The following discussion should be read in conjunction with our consolidated
financial statements, and notes thereto, for the year ended December 31, 2022,
which are included in our 2022 Annual Report. Operating results for the three
months ended March 31, 2023 are not necessarily indicative of the results for
the year ending December 31, 2023, or any future period.

Special Cautionary Notice Regarding Forward Looking Information


Certain matters discussed in this report, excluding historical information,
include forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the safe harbor created by these
sections. Although we believe such forward-looking statements are based on
reasonable assumptions, no assurance can be given that every objective will be
reached. The words "estimate," "expect," "intend," "believe" and "project," as
well as other words or expressions of a similar meaning are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date of this report. Such
statements are based on current expectations, are inherently uncertain, are
subject to risks and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a result
of many factors.

Risk factors that could cause actual results to differ materially from any
results that we project, forecast, estimate or budget in forward-looking
statements include those disclosed in Item 1A to Part I of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on
February 23, 2023 (our "2022 Form 10-K"), among others, the following:

Local, regional, national and international economic business conditions and

the impact they may have on us, our customers, and our customers' ability to

? transact profitable business with us, including the ability of our borrowers to

repay their loans according to their terms or a change in the value of the

related collateral.

? Volatility and disruption in national and international financial markets.

? Government intervention in the U.S. financial system.

The unavailability of funding from the FHLB, the Federal Reserve Bank or other

? sources in the future which could adversely impact our growth strategy,

prospects and performance.

? Changes in consumer spending, borrowing and saving habits.

? Changes in interest rates and market prices, including, changes in federal

regulations on the payment of interest on demand deposits.

Changes in our ability to retain or access deposits due to changes in public

confidence in the banking system and the potential threat of bank-run contagion

? fueled by, among other factors, economic instability, inflationary pressures,

the public's increased exposure to social media and the rapid speed at which

communication and coordination via social media can occur.

? Changes in the capital markets we utilize, including changes in the interest

rate environment that may reduce margins.

Changes in state and/or federal laws and regulations, including the impact of

the Consumer Financial Protection Bureau ("CFPB") as a regulator of financial

? institutions, changes in the accounting, tax and regulatory treatment of trust

preferred securities, as well as changes in banking, tax, securities,

insurance, employment, environmental and immigration laws and regulations and


   the risk of litigation that may follow.


                                       32

Changes in U.S.-Mexico trade, including, reductions in border crossings and

? commerce, integration and implementation of the United States-Mexico-Canada

Agreement and the possible imposition of tariffs on imported goods.

? Political instability in the United States or Mexico.

General instability of economic and political conditions in the United States,

? including inflationary pressures, increased interest rates, economic slowdown

or recession, and escalating geopolitical tensions.

The reduction of deposits from nonresident alien individuals due to the

? Internal Revenue Service rules requiring U.S. financial institutions to report

deposit interest payments made to such individuals.

? The loss of senior management or operating personnel.

The timing, impact and other uncertainties of potential future acquisitions as

? well as our ability to maintain our current branch network and enter new

markets to capitalize on growth opportunities.

? Changes in estimates of future reserve requirements based upon periodic review

thereof under relevant regulatory and accounting requirements.

? Additions to our allowance for credit loss as a result of changes in local,

national or international conditions which adversely affect our customers.

? Greater than expected costs or difficulties related to the development and

integration of new products and lines of business.

? Increased labor costs and effects related to health care reform and other laws,

regulations and legal developments impacting labor costs.

? Impairment of carrying value of goodwill could negatively impact our earnings

and capital.

? Changes in the soundness of other financial institutions with which we

interact.

Technological changes, system failures or breaches of our network security, as

? well as other cyber security risks that could subject us to increased operating

costs, litigation and other liabilities.

? Acts of war or terrorism.

? Natural disasters or other adverse external events such as pandemics or

endemics.

? Reduced earnings resulting from the write down of the carrying value of

securities held in our securities available-for-sale portfolios.

The effect of changes in accounting policies and practices by the Public

? Company Accounting Oversight Board, the Financial Accounting Standards Board

and other accounting standards setters.

The costs and effects of regulatory developments or regulatory or other

? governmental, the results of regulatory examinations or reviews, and the

process of obtaining required regulatory approvals.

The effect of any supervisory and enforcement efforts by the CFPB related to

Regulation E, which prohibits financial institutions from charging consumer

? fees for paying overdrafts on ATM and one-time debit card transactions, as well

as the effect of any other regulatory or legal developments that limit

overdraft services.

? Monetary and fiscal policies of the U.S. Government, including policies of the

U.S. Treasury and the Federal Reserve Board.

The reduction of income and possible increase in required capital levels

related to the adoption of legislation and the implementing rules and

? regulations, including those that establish debit card interchange fee

standards and prohibit network exclusivity arrangements and routing

restrictions.

The increase in required capital levels related to the implementation of

? capital and liquidity rules of the federal banking agencies that address or are

impacted by the Basel III capital and liquidity standards.

? The enhanced due diligence burden imposed on banks related to the banks'

inability to rely on credit ratings under Dodd-Frank.

? Our failure or circumvention of our internal controls and risk management,

policies and procedures.




Forward-looking statements speak only as of the date on which such statements
are made. It is not possible to foresee or identify all such factors. We make no
commitment to update any forward-looking statement, or to disclose any facts,
events or circumstances after the date hereof that may affect the accuracy of
any forward-looking statement, unless required by law.

                                       33

Overview


We are headquartered in Laredo, Texas with 167 facilities and 257 ATMs, and
provide banking services for commercial, consumer and international customers of
North, South, Central and Southeast Texas and the State of Oklahoma. We are one
of the largest independent commercial bank holding companies headquartered in
Texas. We, through our Subsidiary Banks, are in the business of gathering funds
from various sources and investing those funds in order to earn a return. We,
either directly or through a Subsidiary Bank, own an insurance agency, a
liquidating subsidiary, a fifty percent interest in an investment banking unit
that owns a broker/dealer, a controlling interest in four merchant banking
entities, and a majority ownership in a real-estate development partnership. Our
primary earnings come from the spread between the interest earned on
interest-bearing assets and the interest paid on interest-bearing liabilities.
In addition, we generate income from fees on products offered to commercial,
consumer and international customers. The sales team of each of our Subsidiary
Banks aims to match the right mix of products and services to each customer to
best serve the customer's needs. That process entails spending time with
customers to assess those needs and servicing the sales arising from those
discussions on a long-term basis. The Subsidiary Banks have various compensation
plans, including incentive based compensation, for fairly compensating
employees. The Subsidiary Banks also have a robust process in place to review
sales that support the incentive based compensation plan to monitor the quality
of the sales and identify any significant irregularities, a process that has
been in place for many years.

We are very active in facilitating trade along the United States border with
Mexico. We do a large amount of business with customers domiciled in Mexico.
Deposits from persons and entities domiciled in Mexico comprise a large and
stable portion of the deposit base of our Subsidiary Banks. We also serve the
growing Hispanic population through our facilities located throughout South,
Central and Southeast Texas and the State of Oklahoma.

Future economic conditions remain uncertain and the impact of those conditions
on our business also remains uncertain. Our business depends on the willingness
and ability of our customers to conduct banking and other financial
transactions. Our revenue streams including service charges on deposits and
banking and non-banking service charges and fees (ATM and Interchange Income)
have been impacted and may continue to be impacted in the future if economic
conditions do not improve. Expense control has been a long-time focus and
essential element to our long-term profitability. We have kept that focus in
mind as we continue to look at operations and create efficiencies and institute
cost-control protocols at all levels. We will continue to monitor our efficiency
ratio, a measure of non-interest expense to net interest income plus
non-interest income and our overhead burden ratio, a ratio of our operating
expenses against total assets, closely. We use these measures in determining if
we are accomplishing our long-term goals of controlling our costs in order to
provide superior returns to our shareholders.

                                       34

Results of Operations

Summary

Consolidated Statements of Condition Information




                                         March 31, 2023      December 31, 2022     Percent Increase (Decrease)

                                                                (Dollars in Thousands)
Assets                                  $     15,134,951    $        15,501,476                          (2.4) %
Net loans                                      7,398,216              7,304,631                            1.3
Deposits                                      12,280,779             12,660,007                          (3.0)
Securities sold under repurchase
agreements                                       383,502                431,191                         (11.1)
Other borrowed funds                              10,895                 10,944                          (0.4)
Junior subordinated deferrable
interest debentures                              134,642                134,642                              -
Shareholders' equity                           2,156,408              2,044,759                            5.5

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