or knew about the misrepresentation, such persons and entities are often difficult to locate, and it is often difficult to collect any monetary losses that we have suffered from them. We cannot assure you that we have
detected, or will detect, all misrepresented information in our loan originations. If we experience a significant number of such fraudulent or negligent acts, our business, financial condition, liquidity and results of operations could be
significantly harmed.



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On August 14, 2009, one of PrimeLendings employees was indicted, along with eleven other
individuals and three business entities, in Cuyahoga County, Ohio. The indictment alleged that PrimeLendings employee was part of a loan application fraud scheme, and specifically identified loans on three properties in the aggregate amount of
approximately $3.3 million that we originated and sold to investors. Trial was held on April 26, 2010, and the case was dismissed without prejudice. Pursuant to the terms of the loan purchase agreement with one of its investors, PrimeLending
has agreed to indemnify the investor with respect to losses it suffered on one of the subject properties. Another investor holding loans with respect to the other two subject properties may also seek indemnification from PrimeLending for losses that
it suffers with respect to such properties. We cannot assure you that we have detected or will detect all misrepresented information in our loan originations, including with respect to such employee.

First Southwest engages in the underwriting of municipal and other tax-exempt and taxable debt securities. As an underwriter, First Southwest may be
liable jointly and severally under federal, state and foreign securities laws for false and misleading statements concerning the securities, or the issuer of the securities, that it underwrites. We are sometimes brought into lawsuits based on
actions of our correspondents. In addition, First Southwest may act as a fiduciary in other capacities. Liability under such laws or under common law fiduciary principles could have a material adverse effect on our business, financial condition,
liquidity and results of operations.



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

During the first quarter of 2010, we issued 87,606 shares of Original Common Stock to employees upon the exercise of outstanding stock options at an
average exercise price of $3.06 per share. These options were awarded pursuant to the exemption from compliance with the registration requirements of the Securities Act of 1933, as amended (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.

In addition, during the first quarter of 2010, we issued 8,281 restricted shares of Original Common Stock to non-employee directors. We awarded these
restricted shares to such non-employee directors as consideration, in addition to their director fees, for their service as directors of PlainsCapital Corporation for the 2010 fiscal year. In issuing these shares, we relied upon an exemption from
compliance with the registration requirements of the Securities Act provided by Section 4(2) thereunder for transactions by an issuer not involving a public offering. Accordingly, we required each non-employee director to execute an award
agreement containing investment representations and limitations on transfer before issuing the restricted shares to such director.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

Not
applicable.



|Item 4. | (Removed and Reserved)
|------- | ----------------------



|Item 5. | Other Information
|------- | -----------------

During the first
quarter of 2010, the Bank notified the Federal Reserve Bank of Dallas, the Texas Department of Banking and affected customers of the Banks intent to close its full service branch on Hulen Street in Fort Worth, Texas. The accounts of affected
customers will be transferred to a nearby branch location of the Bank. We currently anticipate that this branch will be closed on or about June 30, 2010.



|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.



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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 5, 2010 |  | By:                       |  | /s/ ALLEN CUSTARD                                        
|                  |  | Name:                     |  | Allen Custard                                            
|                  |  | Title:                    |  | Executive Vice President and Chief Financial Officer     
|                  |  |                           |  | (Duly authorized officer and principal financial officer)
|                  |  |                          
|Date: May 5, 2010 |  | By:                       |  | /s/ JEFF ISOM                                            
|                  |  | Name:                     |  | Jeff Isom                                                
|                  |  | Title:                    |  | Executive Vice President of Finance and Accounting       
|                  |  |                           |  | (Principal accounting officer)                           



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Exhibit Index



|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               |  |                           |  |           |  |         |  |           
|----------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------------- |  | --------- |  | ------- |  | ----------
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               |  | Incorporated by Reference
|Exhibit No. |  |   |  | Exhibit Description                                                                                                                                                                                                                                                                               |  | FiledHerewith |  | Form                      |  | File No.  |  | Exhibit |  | FilingDate
|3.1         |  |  |  | Third Amended and Restated Certificate of Formation of PlainsCapital Corporation.                                                                                                                                                                                                                 |  |               |  | 10-Q                      |  | 000-53629 |  | 3.1     |  | 10/21/09  
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               | 
|3.2         |  |  |  | Amended and Restated Bylaws of PlainsCapital Corporation.                                                                                                                                                                                                                                         |  |               |  | 8-K                       |  | 000-53629 |  | 3.1     |  | 08/31/09  
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               | 
|4.1         |  |  |  | Letter Agreement and Securities Purchase AgreementStandard Terms incorporated therein, dated as of December 19, 2008, between PlainsCapital Corporation (f/k/a Plains Capital
Corporation) and the United States Department of the Treasury.                                                     |  |               |  | 10                        |  | 000-53629 |  | 4.1     |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               | 
|4.2         |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               | 
|4.3         |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               | 
|4.4         |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               | 
|4.5         |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               | 
|4.6         |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               | 
|4.7         |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               | 
|4.8         |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                                   |  |               | 
|4.9         |  |  |  | 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  



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##### Table of Contents

|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               |  |                           |  |           |  |         |  |           
|----------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------------- |  | --------- |  | ------- |  | ----------
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               |  | Incorporated by Reference
|Exhibit No. |  |   |  | Exhibit Description                                                                                                                                                                                                                                                                       |  | FiledHerewith |  | Form                      |  | File No.  |  | Exhibit |  | FilingDate
|4.10        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               | 
|4.11        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               | 
|4.12        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               | 
|4.13        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               | 
|4.14        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               | 
|4.15        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               | 
|4.16        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               | 
|4.17        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               | 
|4.18        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               | 
|4.19        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                           |  |               | 
|4.20        |  |  |  | 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  



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##### Table of Contents

|            |  |   |  |                                                                                                                                                                                                                                                                                             |  |               |  |                           |  |           |  |         |  |           
|----------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------------- |  | --------- |  | ------- |  | ----------
|            |  |   |  |                                                                                                                                                                                                                                                                                             |  |               |  | Incorporated by Reference
|Exhibit No. |  |   |  | Exhibit Description                                                                                                                                                                                                                                                                         |  | FiledHerewith |  | Form                      |  | File No.  |  | Exhibit |  | FilingDate
|4.21        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                             |  |               | 
|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  
|            |  |   |  |                                                                                                                                                                                                                                                                                             |  |               | 
|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        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                             |  |               | 
|10.9        |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                                                                                             |  |               | 
|10.10       |  |  |  | Employment Agreement, dated as of January 1, 2009, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Jeff Isom.                                                                                                                                                      |  |               |  | 10                        |  | 000-53629 |  | 10.10   |  | 04/17/09  



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##### Table of Contents

|            |  |   |  |                                                                                                                                                                                                        |  |               |  |                           |  |           |  |         |  |           
|----------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- |  | ------------------------- |  | --------- |  | ------- |  | ----------
|            |  |   |  |                                                                                                                                                                                                        |  |               |  | Incorporated by Reference
|Exhibit No. |  |   |  | Exhibit Description                                                                                                                                                                                    |  | FiledHerewith |  | Form                      |  | File No.  |  | Exhibit |  | FilingDate
|10.11       |  |  |  | First Amendment to Employment Agreement, dated as of March 2, 2009, between PlainsCapital Corporation (f/k/a Plains Capital Corporation) and Jeff Isom.                                                |  |               |  | 10                        |  | 000-53629 |  | 10.11   |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                                        |  |               | 
|10.12       |  |  |  | Employment Agreement, dated as of December 18, 2008, by and among PlainsCapital Corporation (f/k/a Plains Capital Corporation), First Southwest Holdings, LLC and W. Allen Custard
III.                |  |               |  | 8-K                       |  | 000-53629 |  | 10.1    |  | 07/08/09  
|            |  |   |  |                                                                                                                                                                                                        |  |               | 
|10.13       |  |  |  | First Amendment to Employment Agreement, dated as of March 2, 2009, by and among PlainsCapital Corporation (f/k/a Plains Capital Corporation), First Southwest Holdings, LLC and W.
Allen Custard III. |  |               |  | 8-K                       |  | 000-53629 |  | 10.2    |  | 07/08/09  
|            |  |   |  |                                                                                                                                                                                                        |  |               | 
|10.14       |  |  |  | Employment Agreement, dated as of March 18, 2010, between PlainsCapital Corporation and Roseanna McGill.                                                                                               |  |               |  | 8-K                       |  | 000-53629 |  | 10.1    |  | 03/23/10  
|            |  |   |  |                                                                                                                                                                                                        |  |               | 
|10.15       |  |  |  | Plains Capital Corporation Incentive Stock Option Plan, dated October 16, 1996 (the 1996 Incentive Stock Option Plan).                                                                               |  |               |  | 10                        |  | 000-53629 |  | 10.12   |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                                        |  |               | 
|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  
|            |  |   |  |                                                                                                                                                                                                        |  |               | 
|10.19       |  |  |  | Plains Capital Corporation 2005 Incentive Stock Option Plan, dated April 20, 2005.                                                                                                                     |  |               |  | 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.                                                                            |  |               |  | 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       |  |  |  | PlainsCapital Corporation 2010 Long-Term Incentive Plan.                                                                                                                                               |  |               |  | 8-K                       |  | 000-53629 |  | 10.2    |  | 03/23/10  
|            |  |   |  |                                                                                                                                                                                                        |  |               | 
|10.23       |  |  |  | PNB Financial Bank Supplemental Executive Pension Plan, effective as of January 1, 2008.                                                                                                               |  |               |  | 10                        |  | 000-53629 |  | 10.18   |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                                        |  |               | 
|10.24       |  |  |  | First Amendment to PlainsCapital Bank Supplemental Executive Pension Plan, effective as of March 19, 2009.                                                                                             |  |               |  | 10                        |  | 000-53629 |  | 10.19   |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                                        |  |               | 
|10.25       |  |  |  | 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  



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##### Table of Contents

|            |  |   |  |                                                                                                                                                                                         |  |               |  |                           |  |           |  |         |  |           
|----------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------------- |  | --------- |  | ------- |  | ----------
|            |  |   |  |                                                                                                                                                                                         |  |               |  | Incorporated by Reference
|Exhibit No. |  |   |  | Exhibit Description                                                                                                                                                                     |  | FiledHerewith |  | Form                      |  | File No.  |  | Exhibit |  | FilingDate
|10.26       |  |  |  | First Amendment to Plains Capital Corporation Employees Stock Ownership Plan, effective as of January 1, 2007.                                                                         |  |               |  | 10                        |  | 000-53629 |  | 10.21   |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                         |  |               | 
|10.27       |  |  |  | Second Amendment to Plains Capital Corporation Employees Stock Ownership Plan, dated as of December 1, 2008.                                                                           |  |               |  | 10                        |  | 000-53629 |  | 10.22   |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                         |  |               | 
|10.28       |  |  |  | Form of Restricted Stock Award Agreement for restricted stock awards issued to Messrs. Isom, Schaffner and White on December 17, 2008.                                                  |  |               |  | 10                        |  | 000-53629 |  | 10.23   |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                         |  |               | 
|10.29       |  |  |  | Form of Restricted Stock Award Agreement for restricted stock awards issued to Messrs. Custard and Feinberg, effective as of December 31, 2008.                                         |  |               |  | 10                        |  | 000-53629 |  | 10.24   |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                         |  |               | 
|10.30       |  |  |  | Form of Stock Option Agreement under the 1996 Incentive Stock Option Plan.                                                                                                              |  |               |  | 10                        |  | 000-53629 |  | 10.25   |  | 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 PlainsCapital Corporation 2005 Incentive Stock Option Plan.                                                                                    |  |               |  | 10                        |  | 000-53629 |  | 10.29   |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                         |  |               | 
|10.35       |  |  |  | Form of Stock Option Agreement under the Amended and Restated PlainsCapital Corporation 2007 Nonqualified and Incentive Stock Option Plan.                                              |  |               |  | 10                        |  | 000-53629 |  | 10.30   |  | 04/17/09  
|            |  |   |  |                                                                                                                                                                                         |  |               | 
|10.36       |  |  |  | Form of Restricted Stock Award Agreement under the PlainsCapital Corporation 2010 Long-Term Incentive Plan.                                                                             |  |               |  | 8-K                       |  | 000-53629 |  | 10.3    |  | 03/23/10  
|            |  |   |  |                                                                                                                                                                                         |  |               | 
|10.37       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                         |  |               | 
|10.38       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                         |  |               | 
|10.39       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                         |  |               | 
|10.40       |  |  |  | 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  



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##### Table of Contents

|            |  |   |  |                                                                                                                                                                                                                  |  |               |  |                           |  |           |  |         |  |           
|----------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------------- |  | --------- |  | ------- |  | ----------
|            |  |   |  |                                                                                                                                                                                                                  |  |               |  | Incorporated by Reference
|Exhibit No. |  |   |  | Exhibit Description                                                                                                                                                                                              |  | FiledHerewith |  | Form                      |  | File No.  |  | Exhibit |  | FilingDate
|10.41       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                  |  |               | 
|10.42       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                  |  |               | 
|10.43       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                  |  |               | 
|10.44       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                  |  |               | 
|10.45       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                  |  |               | 
|10.46       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                  |  |               | 
|10.47       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                  |  |               | 
|10.48       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                  |  |               | 
|10.49       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                  |  |               | 
|10.50       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                                                  |  |               | 
|10.51       |  |  |  | Fourth Amended and Restated 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 |  | 10.43   |  | 10/21/09  



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##### Table of Contents

|            |  |   |  |                                                                                                                                                                              |  |               |  |                           |  |           |  |         |  |           
|----------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------------- |  | --------- |  | ------- |  | ----------
|            |  |   |  |                                                                                                                                                                              |  |               |  | Incorporated by Reference
|Exhibit No. |  |   |  | Exhibit Description                                                                                                                                                          |  | FiledHerewith |  | Form                      |  | File No.  |  | Exhibit |  | FilingDate
|10.52       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.53       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.54       |  |  |  | Amended and Restated 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 |  | 10.46   |  | 10/21/09  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.55       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.56       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.57       |  |  |  | Third Amended and Restated 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 |  | 10.49   |  | 10/21/09  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.58       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.59       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.60       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.61       |  |  |  | Second Amended and Restated 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 |  | 10.52   |  | 10/21/09  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.62       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                              |  |               | 
|10.63       |  |  |  | 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  



---

##### Table of Contents

|            |  |   |  |                                                                                                                                                                                |  |               |  |                           |  |           |  |         |  |           
|----------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- |  | ------------------------- |  | --------- |  | ------- |  | ----------
|            |  |   |  |                                                                                                                                                                                |  |               |  | Incorporated by Reference
|Exhibit No. |  |   |  | Exhibit Description                                                                                                                                                            |  | FiledHerewith |  | Form                      |  | File No.  |  | Exhibit |  | FilingDate
|10.64       |  |  |  | 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  
|            |  |   |  |                                                                                                                                                                                |  |               | 
|10.65       |  |  |  | Waiver Letter, dated as of October 16, 2009, from JP Morgan Chase Bank, NA to PlainsCapital Corporation.                                                                       |  |               |  | 10-Q                      |  | 000-53629 |  | 10.59   |  | 10/21/09  
|            |  |   |  |                                                                                                                                                                                |  |               | 
|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             |  |                           |  |           |  |         |  |           
|            |  |   |  |                                                                                                                                                                                |  |               | 
|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             |  |                           |  |           |  |         |  |           

.