SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

12 Months Ended

Dec. 31, 2011

SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK [Abstract]

SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

19. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

Although we have a diversified loan portfolio, a significant portion of our loans are collateralized by real estate.  Repayment of these loans is in part dependent upon the economic conditions in the market area.  Part of the risk associated with real estate loans has been mitigated since 43.8% of this group represents loans collateralized by residential dwellings that are primarily owner occupied.  Losses on this type of loan have historically been less than those on speculative properties.  Many of the remaining real estate loans are collateralized primarily with owner-occupied commercial real estate.  The oil and gas industry remains a significant component of the East Texas economy and as such the health of the oil and gas industry has an effect on our business.

At December 31, 2011, approximately 34% of our total loans were to customers in Tyler, Texas.  We did not have a concentration in any other city that exceeded 10% of our total loans at December 31, 2011.

A significant portion of our loan portfolio is dependent on the medical community.  Medical loan types include commercial loans and commercial real estate loans.  Collateral for these loans varies depending on the type of loan and financial strength of the borrower.  The primary source of repayment for loans in the medical community is cash flow from continuing operations.   The medical community represents a concentration of risk in our Commercial loan and Commercial Real Estate loan portfolio.  See “Item 1.  Business – Market Area.”  We believe that risk in the medical community is mitigated because it is spread among multiple practice types and multiple specialties.  Should the government change the amount it pays the medical community through the various government health insurance programs or if new government regulation impacts the profitability of the medical community, the medical community could be adversely impacted which in turn could result in higher default rates by borrowers in the medical industry.

The mortgage-backed securities we hold consist exclusively of U.S. agency pass-through securities which are either directly or indirectly backed by the full faith and credit of the United States Government or guaranteed by GSEs.  The GNMA mortgage-backed securities are backed by the full faith and credit of the United States Government and the Fannie Mae and Freddie Mac U.S. agency GSE guaranteed mortgage-backed securities are not backed by the full faith and credit of the United States government.