PROSPERITY BANCSHARES INC MANAGEMENT REPORT ON FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Form 10-Q)

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Special Caution Regarding Forward-Looking Statements

Statements and financial discussion and analysis contained in this quarterly
report on Form 10-Q that are not statements of historical fact constitute
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on assumptions and involve a number of risks and
uncertainties, many of which are beyond the Company's control. Forward-looking
statements can be identified by words such as "believes," "intends," "expects,"
"plans," "will" and similar references to future periods. Many possible events
or factors could affect the future financial results and performance of the
Company and could cause such results or performance to differ materially from
those expressed in the forward-looking statements. These possible events or
factors include, but are not limited to:

• changes in the strength of United States economy in general and

strength of the local economies in which the Company operates

        resulting in, among other things, a deterioration in credit quality or
        reduced demand for credit, including the result and effect on the
        Company's loan portfolio and allowance for credit losses;

• the effect, impact, potential duration or other implications of the

COVID-19 pandemic, including all actions taken by federal, state and

local government authorities in response to the pandemic;

• the volatility of interest rates and market prices, which could reduce the

the company’s net interest margins, asset valuations and spending expectations;

• changes in the level of early repayments of loans and the resulting effects on the

value of the Company’s loan portfolio;

• changes in local economic and business conditions, including fluctuations

in the price of oil, natural gas and other raw materials, which

affect the Company’s customers and their ability to transact profitably

        business with the company, including the ability of the Company's
        borrowers to repay their loans according to their terms or a change in the
        value of the related collateral;


  • the potential impacts of climate change;


• increased competition for deposits and loans negatively affecting rates and

terms;

• the timing, impact and other uncertainties of any future acquisition,

including the Company’s ability to identify suitable future acquisitions

candidates, the success or failure of integrating their operations,

and the ability to successfully enter new markets and capitalize on growth

Opportunities;

• the possible impairment of goodwill related to an acquisition and

possible short-term adverse effects on results of operations;

• increased credit risk in the Company’s assets and increased operational risk

caused by a material change in commercial, consumer and/or real estate

loans as a percentage of total loan portfolio;

• the concentration of the Company’s loan portfolio in secured loans

by residential and commercial real estate;

• the failure of the assumptions underlying the constitution and provisions

        made to the allowance for credit losses, including such assumptions
        related to potential, pending or recent acquisitions;


    •   changes in the availability of funds resulting in increased costs or
        reduced liquidity;

• a deterioration or deterioration in the quality of the credit and the credit agency

ratings of securities in the Company’s securities portfolio;

• increased asset levels and changes in the composition of assets and the

the resulting impact on the Company’s capital levels and regulatory capital

reports ;

• the Company’s ability to acquire, operate and maintain

efficient systems without incurring unexpected difficulties or costs

but necessary technological developments;

• the loss of senior management or operating personnel and the possibility

the inability to hire qualified personnel at reasonable compensation levels;

  • government intervention in the U.S. financial system;

• changes in laws and government regulations or their interpretations

        applicable to financial holding companies and the Company's present and
        future banking and other subsidiaries, including changes in tax
        requirements and tax rates;


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• the effect of changes in accounting policies and practices, if any

adopted by regulatory bodies, as well as the Public company

Accounting Supervisory Board, the Financial Accounting Standards Board and

        other accounting standard setters;


  • poor performance by external vendors;

• the cost and effects of a failure, interruption or breach of the security of

Company systems;

• failure of the models and analysis and forecasting tools used by the

Company to estimate expected credit losses and assess fair value

financial instruments;

• additional risks arising from new business lines or new products and services;

• intellectual property or fiduciary property claims or disputes

        responsibilities;


    •   the failure of the Company's enterprise risk management framework to
        identify or address risks adequately;

• a failure or breach of the operational or security systems of the

infrastructure, or those of its third-party providers and other services

suppliers, including as a result of cyberattacks;

• the potential risk of environmental liability associated with lending activities;

• acts of terrorism, outbreak of hostilities, such as war between

Russia and Ukraineor other international or national calamities, civil

disturbances, insurrections, other political, economic or diplomatic events

developments, including those caused by public health concerns, outbreaks of

        diseases and pandemics, such as the COVID-19 pandemic, weather or other
        acts of God and other matters beyond the Company's control; and

• other risks and uncertainties described in the Company’s annual report on

Form 10-K for the year ended December 31, 2021or in others

reports and documents filed with the Security and Exchange Commission.


A forward-looking statement may include a statement of the assumptions or bases
underlying the forward-looking statement. The Company believes it has chosen
these assumptions or bases in good faith and that they are reasonable. However,
the Company cautions that assumptions or bases almost always vary from actual
results, and the differences between assumptions or bases and actual results can
be material. Therefore, the Company cautions against placing undue reliance on
its forward-looking statements. The forward-looking statements speak only as of
the date the statements are made. The Company undertakes no obligation to
publicly update or otherwise revise any forward-looking statements, whether as a
result of new information, future events or otherwise.

Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of the Company's balance sheets and
statements of income. This section should be read in conjunction with the
Company's consolidated financial statements and accompanying notes included in
Part I, Item 1 of this report and with the consolidated financial statements and
accompanying notes and other detailed information appearing in the Company's
Annual Report on Form 10-K for the year ended December 31, 2021.

PREVIEW

Prosperity Bancshares, Inc., a Texas corporation ("Bancshares"), is a registered
financial holding company that derives substantially all of its revenues and
income from the operation of its bank subsidiary, Prosperity Bank (the "Bank,"
and together with Bancshares, the "Company"). The Bank provides a wide array of
financial products and services to businesses and consumers throughout Texas and
Oklahoma. As of March 31, 2022, the Bank operated 272 full-service banking
locations; with 65 in the Houston area including The Woodlands; 30 in the South
Texas area including Corpus Christi and Victoria; 62 in the Dallas/Fort Worth
area; 22 in the East Texas area; 29 in the Central Texas area including Austin
and San Antonio; 34 in the West Texas area including Lubbock, Midland-Odessa and
Abilene; 16 in the Bryan/College Station area; 6 in the Central Oklahoma area;
and 8 in the Tulsa, Oklahoma area. The Company's principal executive office is
located at Prosperity Bank Plaza, 4295 San Felipe in Houston, Texas, and its
telephone number is (281) 269-7199. The Company's website address is
www.prosperitybankusa.com. Information contained on the Company's website is not
incorporated by reference into this quarterly report on Form 10-Q and is not
part of this or any other report.

The Company generates the majority of its revenues from interest income on
loans, service charges and fees on customer accounts and income from investment
in securities. The revenues are partially offset by interest expense paid on
deposits and other borrowings and noninterest expenses such as administrative
and occupancy expenses. Net interest income is the difference between interest
income on earning assets such as loans and securities and interest expense on
liabilities such as deposits and borrowings which are used to fund those assets.
Net interest income is the Company's largest source of revenue. The level of
interest rates and the volume and mix of earning assets and interest-bearing
liabilities impact net interest income and margin.

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Three principal components of the Company's growth strategy are internal growth,
efficient operations and acquisitions, including strategic merger transactions.
The Company focuses on continual internal growth. The Company maintains separate
data with respect to each banking center's net interest income, efficiency
ratio, deposit growth and loan growth for purposes of measuring its overall
profitability. The Company also focuses on maintaining efficiency and stringent
cost control practices and policies. The Company has centralized many of its
critical operations, such as data processing and loan processing. Management
believes that this centralized infrastructure can accommodate substantial
additional growth and achieve necessary controls while enabling the Company to
minimize operational costs through certain economies of scale. The Company also
intends to continue to seek expansion opportunities.

Total assets were $38.27 billion at March 31, 2022 compared with $37.83
billion at December 31, 2021, an increase of $437.2 million or 1.2%. Total loans
were $18.07 billion at March 31, 2022 compared with $18.62 billion at
December 31, 2021, a decrease of $548.6 million or 2.9%. Total deposits were
$31.07 billion at March 31, 2022 compared with $30.77 billion at December 31,
2021, an increase of $296.5 million or 1.0%. Total shareholders' equity was
$6.50 billion at March 31, 2022 compared with $6.43 billion at December 31,
2021, an increase of $77.2 million or 1.2%.

CRITICAL ACCOUNTING METHODS

The Company's significant accounting policies are integral to understanding the
results reported. The Company's accounting policies are described in detail in
Note 1 to the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2021. The Company believes
that of its significant accounting policies, the following may involve a higher
degree of judgment and complexity:

Business Combinations-Generally, acquisitions are accounted for under the
acquisition method of accounting in accordance with Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") 805, Business
Combinations. A business combination occurs when the Company acquires net assets
that constitute a business and obtains control over that business. Business
combinations are effected through the transfer of consideration consisting of
cash and/or common stock and are accounted for using the acquisition method.
Accordingly, the assets and liabilities of the acquired business are recorded at
their respective fair values at the acquisition date. Determining the fair value
of assets and liabilities, especially the loan portfolio, is a process involving
significant judgment regarding methods and assumptions used to calculate
estimated fair values. Fair values are subject to refinement for up to one year
after the closing date of the acquisition as information relative to closing
date fair values becomes available. The results of operations of an acquired
entity are included in the Company's consolidated results from acquisition date,
and prior periods are not restated.

Allowance for Credit Losses- The allowance for credit losses is accounted for in
accordance with FASB ASC 326, Measurement of Credit Losses on Financial
Instruments which replaced the incurred loss methodology with an expected loss
methodology that is referred to as the current expected credit loss ("CECL")
methodology. CECL requires a financial asset (or a group of financial assets)
measured at amortized cost basis to be presented at the net amount expected to
be collected. The allowance for credit losses is an allowance available for
losses on loans and held-to-maturity securities. The allowance for credit losses
is adjusted through charges to earnings in the form of a provision for credit
losses. All losses are charged to the allowance when the loss actually occurs or
when a determination is made that such a loss is likely and can be reasonably
estimated. Recoveries are credited to the allowance at the time of recovery.

The Company's allowance for credit losses consists of two elements: (1) specific
valuation allowances based on expected losses on impaired loans and PCD loans;
and (2) a general valuation allowance based on historical lifetime loan loss
experience, current economic conditions, reasonable and supportable forecasted
economic conditions and other qualitative risk factors both internal and
external to the Company. Management has established an allowance for credit
losses which it believes is adequate for estimated losses in the Company's loan
portfolio. Based on an evaluation of the portfolio, management presents a
quarterly review of the allowance for credit losses to the Bank's Board of
Directors, indicating any change in the allowance since the last review and any
recommendations as to adjustments in the allowance. In making its evaluation,
management considers factors such as historical lifetime loan loss experience,
the amount of nonperforming assets and related collateral, the volume, growth
and composition of the portfolio, current economic conditions and reasonable and
supportable forecasted economic conditions that may affect the borrower's
ability to pay and the value of collateral, the evaluation of the portfolio
through its internal loan review process and other relevant factors. Portions of
the allowance may be allocated for specific credits; however, the entire
allowance is available for any credit that, in management's judgment, should be
charged off. Charge-offs occur when loans are deemed to be uncollectible. For
further discussion of the methodology used in the determination of the allowance
for credit losses on loans, see "Accounting for Acquired Loans and the Allowance
for Acquired Credit Losses" and "Financial Condition-Allowance for Credit Losses
on Loans" below.

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Accounting for Acquired Loans and the Allowance for Acquired Credit Losses - The
Company accounts for its acquisitions using the acquisition method of
accounting. Accordingly, the assets, including loans, and liabilities of the
acquired entity are recorded at their fair values at the acquisition date. The
fair value estimates associated with acquired loans, and based on a discounted
cash flow model, include estimates related to market interest rates and
undiscounted projections of future cash flows that incorporate expectations of
prepayments and the amount and timing of principal, interest and other cash
flows, as well as any shortfalls thereof. For further discussion of the
methodology used in the determination of the allowance for credit losses for
acquired loans, see "Financial Condition-Allowance for Credit Losses on Loans"
below. For further discussion of the Company's acquisition and loan accounting,
see Note 5 to the consolidated financial statements.

COVID-19 PANDEMIC

The Company continues to monitor the latest developments regarding a novel
strain of coronavirus disease ("COVID-19"). Although the restrictions previously
imposed on businesses and activities by the states of Texas and Oklahoma
remained lifted as of March 31, 2022, it is possible that some restrictions
could be re-introduced if the number of cases were to increase due to the
emergence of a new variant of COVID-19 or otherwise. The COVID-19 pandemic has
resulted in significant economic uncertainties that have had, and could continue
to have, an adverse impact on the Company's operating income, financial
condition and cash flows. The extent to which the COVID-19 pandemic will impact
the Company's operations and financial results during 2022 cannot be reasonably
or reliably estimated at this time.

Since the implementation of the Paycheck Protection Program ("PPP") in 2020, the
Company has obtained Small Business Administration approvals on approximately
18,700 loans totaling $2.036 billion and, as of March 31, 2022, had an
outstanding balance of 819 loans totaling $86.3 million.

In response to the COVID-19 pandemic, the Company provided relief to its loan
customers through loan extensions and deferrals beginning in March 2020 to
selected borrowers on a case-by-case basis. The Company's troubled debt
restructurings do not include loan modifications related to COVID-19. As of
March 31, 2022, the Company had approximately $29.0 million in outstanding loans
subject to deferral and modification agreements.

RESULTS OF OPERATIONS

Net income available to common shareholders was $122.3 million for the quarter
ended March 31, 2022 compared with $133.3 million for the same period in 2021, a
decrease of $11.0 million or 8.2%. Net income per diluted common share was $1.33
for the quarter ended March 31, 2022 compared with $1.44 for the same period in
2021, a decrease of 7.6%. The Company posted annualized returns on average
common equity of 7.54% and 8.60%, annualized returns on average assets of 1.29%
and 1.54% and efficiency ratios of 43.68% and 41.25% for the quarters ended
March 31, 2022 and 2021, respectively. The efficiency ratio is calculated by
dividing total noninterest expense by the sum of net interest income and
noninterest income. Because the ratio is a measure of revenues and expenses
resulting from the Company's lending activities and fee-based banking services,
net gains and losses on the sale or write down of assets and securities are not
included. Additionally, taxes are not part of this calculation.

Net interest income

The Company's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as a
"volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change."

For the three months ended March 31, 2022

Net interest income before the provision for credit losses was $239.9 million
for the quarter ended March 31, 2022, a decrease of $14.6 million or 5.7%,
compared with $254.6 million for the same period in 2021. The change was
primarily due to a decrease in the average balance and average rate on loans and
a decrease in loan discount accretion of $11.1 million, partially offset by an
increase in the average investment securities balance and a decrease in the
average rate on interest-bearing liabilities.

Interest income on loans was $193.0 million for the quarter ended March 31,
2022, a decrease of $40.1 million or 17.2%, compared with $233.1 million for the
same period in 2021. The change was primarily due to a decrease in the average
balance and average rate on loans and a $11.1 million decrease in loan discount
accretion.

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Interest income on securities was $55.0 million for the quarter ended March 31,
2022, an increase of $16.3 million or 42.2%, compared with $38.7 million for the
same period in 2021, primarily due to an increase in the average investment
securities balance.

Average interest-bearing liabilities were $20.74 billion for the quarter ended
March 31, 2022, an increase of $1.79 billion or 9.5%, compared with $18.94
billion for the same period in 2021, primarily due to an increase in
interest-bearing demand deposits and savings and money market deposits partially
offset by a decrease in certificates and other time deposits.

The net interest margin on a tax-equivalent basis was 2.88% for the quarter
ended March 31, 2022, a decrease of 53 basis points or 15.5% compared to 3.41%
for the same period in 2021. The change was primarily due to lower average rates
on loans, a decrease in loan discount accretion of $11.1 million and an increase
in the average balance on investment securities, partially offset by a decrease
in the average rate on interest-bearing liabilities.


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The following table presents, for the periods indicated, the total dollar amount
of average balances, interest income from average interest-earning assets and
the resultant yields, as well as the interest expense on average
interest-bearing liabilities and the resultant rates. Except as indicated in the
footnotes, no tax-equivalent adjustments were made and all average balances are
daily average balances. Any nonaccruing loans have been included in the table as
loans carrying a zero yield.

                                                                                      Three Months Ended March 31,
                                                                    2022                                                         2021
                                             Average                                                      Average
                                           Outstanding          Interest             Average            Outstanding          Interest             Average
                                             Balance          Earned/Paid         Yield/Rate (1)          Balance          Earned/Paid         Yield/Rate (1)
                                                                                         (Dollars in thousands)
Assets
Interest-Earning Assets:
Loans held for sale                       $        4,611     $           40                   3.52 %   $       33,327     $          238                   2.90 %
Loans held for investment                     16,712,690            183,033                   4.44 %       17,279,066            213,978                   5.02 %
Loans held for investment - Warehouse
Purchase Program                               1,268,715              9,952                   3.18 %        2,369,601             18,859                   3.23 %
Total loans                                   17,986,016            193,025                   4.35 %       19,681,994            233,075                   4.80 %
Investment securities                         13,772,974             55,011                   1.62 %        9,148,841             38,677                   1.71 %
Federal funds sold and other earning
assets                                         2,135,503                847                   0.16 %        1,506,645                351                   0.09 %
Total interest-earning assets                 33,894,493            248,883                   2.98 %       30,337,480            272,103                   3.64 %
Allowance for credit losses on loans            (285,692 )                                                   (315,590 )
Noninterest-earning assets                     4,458,669                                                    4,522,470
Total assets                              $   38,067,470                                               $   34,544,360

Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-bearing demand deposits          $    6,775,114     $        2,452                   0.15 %   $    6,112,469     $        5,943                   0.39 %
Savings and money market deposits             10,870,461              4,026                   0.15 %        9,420,064              5,753                   0.25 %
Certificates and other time deposits           2,637,529              2,276                   0.35 %        3,031,621              5,666                   0.76 %
Securities sold under repurchase
agreements                                       452,054                185                   0.17 %          376,662                159                   0.17 %
Total interest-bearing liabilities            20,735,158              8,939                   0.17 %       18,940,816             17,521                   0.38 %
Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits           10,636,624                                                    9,206,791
Allowance for credit losses on
off-balance sheet credit exposures                29,947                                                       29,947
Other liabilities                                176,360                                                      169,138
Total liabilities                             31,578,089                                                   28,346,692
Shareholders' equity                           6,489,381                                                    6,197,668
Total liabilities and shareholders'
equity                                    $   38,067,470                                               $   34,544,360

Net interest rate spread                                                                      2.81 %                                                       3.26 %
Net interest income and margin (2) (3)                       $      239,944                   2.87 %                      $      254,582                   3.40 %
Net interest income and margin (tax
equivalent) (4)                                              $      240,416                   2.88 %                      $      255,217                   3.41 %


(1) Annualized and based on average balances on an actual 365-day basis for

three months completed March 31, 2022 and 2021.

(2) Return is based on amortized cost and does not include any component of

unrealized gains or losses.

(3) The net interest margin is equal to the net interest income divided by the average

interest-bearing assets.

(4) To generate pre-tax income and resulting returns on tax-exempt investments

and borrowings comparable to those on taxable investments and borrowings, a

the tax equivalent adjustment was calculated using a federal income tax rate

21% and other applicable effective tax rates.

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The following table presents information regarding the dollar amount of changes
in interest income and interest expense for the periods indicated for each major
component of interest-earning assets and interest-bearing liabilities and
distinguishes between the changes attributable to changes in volume and changes
in interest rates. For purposes of this table, changes in interest income and
interest expense related to purchase accounting adjustments and changes
attributable to both rate and volume which cannot be segregated have been
allocated to rate.
                                                     Three Months Ended March 31,
                                                            2022 vs. 2021
                                                       Increase
                                                      (Decrease)
                                                   Due to Change in
                                                Volume           Rate            Total
                                                        (Dollars in thousands)
Interest-Earning Assets:
Loans held for sale                          $       (205 )   $         7     $      (198 )
Loans held for investment (1)                      (7,014 )       (23,931 )       (30,945 )
Loans held for investment - Warehouse
Purchase Program                                   (8,762 )          (145 )        (8,907 )
Investment securities (1)                          19,549          (3,215 ) 

16,334

Federal funds sold and other earning
assets                                                147             349   

496

Total increase (decrease) in interest
income                                              3,715         (26,935 ) 

(23,220)

Interest-Bearing Liabilities:
Interest-bearing demand deposits                      644          (4,135 )        (3,491 )
Savings and money market deposits                     886          (2,613 )        (1,727 )
Certificates and other time deposits (1)             (737 )        (2,653 )        (3,390 )
Securities sold under repurchase
agreements                                             32              (6 )            26
Total increase (decrease) in interest
expense                                               825          (9,407 )        (8,582 )
Increase (decrease) in net interest income   $      2,890     $   (17,528 )   $   (14,638 )



(1) Includes the impact of purchase accounting adjustments.

Provision for credit losses

Management actively monitors the Company's asset quality and provides specific
loss provisions when necessary. Provisions for credit losses are charged to
income to bring the total allowance for credit losses on loans and off-balance
sheet credit exposures to a level deemed appropriate by management of the
Company based on such factors as historical lifetime credit loss experience, the
amount of nonperforming loans and related collateral, the volume growth and
composition of the loan portfolio, current economic conditions and reasonable
and supportable forecasted economic conditions that may affect the borrower's
ability to pay and the value of collateral, the evaluation of the loan portfolio
through the internal loan review process and other relevant factors.

Loans are charged off against the allowance for credit losses when appropriate.
Although management believes it uses the best information available to make
determinations with respect to the provision for credit losses, future
adjustments may be necessary if economic conditions differ from the assumptions
used in making the initial determinations.

The Company had no provision for credit losses for the quarters ended March 31, 2022 and 2021.

Net charge-offs were $1.2 million for the quarter ended March 31, 2022 compared
with net charge-offs of $8.9 million for the quarter ended March 31, 2021. Net
charge-offs for the three months ended March 31, 2022 did not include any
purchased credit deteriorated ("PCD") loans and $553 thousand of specific
reserves on resolved PCD loans was released to the general reserve.

Non-interest income

The Company's primary sources of recurring noninterest income are credit, debit
and ATM card income, nonsufficient funds ("NSF") fees and service charges on
deposit accounts. Additionally, the Company generates recurring noninterest
income from its various additional products and services, including trust
services, mortgage lending, brokerage and independent sales organization
sponsorship operations. Noninterest income does not include loan origination
fees, which are recognized over the life of the related loan as an adjustment to
yield using the interest method.

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Noninterest income totaled $35.1 million for the three months ended March 31,
2022 compared with $34.0 million for the same period in 2021, an increase of
$1.1 million or 3.3%. This change was primarily due to increases in NSF fees and
other noninterest income and a net gain on the sale of assets, partially offset
by a decrease in mortgage income.

The following table presents, for the periods indicated, the major categories of
noninterest income:

                                                     Three Months Ended March 31,
                                                       2022                 2021
                                                        (Dollars in thousands)
Nonsufficient funds (NSF) fees                    $        8,124       $    

6,687

Credit card, debit card and ATM card income                8,179            

8,031

Service charges on deposit accounts                        6,211                5,978
Trust income                                               2,703                2,837
Mortgage income                                              455                3,307
Brokerage income                                             892                  711
Bank owned life insurance income                           1,283            

1,292

Net gain (loss) on sale or write down of assets              689                  (79 )
Other                                                      6,586                5,244
Total noninterest income                          $       35,122       $       34,008



Noninterest Expense

Noninterest expense totaled $119.9 million for the quarter ended March 31, 2022
compared with $119.1 million for the quarter ended March 31, 2021, an increase
of $774 thousand or 0.7%.

The following table presents, for the periods indicated, the major categories of
noninterest expense:

                                                            Three Months Ended March 31,
                                                              2022                 2021
                                                               (Dollars in thousands)
Salaries and employee benefits (1)                       $       79,411       $       80,037
Non-staff expenses:
Net occupancy and equipment                                       7,848                7,833

Amortization of credit and debit cards, IT and software

                                                      8,849                8,233
Regulatory assessments and FDIC insurance                         2,850                2,670
Core deposit intangibles amortization                             2,620                2,931
Depreciation                                                      4,547                4,540
Communications (2)                                                2,919                2,899
Net other real estate income (3)                                   (407 )               (643 )
Other                                                            11,213               10,576
Total noninterest expense                                $      119,850       $      119,076



(1) Includes stock-based compensation expense of $2.9 million and $3.4 million

for the three months ended March 31, 2022 and 2021, respectively.

(2) Communications costs include telephone, data circuits, postage and couriers

expenses.

(3) Other net property income includes rental charges, rental income

and gains and losses on sales of real estate.

Income taxes

The amount of federal and state income tax expense is influenced by the amount
of pre-tax income, the amount of tax-exempt income and the amount of other
nondeductible expenses. Income tax expense totaled $32.9 million for the three
months ended March 31, 2022 compared with $36.2 million for the same period in
2021, a decrease of $3.3 million or 9.2%. The Company's effective tax rate for
the three months ended March 31, 2022 and 2021 was 21.2% and 21.4%,
respectively.

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FINANCIAL CONDITION

Loan Portfolio

The Company separates its loan portfolio into two general categories of loans:
(1) "originated loans," which are loans originated by Prosperity Bank and made
pursuant to the Company's loan policy and procedures in effect at the time the
loan was made, and (2) "acquired loans," which are loans acquired in a business
combination and preliminarily recorded at fair value at acquisition date. Those
acquired loans that are renewed or substantially modified after the date of the
business combination are referred to as "re-underwritten acquired loans." If a
renewal or substantial modification of an acquired loan is underwritten by the
Company with a new credit analysis, the loan may no longer be categorized as an
acquired loan. For example, acquired loans to one borrower may be combined into
a new loan with a new loan number and categorized as an originated loan.
Acquired loans with a fair value discount or premium at the date of the business
combination that remained at the reporting date are referred to as "fair-valued
acquired loans." All fair-valued acquired loans are further categorized into
purchased credit-deteriorated loans ("PCD loans") and "Non-PCD loans." Acquired
loans with evidence of credit quality deterioration as of the acquisition date
when compared to the origination date are classified as PCD loans.

The following tables summarize the Company’s issued and acquired loan portfolios, broken down into loans issued, acquired loans re-secured, non-LCD loans and PCD loans, as of the dates indicated.

                                                                             March 31, 2022
                                                                                Acquired Loans
                                                             Re-Underwritten
                                      Originated Loans        Acquired Loans        Non-PCD Loans       PCD Loans      Total Loans
                                                                         (Dollars in thousands)
Residential mortgage loans held
for sale                             $            2,810     $                -     $             -     $         -     $      2,810
Commercial and industrial                     1,526,790                799,954             196,029          17,217        2,539,990
Warehouse purchase program                    1,344,541                      -                   -               -        1,344,541
Real estate:
Construction, land development and
other land loans                              2,197,487                122,061               8,042             247        2,327,837
1-4 family residential (includes
home equity)                                  4,769,045                273,456             795,280             159        5,837,940
Commercial real estate (includes
multi-family residential)                     3,834,752                431,720             835,574          48,509        5,150,555
Farmland                                        415,561                  8,441              16,308           1,136          441,446
Agriculture                                     143,153                 32,727                  92               -          175,972
Consumer and other                              213,639                 17,670              13,717           1,407          246,433
Total loans held for investment              14,444,968              1,686,029           1,865,042          68,675       18,064,714
Total                                $       14,447,778     $        1,686,029     $     1,865,042     $    68,675     $ 18,067,524



                                                                                December 31, 2021
                                                                                   Acquired Loans
                                                                Re-Underwritten
                                         Originated Loans        Acquired Loans        Non-PCD Loans       PCD Loans         Total Loans
                                                                              (Dollars in thousands)
Residential mortgage loans held for
sale                                    $            7,274     $                -     $             -     $         -     $            7,274
Commercial and industrial                        1,658,807                763,745             263,461          25,807              2,711,820
Warehouse purchase program                       1,775,699                      -                   -               -              1,775,699
Real estate:
Construction, land development and
other land loans                                 2,163,895                126,886               8,661             273              2,299,715
1-4 family residential (includes home
equity)                                          4,524,726                287,451             849,084             173              5,661,434
Commercial real estate (includes
multi-family residential)                        3,807,192                465,588             928,336          50,252              5,251,368
Farmland                                           411,818                  9,176              20,190           1,159                442,343
Agriculture                                        145,516                 32,363                 116               -                177,995
Consumer and other                                 251,441                 19,600              16,048           1,407                288,496
Total loans held for investment                 14,739,094              1,704,809           2,085,896          79,071             18,608,870
Total                                   $       14,746,368     $        1,704,809     $     2,085,896     $    79,071     $       18,616,144


                                       37
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At March 31, 2022, total loans were $18.07 billion, a decrease of $548.6 million
or 2.9%, compared with $18.62 billion at December 31, 2021. Loans at March 31,
2022 included $2.8 million of loans held for sale and $1.34 billion of Warehouse
Purchase Program loans compared with $7.3 million of loans held for sale and
$1.78 billion of Warehouse Purchase Program loans at December 31, 2021. At
March 31, 2022, loans represented 47.2% of total assets compared with 49.2% of
total assets at December 31, 2021.

The loan portfolio consists of different types of loans classified by major types as follows:

(i) Commercial and Industrial Loans. In nearly all cases, the Company's
commercial loans are made in the Company's market areas and are underwritten on
the basis of the borrower's ability to service the debt from income. Working
capital loans are primarily collateralized by short-term assets whereas term
loans are primarily collateralized by long-term assets. As a general practice,
term loans are secured by any available real estate, equipment or other assets
owned by the borrower. Both working capital and term loans are typically
supported by a personal guaranty of a principal. In general, commercial loans
involve more credit risk than residential mortgage loans and commercial mortgage
loans and, therefore, usually yield a higher return. The increased risk in
commercial loans is due to the type of collateral securing these loans as well
as the expectation that commercial loans generally will be serviced principally
from the operations of the business, and those operations may not be successful.
Historical trends have shown these types of loans to have higher delinquencies
than mortgage loans. As a result of these additional complexities, variables and
risks, commercial loans require more thorough underwriting and servicing than
other types of loans.

Included in commercial and industrial loans are (1) commitments to oil and gas
producers largely secured by proven, developed and producing reserves and (2)
commitments to service, equipment and midstream companies secured mainly by
accounts receivable, inventory and equipment. Mineral reserve values supporting
commitments to producers are normally re-determined semi-annually using reserve
studies prepared by a third-party or the Company's oil and gas engineer.
Accounts receivable and inventory borrowing bases for service companies are
typically re-determined monthly. Funding requests by both producers and service
companies are monitored relative to the most recently determined borrowing
base. As of March 31, 2022, oil and gas loans totaled $445.9 million (net of
discount and excluding PPP loans totaling $17.0 million) or 2.5% of total loans,
compared with total oil and gas loans of $491.3 million (net of discount and
excluding PPP loans totaling $27.9 million) or 2.6% of total loans as of
December 31, 2021. In addition, as of March 31, 2022, the Company had total
unfunded commitments to oil and gas companies of $417.0 million compared with
total unfunded commitments to oil and gas companies of $419.0 million as of
December 31, 2021. Total unfunded commitments to producers include letters of
credit issued in lieu of oil well plugging bonds.

(ii) Commercial Real Estate. The Company makes commercial real estate loans
collateralized by owner-occupied and nonowner-occupied real estate to finance
the purchase of real estate. The Company's commercial real estate loans are
collateralized by first liens on real estate, typically have variable interest
rates (or five year or less fixed rates) and amortize over a 15- to 25-year
period. Payments on loans secured by nonowner-occupied properties are often
dependent on the successful operation or management of the properties.
Accordingly, repayment of these loans may be subject to adverse conditions in
the real estate market or the economy to a greater extent than other types of
loans. The Company seeks to minimize these risks in a variety of ways, including
giving careful consideration to the property's operating history, future
operating projections, current and projected occupancy, location and physical
condition, in connection with underwriting these loans. The underwriting
analysis also includes credit verification, analysis of global cash flow,
appraisals and a review of the financial condition of the borrower and
guarantor. Loans to hotels and restaurants are included in commercial real
estate loans. As of March 31, 2022, loans to hotels totaled $392.0 million
(excluding PPP loans totaling $512 thousand) or 2.2% of total loans, compared to
$386.4 million (excluding PPP loans totaling $920 thousand) or 2.1% of total
loans at December 31, 2021. As of March 31, 2022, loans to restaurants totaled
$193.2 million (excluding PPP loans totaling $12.3 million) or 1.1% of total
loans, compared to $201.7 million (excluding PPP loans totaling $29.3 million)
or 1.1% of total loans at December 31, 2021.

(iii) 1-4 Family Residential Loans. The Company's lending activities also
include the origination of 1-4 family residential mortgage loans (including home
equity loans) collateralized by owner-occupied and nonowner-occupied residential
properties located in the Company's market areas. The Company offers a variety
of mortgage loan portfolio products which generally are amortized over five to
30 years. Loans collateralized by 1-4 family residential real estate generally
have been originated in amounts of no more than 89% of appraised value. The
Company requires mortgage title insurance, as well as hazard, wind and/or flood
insurance as appropriate. The Company prefers to retain residential mortgage
loans for its own account rather than selling them into the secondary market. By
doing so, the Company incurs interest rate risk as well as the risks associated
with non-payments on such loans. The Company's mortgage department also offers a
variety of mortgage loan products which are generally amortized over 30 years,
including FHA and VA loans, which are sold to secondary market investors.

(iv) Construction, Land Development and Other Land Loans. The Company makes
loans to finance the construction of residential and nonresidential properties.
Construction loans generally are collateralized by first liens on real estate
and have variable interest rates. The Company conducts periodic inspections,
either directly or through an agent, prior to approval of periodic draws on

                                       38
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these loans. Underwriting guidelines similar to those described above are also
used in the Company's construction lending activities, with heightened analysis
of construction and/or development costs. Construction loans involve additional
risks attributable to the fact that loan funds are advanced upon the security of
a project under construction, and the project is of uncertain value prior to its
completion. Because of uncertainties inherent in estimating construction costs,
the market value of the completed project and the effects of governmental
regulation on real property, it can be difficult to accurately evaluate the
total funds required to complete a project and the related loan to value ratio.
As a result of these uncertainties, construction lending often involves the
disbursement of substantial funds with repayment dependent, in part, on the
success of the ultimate project rather than the ability of a borrower or
guarantor to repay the loan. If the Company is forced to foreclose on a project
prior to completion, the Company may not be able to recover all of the unpaid
portion of the loan. In addition, the Company may be required to fund additional
amounts to complete a project and may have to hold the property for an
indeterminate period of time. Although the Company has underwriting procedures
designed to identify what it believes to be acceptable levels of risks in
construction lending, these procedures may not prevent losses from the risks
described above.

(v) Warehouse Purchase Program. The Warehouse Purchase Program allows
unaffiliated mortgage originators ("Clients") to close 1-4 family real estate
loans in their own name and manage their cash flow needs until the loans are
sold to investors. The Company's Clients are strategically targeted for their
experienced management teams and analyzed for the expected profitability of each
Client's business model over the long term. The Clients are located across the
U.S. and originate mortgage loans primarily through traditional retail and/or
wholesale business models using underwriting standards as required by United
States government-sponsored enterprise agencies, "Agencies" such as Fannie Mae,
private investors to which the mortgage loans are ultimately sold and/or
mortgage insurers.

Although not subject to any legally binding commitment, when the Company makes a
purchase decision, it acquires a 100% participation interest in the mortgage
loans originated by its Clients. Individual mortgage loans are warehoused in the
Company's portfolio only for a short duration, averaging less than 30 days. When
instructed by a Client that a warehoused loan has been sold to an investor, the
Company delivers the note to the investor that pays the Company, which in turn
remits the net sales proceeds to the Client.

(vi) Agriculture Loans. The Company provides agriculture loans for short-term
livestock and crop production, including rice, cotton, milo and corn, farm
equipment financing and agriculture real estate financing. The Company evaluates
agriculture borrowers primarily based on their historical profitability, level
of experience in their particular industry segment, overall financial capacity
and the availability of secondary collateral to withstand economic and natural
variations common to the industry. Because agriculture loans present a higher
level of risk associated with events caused by nature, the Company routinely
makes on-site visits and inspections in order to identify and monitor such
risks.

(vii) Consumer Loans. Consumer loans made by the Company include direct
"A"-credit automobile loans, recreational vehicle loans, boat loans, home
improvement loans, personal loans (collateralized and uncollateralized) and
deposit account collateralized loans. The terms of these loans typically range
from 12 to 180 months and vary based upon the nature of collateral and size of
loan. Generally, consumer loans entail greater risk than do real estate secured
loans, particularly in the case of consumer loans that are unsecured or
collateralized by rapidly depreciating assets such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment for the outstanding loan balance. The remaining
deficiency often does not warrant further substantial collection efforts against
the borrower beyond obtaining a deficiency judgment. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness,
personal bankruptcy or death. Furthermore, the application of various federal
and state laws may limit the amount which can be recovered on such loans.

The Company maintains an independent loan review department that reviews and
validates the credit risk program on a periodic basis. Results of these reviews
are presented to management. The loan review process complements and reinforces
the risk identification and assessment decisions made by lenders and credit
personnel, as well as the Company's policies and procedures.

Non-performing assets

Nonperforming assets include loans on nonaccrual status, accruing loans 90 days
or more past due, repossessed assets and real estate which has been acquired
through foreclosure and is awaiting disposition. Nonperforming assets do not
include PCD loans unless the loan has deteriorated since the acquisition date.
PCD loans are reported as nonperforming assets when a deterioration in projected
cash flows is identified.

The Company generally places a loan on nonaccrual status and ceases accruing
interest when the payment of principal or interest is delinquent for 90 days, or
earlier in some cases, unless the loan is in the process of collection and the
underlying collateral

                                       39
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fully supports the carrying value of the loan. A loan may be returned to accrual
status when all the principal and interest amounts contractually due are brought
current and future principal and interest amounts contractually due are
reasonably assured, which is typically evidenced by a sustained period (at least
six months) of repayment performance by the borrower.

Non-performing assets decreased $904,000i.e. 3.2%, to $27.2 million to
March 31, 2022 compared to $28.1 million to December 31, 2021whose $9.7 million and $7.1 millionrespectively, were attributable to the acquired loans.

The following tables present information on non-performing assets differentiated between originated loans, re-guaranteed acquired loans, non-PCD loans and PCD loans, at the dates indicated:

                                                                             March 31, 2022
                                                                                  Acquired Loans
                                                                Re-Underwritten
                                        Originated Loans        Acquired Loans         Non-PCD Loans       PCD Loans       Total
                                                                         (Dollars in thousands)
Nonaccrual loans (1)(2)                $           14,535     $             1,099     $         5,963     $       168     $ 21,765
Accruing loans 90 or more days past
due                                                 1,195                   2,500                   -               -        3,695
Total nonperforming loans                          15,730                   3,599               5,963             168       25,460
Repossessed assets                                     19                       -                   -               -           19
Other real estate                                   1,705                       -                   -               -        1,705
Total nonperforming assets             $           17,454     $             3,599     $         5,963     $       168     $ 27,184

Nonperforming assets to total loans
and other real estate by category                    0.12 %                  0.21 %              0.32 %          0.24 %       0.15 %
Nonperforming assets to total loans,
excluding Warehouse Purchase Program
loans, and other real estate by
category                                             0.13 %                  0.21 %              0.32 %          0.24 %       0.16 %
Nonaccrual loans to total loans                      0.10 %                  0.07 %              0.32 %          0.24 %       0.12 %
Nonaccrual loans to total loans,
excluding Warehouse Purchase Program
loans                                                0.11 %                  0.07 %              0.32 %          0.24 %       0.13 %



                                                                           December 31, 2021
                                                                                 Acquired Loans
                                                               Re-Underwritten
                                       Originated Loans        Acquired

Loans Non PCD Loans PCD Loans Total

                                                                        (Dollars in thousands)
Nonaccrual loans (1)(2)               $           19,712     $               630     $         5,759     $       168     $ 26,269
Accruing loans 90 or more days past
due                                                  770                     117                   -               -          887
Total nonperforming loans                         20,482                     747               5,759             168       27,156
Repossessed assets                                   310                       -                   -               -          310
Other real estate                                    223                       -                 399               -          622
Total nonperforming assets            $           21,015     $               747     $         6,158     $       168     $ 28,088

Nonperforming assets to total loans
and other real estate by category                   0.14 %                  0.04 %              0.30 %          0.21 %       0.15 %
Nonperforming assets to total
loans, excluding Warehouse Purchase
Program loans, and other real
estate by category                                  0.16 %                  0.04 %              0.30 %          0.21 %       0.17 %
Nonaccrual loans to total loans                     0.13 %                  0.04 %              0.28 %          0.21 %       0.14 %
Nonaccrual loans to total loans,
excluding Warehouse Purchase
Program loans                                       0.15 %                  0.04 %              0.28 %          0.21 %       0.16 %


(1) Includes distressed debt restructurings $1.1 million and $4.2 million from

March 31, 2022 and December 31, 2021respectively.

(2) There was no restructuring of Warehouse’s non-performing or distressed debt

Purchase program loans or warehouse purchase program lines of credit for the

periods presented.

Non-performing assets represented 0.15% of total loans and other real estate in
March 31, 2022 and December 31, 2021. Provision for credit losses as a percentage of total non-performing loans was 1,120.0% at March 31, 2022 and 1054.6% at December 31, 2021.

                                       40
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Allowance for credit losses on loans

The allowance for credit losses is adjusted through charges to earnings in the
form of a provision for credit losses. Management has established an allowance
for credit losses on loans which it believes is adequate as of March 31, 2022
for estimated losses in the Company's loan portfolio. The amount of the
allowance for credit losses on loans is affected by the following: (1)
charge-offs of loans that occur when loans are deemed uncollectible and decrease
the allowance, (2) recoveries on loans previously charged off that increase the
allowance, (3) provisions for credit losses charged to earnings that increase
the allowance, and (4) provision releases returned to earnings that decrease the
allowance. Based on an evaluation of the loan portfolio and consideration of the
factors listed below, management presents a quarterly review of the allowance
for credit losses to the Bank's Board of Directors, indicating any change in the
allowance since the last review and any recommendations as to adjustments in the
allowance. Although management believes it uses the best information available
to make determinations with respect to the allowance for credit losses, future
adjustments may be necessary if economic conditions or the borrower's
performance differ from the assumptions used in making the initial
determinations.

The Company's allowance for credit losses consists of two components: (1) a
specific valuation allowance based on expected lifetime losses on specifically
identified loans and (2) a general valuation allowance based on historical
lifetime loan loss experience, current economic conditions, reasonable and
supportable forecasted economic conditions and other qualitative risk factors
both internal and external to the Company.

In setting the specific valuation allowance, the Company follows a loan review
program to evaluate the credit risk in the total loan portfolio and assigns risk
grades to each loan. Through this loan review process, the Company maintains an
internal list of impaired loans which, along with the delinquency list of loans,
helps management assess the overall quality of the loan portfolio and the
adequacy of the allowance for credit losses. All loans that have been identified
as impaired are reviewed on a quarterly basis in order to determine whether a
specific reserve is required. For certain impaired loans, the Company allocates
a specific loan loss reserve primarily based on the value of the collateral
securing the impaired loan. The specific reserves are determined on an
individual loan basis. Loans for which specific reserves are provided are
excluded from the general valuation allowance described below.

In determining the amount of the general valuation allowance, management
considers factors such as historical lifetime loan loss experience,
concentration risk of specific loan types, the volume, growth and composition of
the Company's loan portfolio, current economic conditions and reasonable and
supportable forecasted economic conditions that may affect the borrower's
ability to pay and the value of collateral, the evaluation of the Company's loan
portfolio through its internal loan review process, other qualitative risk
factors both internal and external to the Company and other relevant factors.
Historical lifetime loan loss experience is determined by utilizing an open-pool
("cumulative loss rate") methodology. Adjustments to the historical lifetime
loan loss experience are made for differences in current loan pool risk
characteristics such as portfolio concentrations, delinquency, non-accrual, and
watch list levels, as well as changes in current and forecasted economic
conditions such as unemployment rates, property and collateral values, and other
indices relating to economic activity. The utilization of reasonable and
supportable forecasts includes an immediate reversion to lifetime historical
loss rates. Based on a review of these factors for each loan type, the Company
applies an estimated percentage to the outstanding balance of each loan type,
excluding any loan that has a specific reserve. Allocation of a portion of the
allowance to one category of loans does not preclude its availability to absorb
losses in other categories.

A change in the allowance for credit losses may be attributable to several factors, including (1) specific reserves identified for impaired loans, (2) historical information on lifetime credit losses, (3) changes in current and expected environmental factors; and (4) loan balance growth.

Changes in the Company's asset quality are reflected in the allowance in several
ways. Specific reserves that are calculated on a loan-by-loan basis and the
qualitative assessment of all other loans reflect current changes in the credit
quality of the loan portfolio. Historical lifetime credit losses, on the other
hand, are based on an open-pool ("cumulative loss rate") methodology, which is
then applied to estimate lifetime credit losses in the loan portfolio. A
deterioration in the credit quality of the loan portfolio in the current period
would increase the historical lifetime loss rate to be applied in future
periods, just as an improvement in credit quality would decrease the historical
lifetime loss rate.

                                       41
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The allowance for credit losses is further determined by the size of the loan
portfolio subject to the allowance methodology and environmental factors that
include Company-specific risk indicators and general economic conditions, both
of which are constantly changing. The Company evaluates the economic and
portfolio-specific factors on a quarterly basis to determine a qualitative
component of the general valuation allowance. The factors include current
economic metrics, reasonable and supportable forecasted economic metrics,
business conditions, delinquency trends, credit concentrations, nature and
volume of the portfolio and other adjustments for items not covered by specific
reserves and historical lifetime loss experience. Management's assessment of
qualitative factors is a statistically based approach to determine the loss rate
adjustment associated with such factors. Based on the Company's actual
historical lifetime loan loss experience relative to economic and loan
portfolio-specific factors at the time the losses occurred, management is able
to identify the expected level of lifetime losses as of the date of measurement.
The correlation of historical loss experience with current and forecasted
economic conditions provides an estimate of lifetime losses that has not been
previously factored into the general valuation allowance by the determination of
specific reserves and lifetime historical losses. Additionally, the Company
considers qualitative factors not easily quantified and the possibility of model
imprecision.

Utilizing the aggregation of specific reserves, historical loss experience and a
qualitative component, management is able to determine the valuation allowance
to reflect the full lifetime loss.

The Company accounts for its acquisitions using the acquisition method of
accounting. Accordingly, the assets, including loans, and liabilities of the
acquired entity are recorded at their fair values at the acquisition date. These
fair value estimates associated with acquired loans, and based on a discounted
cash flow model, include estimates related to market interest rates and
undiscounted projections of future cash flows that incorporate expectations of
prepayments and the amount and timing of principal, interest and other cash
flows, as well as any shortfalls thereof.

Non-PCD loans that were not deemed impaired subsequent to the acquisition date
are considered non-impaired and are evaluated as part of the general valuation
allowance.

Non-PCD loans that have deteriorated to an impaired status subsequent to
acquisition are evaluated for a specific reserve on a quarterly basis which,
when identified, is added to the allowance for credit losses. The Company
reviews impaired Non-PCD loans on a loan-by-loan basis and determines the
specific reserve based on the difference between the recorded investment in the
loan and one of three factors: expected future cash flows, observable market
price or fair value of the collateral. Because essentially all of the Company's
impaired Non-PCD loans have been collateral-dependent, the amount of the
specific reserve historically has been determined by comparing the fair value of
the collateral securing the Non-PCD loan with the recorded investment in such
loan. In the future, the Company will continue to analyze impaired Non-PCD loans
on a loan-by-loan basis and may use an alternative measurement method to
determine the specific reserve, as appropriate and in accordance with applicable
accounting standards.

PCD loans are individually monitored on a quarterly basis to assess for changes
in expected cash flows subsequent to acquisition. If a deterioration in cash
flows is identified, an increase to the specific reserve for that loan is made.
PCD loans were recorded at their acquisition date fair values, which were based
on expected cash flows and considers estimates of expected future credit losses.
The Company's estimates of loan fair values at the acquisition date may be
adjusted for a period of up to one year as the Company continues to evaluate its
estimate of expected future cash flows at the acquisition date. If the Company
determines that losses arose after the acquisition date, the additional losses
will be reflected as a provision for credit losses. See "Critical Accounting
Policies" above for more information.

As described in the section captioned "Critical Accounting Policies" above, the
Company's determination of the allowance for credit losses involves a high
degree of judgment and complexity. The Company's analysis of qualitative, or
environmental, factors on pools of loans with common risk characteristics, in
combination with the quantitative historical lifetime loss information and
specific reserves, provides the Company with an estimate of lifetime losses. The
allowance must reflect changes in the balance of loans subject to the allowance
methodology, as well as the estimated lifetime losses associated with those
loans. The allowance for credit losses on loans as of March 31, 2022 totaled
$285.2 million or 1.58% of total loans, including acquired loans with discounts,
a decrease of $1.2 million or 0.4% compared to the allowance for credit losses
on loans totaling $286.4 million or 1.54% of total loans, including acquired
loans with discounts, as of December 31, 2021. For further discussion on the
provision for credit losses, see "Results of Operations-Provision for Credit
Losses" above.

                                       42
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The following tables present, as of and for the periods indicated, information
regarding the allowance for credit losses on loans differentiated between
originated loans and acquired loans. Reported net charge-offs may include those
from Non-PCD loans and PCD loans, but only if the total charge-off required is
greater than the remaining discount.

                                                    As of and for the Three 

Months ended March 31, 2022

                                                Originated Loans         Acquired Loans            Total
                                                                   (Dollars in thousands)
Average loans outstanding                       $      13,356,719       $      4,629,297        $ 17,986,016
Gross loans outstanding at end of period        $      14,447,778       $      3,619,746        $ 18,067,524
Allowance for credit losses on loans at
beginning of period                             $         186,736       $         99,644        $    286,380
Provision for credit losses                                 3,984                 (3,984 )                 -

Dump :

Commercial and industrial                                    (453 )                  (19 )              (472 )
Real estate and agriculture                                  (686 )                  (43 )              (729 )
Consumer and other                                         (1,337 )                  (70 )            (1,407 )
Recoveries:
Commercial and industrial                                     370                     88                 458
Real estate and agriculture                                   278                    403                 681
Consumer and other                                            230                     22                 252
Net charge-offs(1)                                         (1,598 )                  381              (1,217 )
Allowance for credit losses on loans at end
of period                                       $         189,122       $         96,041        $    285,163
Ratio of allowance to end of period loans                    1.31 %                 2.65 %              1.58 %
Ratio of allowance to end of period loans,
excluding Warehouse Purchase Program                         1.44 %                 2.65 %              1.71 %
Ratio of net charge-offs to average loans
(annualized)                                                 0.05 %                (0.03 %)             0.03 %
Ratio of allowance to end of period
nonperforming loans                                        1202.3 %                987.1 %            1120.0 %
Ratio of allowance to end of period
nonaccrual loans                                           1301.1 %               1328.4 %            1310.2 %



                                                    As of and for the Three Months Ended March 31, 2021
                                                 Originated Loans         Acquired Loans           Total
                                                                   (Dollars in thousands)
Average loans outstanding                       $       13,966,961       $      5,715,033       $ 19,681,994
Gross loans outstanding at end of period        $       14,250,069       $      5,388,817       $ 19,638,886
Allowance for credit losses on loans at
beginning of period                             $          150,630       $        165,438       $    316,068
Provision for credit losses                                 10,946                (10,946 )                -

Dump :

Commercial and industrial                                   (1,153 )                 (601 )           (1,754 )
Real estate and agriculture                                    (92 )               (6,589 )           (6,681 )
Consumer and other                                            (754 )                 (181 )             (935 )

Recoveries:

Commercial and industrial                                      134                     36                170
Real estate and agriculture                                     17                      -                 17
Consumer and other                                             312                     13                325
Net charge-offs (1)                                         (1,536 )               (7,322 )           (8,858 )
Allowance for credit losses on loans at end
of period                                       $          160,040       $        147,170       $    307,210
Ratio of allowance to end of period loans                     1.12 %                 2.73 %             1.56 %
Ratio of allowance to end of period loans,
excluding Warehouse Purchase Program                          1.34 %                 2.73 %             1.77 %
Ratio of net charge-offs to average loans
(annualized)                                                  0.04 %                 0.51 %             0.18 %
Ratio of allowance to end of period
nonperforming loans                                          544.7 %               1054.5 %            708.9 %
Ratio of allowance to end of period
nonaccrual loans                                             546.2 %               1072.4 %            714.0 %


(1) There was no net write-off activity on warehouse purchase program loans

during the periods shown.


The Company had gross charge-offs on originated loans of $2.5 million during the
three months ended March 31, 2022. Partially offsetting these charge-offs were
recoveries on originated loans of $878 thousand. Gross charge-offs on acquired
loans were $132 thousand during the three months ended March 31, 2022. Partially
offsetting these charge-offs were recoveries on acquired loans

                                       43
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of $513,000. Total charges for the three months ended March 31, 2022
have been $2.6 millionpartially offset by total recoveries of $1.4 million.

The following table shows the distribution of net write-offs between the different categories of loans on the dates indicated.

                                                   March 31, 2022                      March 31, 2021
                                                           Ratio of Net                        Ratio of Net
                                                          Charge-offs to                      Charge-offs to
                                                              Total                               Total
                                                          Average Loans                       Average Loans
                                            Amount         (Annualized)         Amount         (Annualized)
                                                                 (Dollars in thousands)
Balance of net (charge-offs) recoveries
applicable to:
Commercial and industrial                  $     (14 )               0.00 %    $  (1,584 )               0.03 %
Real estate:
Construction, land development and other
land loans                                      (430 )               0.01 %            5                 0.00 %
1-4 family residential (including home
equity)                                          (87 )               0.00 %          (47 )               0.00 %
Commercial real estate (including
multi-family residential)                        366                (0.01 %)      (6,589 )               0.14 %
Agriculture (includes farmland)                  103                 0.00 %          (33 )               0.00 %
Consumer and other                            (1,155 )               0.03 %         (610 )               0.01 %
Total net charge-offs                      $  (1,217 )               0.03 %    $  (8,858 )               0.18 %


The following tables show the allocation of the allowance for credit losses on
loans among various categories of loans disaggregated between originated loans,
re-underwritten acquired loans, Non-PCD loans and PCD loans at the dates
indicated. The allocation is made for analytical purposes and is not necessarily
indicative of the categories in which future losses may occur. The total
allowance is available to absorb losses from any loan category, regardless of
whether allocated to an originated loan or an acquired loan.

                                                                                             March 31, 2022
                                                                                    Acquired Loans
                                                                  Re-Underwritten                                             Total        Percent of Loans to
                                          Originated Loans        Acquired Loans         Non-PCD Loans       PCD Loans      Allowance        Total Loans(1)
                                                                                         (Dollars in thousands)
Balance of allowance for credit losses
on loans applicable to:
Commercial and industrial                 $          29,991     $            31,403     $         8,169     $     6,740     $   76,303                    15.2 %
Real estate                                         148,009                  11,164              18,733          16,572        194,478                    79.6 %
Agriculture and agriculture real estate               6,810                     940                 141              12          7,903                     3.7 %
Consumer and other                                    4,312                     417                 343           1,407          6,479                     1.5 %
Total allowance for credit losses on
loans                                     $         189,122     $            43,924     $        27,386     $    24,731     $  285,163                   100.0 %



                                                                                           December 31, 2021
                                                                                    Acquired Loans
                                                                  Re-Underwritten                                             Total        Percent of Loans to
                                          Originated Loans        Acquired Loans         Non-PCD Loans       PCD Loans      Allowance        Total Loans(1)
                                                                                         (Dollars in thousands)
Balance of allowance for credit losses
on loans applicable to:
Commercial and industrial                 $          32,977     $            29,525     $        10,944     $     6,966     $   80,412                    16.1 %
Real estate                                         141,801                  11,630              20,282          16,899        190,612                    78.5 %
Agriculture and agriculture real estate               6,636                     943                 168              12          7,759                     3.7 %
Consumer and other                                    5,322                     471                 397           1,407          7,597                     1.7 %
Total allowance for credit losses on
loans                                     $         186,736     $            42,569     $        31,791     $    25,284     $  286,380                   100.0 %


(1) Outstanding loans as a percentage of total loans, excluding Warehouse

Purchase program loans.

                                       44
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The allowance for credit losses totaled $285.2 million at March 31, 2022 and
$286.4 million at December 31, 2021. The allowance for credit losses totaled
1.58% of total loans at March 31, 2022 and 1.54% of total loans at December 31,
2021.

At March 31, 2022, $189.1 million of the allowance for credit losses was
attributable to originated loans, an increase of $2.4 million or 1.3% compared
with $186.7 million of the allowance at December 31, 2021. At March 31, 2022,
$43.9 million of the allowance for credit losses was attributable to
re-underwritten acquired loans compared with $42.6 million of the allowance at
December 31, 2021, an increase of $1.4 million or 3.2%. At March 31, 2022, $27.4
million of the allowance for credit losses was attributable to Non-PCD loans
compared with $31.8 million of the allowance at December 31, 2021, a decrease of
$4.4 million or 13.9%. At March 31, 2022, $24.7 million of the allowance for
credit losses was attributable to PCD loans compared with $25.3 million of the
allowance at December 31, 2021, a decrease of $553 thousand or 2.2%.

To March 31, 2022the company had $7.8 million the total outstanding reconstitutable discounts on non-PCD loans and PCD loans.

The Company believes that the allowance for credit losses on loans at March 31,
2022 is adequate to absorb expected lifetime losses that may be realized from
the loan portfolio as of such date. Nevertheless, the Company could sustain
losses in future periods which could be substantial in relation to the size of
the allowance at March 31, 2022.

Allowance for credit losses on off-balance sheet credit positions

The allowance for credit losses on off-balance sheet credit exposures estimates
expected credit losses over the contractual period in which there is exposure to
credit risk via a contractual obligation to extend credit, except when an
obligation is unconditionally cancellable by the Company. The allowance is
adjusted by provisions for credit losses charged to earnings that increase the
allowance, or by provision releases returned to earnings that decrease the
allowance. The estimate includes consideration of the likelihood that funding
will occur and an estimate of expected credit losses on the commitments expected
to fund. The estimate of commitments expected to fund is affected by historical
analysis of utilization rates. The expected credit loss rates applied to the
commitments expected to fund are affected by the general valuation allowance
utilized for outstanding balances with the same underlying assumptions and
drivers. As of March 31, 2022 and December 31, 2021, the Company had $29.9
million in allowance for credit losses on off-balance sheet credit exposures.
The allowance for credit losses on off-balance sheet credit exposures is a
separate line item on the Company's consolidated balance sheet.

Securities

The cost of carrying the securities amounts to $14.80 billion to March 31, 2022
compared to $12.82 billion to December 31, 2021an augmentation of $1.98 billion
or 15.4%. To March 31, 2022securities represented 38.7% of total assets compared to 33.9% of total assets at December 31, 2021.

The amortized cost and fair value of the marketable securities were as follows:

                                                                      March 31, 2022
                                                                    Gross             Gross
                                                                  Unrealized        Unrealized
                                            Amortized Cost          Gains             Losses         Fair Value
                                                                  (Dollars in thousands)
Available for Sale
Collateralized mortgage obligations        $        432,627     $        1,721     $        (26 )   $    434,322
Mortgage-backed securities                           26,650                453              (33 )         27,070
Total                                      $        459,277     $        2,174     $        (59 )   $    461,392
Held to Maturity
States and political subdivisions          $        124,379     $        3,022     $     (1,736 )   $    125,665
Corporate debt securities                            12,000                  -                -           12,000
Collateralized mortgage obligations                 231,661                  1           (3,801 )        227,861
Mortgage-backed securities                       13,968,695              9,315         (714,370 )     13,263,640
Total                                      $     14,336,735     $       12,338     $   (719,907 )   $ 13,629,166




                                       45
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                                                                     December 31, 2021
                                                                    Gross             Gross
                                                                 

Not done Not done

                                            Amortized Cost          Gains             Losses         Fair Value
                                                                  (Dollars in thousands)
Available for Sale
Collateralized mortgage obligations        $        483,761     $        1,942     $        (32 )   $    485,671
Mortgage-backed securities                           28,881                550             (170 )         29,261
Total                                      $        512,642     $        2,492     $       (202 )   $    514,932
Held to Maturity
States and political subdivisions          $        132,620     $        5,968     $       (114 )   $    138,474
Collateralized mortgage obligations                  39,675                483              (78 )         40,080
Mortgage-backed securities                       12,131,674             87,967         (146,982 )     12,072,659
Total                                      $     12,303,969     $       94,418     $   (147,174 )   $ 12,251,213


The investment securities portfolio is measured for expected credit losses by
segregating the portfolio into two general segments and applying the appropriate
expected credit losses methodology. Investment securities classified as
available for sale or held to maturity are evaluated for expected credit losses
under FASB ASC 326, "Financial Instruments - Credit Losses."

Available for sale securities. For available for sale securities in an
unrealized loss position, the amount of the expected credit losses recognized in
earnings depends on whether an entity intends to sell the security or more
likely than not will be required to sell the security before recovery of its
amortized cost basis less any current-period credit loss. If an entity intends
to sell or more likely than not will be required to sell the security before
recovery of its amortized cost basis less any current-period credit loss, the
expected credit losses will be recognized in earnings equal to the entire
difference between the investment's amortized cost basis and its fair value at
the balance sheet date. If an entity does not intend to sell the security and it
is not more likely than not that the entity will be required to sell the
security before recovery of its amortized cost basis less any current-period
loss, the expected credit losses will be separated into the amount representing
the credit-related portion of the impairment loss ("credit loss") and the
noncredit portion of the impairment loss ("noncredit portion"). The amount of
the total expected credit losses related to the credit loss is determined based
on the difference between the present value of cash flows expected to be
collected and the amortized cost basis, and such difference is recognized in
earnings. The amount of the total expected credit losses related to the
noncredit portion is recognized in other comprehensive income, net of applicable
taxes. The previous amortized cost basis less the expected credit losses
recognized in earnings will become the new amortized cost basis of the
investment.

As of March 31, 2022, management does not have the intent to sell any of the
securities classified as available for sale before a recovery of cost. In
addition, management believes it is more likely than not that the Company will
not be required to sell any of its investment securities before a recovery of
cost. The unrealized losses are largely due to changes in market interest rates
and spread relationships since the time the underlying securities were
purchased. The fair value is expected to recover as the securities approach
their maturity date or repricing date or if market yields for such investments
decline. Management does not believe any of the securities are impaired due to
reasons of credit quality. Accordingly, as of March 31, 2022, management
believes that there is no potential for credit losses on available for sale
securities.

Held to maturity securities. The Company's held to maturity investments include
mortgage-related bonds issued by either the Government National Mortgage
Corporation ("Ginnie Mae"), Federal National Mortgage Association ("Fannie Mae")
or Federal Home Loan Mortgage Corporation ("Freddie Mac").  Ginnie Mae issued
securities are explicitly guaranteed by the U.S. government, while Fannie Mae
and Freddie Mac issued securities are fully guaranteed by those respective
United States government-sponsored agencies, and conditionally guaranteed by the
full faith and credit of the United States.  The Company's held to maturity
securities also include taxable and tax-exempt municipal securities issued
primarily by school districts, utility districts and municipalities located in
Texas. The Company's investment in municipal securities is exposed to credit
risk. The securities are highly rated by major rating agencies and regularly
reviewed by management. A significant portion are guaranteed or insured by
either the Texas Permanent School Fund, Assured Guaranty or Build America
Mutual. As of March 31, 2022, the Company's municipal securities represent 0.8%
of the securities portfolio. Management has the ability and intent to hold the
securities classified as held to maturity until they mature, at which time the
Company will receive full value for the securities. Accordingly, as of March 31,
2022, management believes that there is no potential for material credit losses
on held to maturity securities.

                                       46
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Deposits

Total deposits were $31.07 billion at March 31, 2022 compared with $30.77
billion at December 31, 2021, an increase of $296.5 million or 1.0%. At
March 31, 2022, noninterest-bearing deposits totaled $10.78 billion, an increase
of $26.6 million or 0.2% compared with $10.75 billion at December 31, 2021.
Interest-bearing deposits totaled $20.29 billion at March 31, 2022 compared with
$20.02 billion at December 31, 2021, an increase of $269.9 million or 1.3%.

Average deposits for the three months ended March 31, 2022 were $30.92 billion,
an increase of $3.15 billion or 11.3%, compared with $27.77 billion for the
three months ended March 31, 2021. The ratio of average interest-bearing
deposits to total average deposits was 65.6% and 66.8% during the first three
months of 2022 and 2021, respectively.

The following table summarizes the daily average balances and the weighted average rates paid on deposits for the periods indicated below:

                                                                   Three Months Ended March 31,
                                                            2022                                   2021
                                                                     Average                                Average
                                              Average Balance        Rate (1)        Average Balance        Rate (1)
                                                                      (Dollars in thousands)
Interest-bearing demand deposits             $       6,775,114             0.15 %   $       6,112,469             0.39 %
Regular savings                                      3,445,108             0.11 %           2,939,970             0.11 %
Money market savings                                 7,425,353             0.17 %           6,480,094             0.31 %
Certificates, IRAs and other time deposits           2,637,529             0.35 %           3,031,621             0.76 %
Total interest-bearing deposits                     20,283,104             0.18 %          18,564,154             0.38 %
Noninterest-bearing demand deposits                 10,636,624                              9,206,791
Total deposits                               $      30,919,728             0.11 %   $      27,770,945             0.25 %


(1) Annualized and based on average balances on an actual 365-day basis for

three months completed March 31, 2022 and 2021.

Other loans

The following table presents the Company's borrowings as of the dates indicated:


                                                         March 31, 2022       December 31, 2021
                                                                 (Dollars in thousands)
Securities sold under repurchase agreements             $        440,891     $           448,099
Total                                                   $        440,891     $           448,099



FHLB advances and long-term notes payable- The Company has an available line of
credit with the FHLB of Dallas, which allows the Company to borrow on a
collateralized basis. The Company's FHLB advances are typically considered
short-term borrowings and are used to manage liquidity as needed. Maturing
advances are replaced by drawing on available cash, making additional borrowings
or through increased customer deposits. At March 31, 2022, the Company had total
funds of $14.26 billion available under this line. At March 31, 2022 and
December 31, 2021, the Company had no FHLB advances or long-term notes payable
balances.

Securities sold under repurchase agreements- At March 31, 2022, the Company had
$440.9 million in securities sold under repurchase agreements with banking
customers compared with $448.1 million at December 31, 2021, a decrease of $7.2
million or 1.6%. Repurchase agreements are generally settled on the following
business day; however, approximately $5.5 million of the repurchase agreements
outstanding at March 31, 2022 have maturity dates ranging from 6 to 24 months.
All securities sold under repurchase agreements are collateralized by certain
pledged securities.

LIBOR Transition

As of March 31, 2022 and December 31, 2021, LIBOR was used as an index rate for
the Company's interest-rate swaps and approximately 6.7% and 11.4% of the
Company's loan portfolio, respectively. On September 30, 2021, the Company began
transitioning away from LIBOR to Secured Overnight Financing Rate ("SOFR") or
other alternative variable rate indexes for its interest-rate swaps and loans
historically using LIBOR as an index.

                                       47
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Liquidity

Liquidity involves the Company's ability to raise funds to support asset growth
and acquisitions or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis and manage unexpected events. The Company's largest
source of funds is deposits and its largest use of funds is loans. The Company
does not expect a change in the source or use of its funds in the future.
Although access to purchased funds from correspondent banks is available and has
been utilized on occasion to take advantage of investment opportunities, the
Company does not generally rely on this external funding source. The cash and
federal funds sold position, supplemented by amortizing investment and loan
portfolios, has generally created an adequate liquidity position.

As of March 31, 2022, the Company had outstanding $4.75 billion in commitments
to extend credit, $95.3 million in commitments associated with outstanding
standby letters of credit and $1.50 billion in commitments associated with
unused capacity on Warehouse Purchase Program loans. Since commitments
associated with letters of credit, unused capacity on Warehouse Purchase Program
loans and commitments to extend credit may expire unused, the total outstanding
may not necessarily reflect the actual future cash funding requirements.

The Company is not exposed to future cash requirements associated with known uncertainties or capital expenditures of a material nature.

Asset liquidity is provided by cash and assets which are readily marketable or
which will mature in the near future. As of March 31, 2022, the Company had cash
and cash equivalents of $1.56 billion compared with $2.55 billion at
December 31, 2021, a decrease of $987.4 million or 38.8%. The decrease was
primarily due to the purchases of investment securities of $4.13 billion and
payment of cash dividends of $47.9 million, partially offset by maturities of
investment securities of $2.14 billion, a decrease in total loans of $546.5
million, an increase in deposits of $296.6 million and net cash provided by
operating activities of $235.7 million.

Share buybacks

On January 18, 2022, Bancshares announced a stock repurchase program that
authorized the repurchase of up to 5%, or approximately 4.6 million shares, of
its outstanding common stock over a one-year period expiring on January 18,
2023, at the discretion of management. Under the stock repurchase program,
Bancshares may repurchase shares from time to time at prevailing market prices,
through open-market purchases or privately negotiated transactions, depending
upon market conditions. Repurchases under this program may also be made in
transactions outside the safe harbor during a pending merger, acquisition or
similar transaction. The timing and actual number of shares repurchased will
depend on a variety of factors including price, corporate and regulatory
requirements, market conditions, and other corporate liquidity requirements and
priorities. Shares of stock repurchased are held as authorized but unissued
shares. Bancshares is not obligated to purchase any particular number of shares,
and Bancshares may suspend, modify or terminate the program at any time and for
any reason without prior notice. No repurchases were made during the first
quarter of 2022.

Leases

The Company's leases relate primarily to operating leases for office space and
banking centers. The Company determines if an arrangement is a lease or contains
a lease at inception. The Company's leases have remaining lease terms of 1 to 17
years, which may include the option to extend the lease when it is reasonably
certain for the Company to exercise that option. Operating lease right-of-use
(ROU) assets and liabilities are recognized at the commencement date based on
the present value of lease payments over the lease term. The Company uses its
incremental collateralized borrowing rate to determine the present value of
lease payments. Short-term leases and leases with variable lease costs are
immaterial, and the Company has one sublease arrangement. Sublease income for
the three months ended March 31, 2022 and 2021, was $798 thousand and $450
thousand, respectively. As of March 31, 2022, operating lease ROU assets and
lease liabilities were approximately $46.7 million. ROU assets and lease
liabilities were classified as other assets and other liabilities, respectively.

As of March 31, 2022, the weighted average of remaining lease terms of the
Company's operating leases was 5.9 years. The weighted average discount rate
used to determine the lease liabilities as of March 31, 2022 for the Company's
operating leases was 2.16%. Cash paid for the Company's operating leases for the
three months ended March 31, 2022 and 2021 was $2.8 million and $3.5 million,
respectively. The Company obtained $397 thousand in ROU assets in exchange for
lease liabilities for one operating lease during the three months ended
March 31, 2022.

                                       48
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The Company’s undiscounted future cash payments associated with its operating leases from March 31, 2022 are summarized below (in thousands of dollars).

Remaining 2022                      $  8,036
2023                                   9,992
2024                                   9,189
2025                                   8,641
2026                                   7,620
2027                                   4,759
Thereafter                             6,331

Total undiscounted lease payments $54,568

Off-balance sheet items

In the normal course of business, the Company enters into various transactions
that, in accordance with GAAP, are not included in its consolidated balance
sheets. The Company enters into these transactions to meet the financing needs
of its 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 the
consolidated balance sheets.

The Company's commitments associated with outstanding standby letters of credit,
unused capacity of Warehouse Purchase Program loans and commitments to extend
credit expiring by period as of March 31, 2022 are summarized below. Since
commitments associated with letters of credit, unused capacity of Warehouse
Purchase Program loans and commitments to extend credit may expire unused, the
amounts shown may not necessarily reflect the actual future cash funding
requirements.

                                                                More than 1            3 years or
                                                               year but less       more but less than
                                         1 year or less        than 3 years             5 years            5 years or more         Total
                                                                              (Dollars in thousands)
Standby letters of credit               $         88,107     $           4,262     $            2,926     $               -     $    95,295
Unused capacity on Warehouse Purchase
Program loans                                  1,497,459                     -                      -                     -       1,497,459
Commitments to extend credit                   1,642,851             1,437,549                182,033             1,482,762       4,745,195
Total                                   $      3,228,417     $       1,441,811     $          184,959     $       1,482,762     $ 6,337,949



Allowance for Credit Losses on Off-balance Sheet Credit Exposures. The Company
records an allowance for credit losses on off-balance sheet credit exposure that
is adjusted through a charge to provision for credit losses on the Company's
consolidated statement of income. At March 31, 2022 and December 31, 2021, this
allowance, reported as a separate line item on the Company's consolidated
balance sheet, totaled $29.9 million.

Capital resources

Total shareholders' equity was $6.50 billion at March 31, 2022 compared with
$6.43 billion at December 31, 2021, an increase of $77.2 million or 1.2%. The
increase was primarily the result of net income of $122.3 million partially
offset by dividend payments of $47.9 million.

The Basel III Capital Rules adopted by the federal regulatory authorities in
2013 substantially revised the risk-based capital requirements applicable to the
Company and the Bank. The Basel III Capital Rules became effective for the
Company on January 1, 2015, subject to a phase-in period for certain provisions.
The Basel III Capital Rules require a capital conservation buffer with respect
to each of the Common Equity Tier 1, Tier 1 risk-based and total risk-based
capital ratios, which provides for capital levels that exceed the minimum
risk-based capital adequacy requirements.  The capital conservation buffer of
2.5% was fully phased-in on January 1, 2019. A financial institution with a
conservation buffer of less than the required amount will be subject to
limitations on capital distributions, including dividend payments and stock
repurchases, and certain discretionary bonus payments to executive officers.

In response to the COVID-19 pandemic, in March 2020 the joint federal bank
regulatory agencies issued an interim final rule that allows banking
organizations that implement CECL in 2020 to mitigate the effects of the CECL
accounting standard in their regulatory capital for two years. This two-year
delay is in addition to the three-year transition period that the agencies had
already made available. The Company adopted the option provided by the interim
final rule, which delayed the effects of CECL on its regulatory capital through
2021, after which the effects will be phased-in over a three-year period from
January 1, 2022 through December 31, 2024. Under the interim final rule, the
amount of adjustments to regulatory capital deferred until the phase-in period

                                       49
--------------------------------------------------------------------------------


include both the initial impact of the Company's adoption of CECL at January 1,
2020 and 25% of subsequent changes in the Company's allowance for credit losses
during each quarter of the two-year period ending December 31, 2021. On January
1, 2022, the cumulative amount of the transition adjustments began being phased
in over the three-year transition period, with 75% to be recognized in 2022, 50%
to be recognized in 2023, and 25% to be recognized in 2024.

Financial institutions are categorized by the FDIC based on minimum Common
Equity Tier 1, Tier 1 risk-based, total risk-based and Tier 1 leverage ratios.
As of March 31, 2022, the Bank's capital ratios were above the levels required
for the Bank to be designated as "well capitalized."

The following table provides a comparison of the Company’s and the Bank’s risk-weighted and leverage capital ratios against the minimum regulatory and well-capitalization standards at March 31, 2022:

                                                                                                        To Be Categorized As
                                            Minimum Required             Minimum Required Plus         Well Capitalized Under
                                               For Capital                      Capital               Prompt Corrective Action       Actual Ratio as of
                                            Adequacy Purposes             Conservation Buffer                Provisions                March 31, 2022
The Company
CET1 capital (to risk weighted assets)                    4.50 %                             7.00 %                        N/A                      15.32 %
Tier 1 capital (to risk weighted assets)                  6.00 %                             8.50 %                        N/A                      15.32 %
Total capital (to risk weighted assets)                   8.00 %                            10.50 %                        N/A                      15.99 %
Tier 1 capital (to average assets)                        4.00 % (1)                         4.00 %                        N/A                       

9.44%

The Bank
CET1 capital (to risk weighted assets)                    4.50 %                             7.00 %                       6.50 %                    15.26 %
Tier 1 capital (to risk weighted assets)                  6.00 %                             8.50 %                       8.00 %                    15.26 %
Total capital (to risk weighted assets)                   8.00 %                            10.50 %                      10.00 %                    15.92 %
Tier 1 capital (to average assets)                        4.00 % (2)                         4.00 %                       5.00 %                     9.40 %


(1) The Federal Reserve Board may require the Company to maintain leverage

ratio above the minimum required.

(2) The FDIC may require the Bank to maintain a leverage ratio above the

minimum.

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