Loans

12 Months Ended

Dec. 31, 2020

Receivables [Abstract]

Loans

Loans

Year-end loans, including leases net of unearned discounts, consisted of the following:

	2020		2019
Commercial and industrial	$	4,955,341	$	5,187,466
Energy:
Production	976,473		1,348,900
Service	116,825		192,996
Other	141,900		110,986
Total energy	1,235,198		1,652,882
Paycheck Protection Program	2,433,849		—
Commercial real estate:
Commercial mortgages	5,478,806		4,594,113
Construction	1,223,814		1,312,659
Land	317,847		289,467
Total commercial real estate	7,020,467		6,196,239
Consumer real estate:
Home equity loans	329,390		375,596
Home equity lines of credit	452,854		354,671
Other	548,530		464,146
Total consumer real estate	1,330,774		1,194,413
Total real estate	8,351,241		7,390,652
Consumer and other	505,680		519,332
Total loans	$	17,481,309	$	14,750,332

Concentrations of Credit. Most of our lending activity occurs within the State of Texas, including the four largest metropolitan areas of Austin, Dallas/Ft. Worth, Houston and San Antonio, as well as other markets. The majority of our loan portfolio consists of commercial and industrial and commercial real estate loans. As of December 31, 2020, there were no concentrations of loans related to any single industry in excess of 10% of total loans. The largest industry concentration was related to the energy industry, which totaled 7.1% of total loans, or 8.2% excluding PPP Loans. As of December 31, 2019, there were no concentrations of loans related to any single industry in excess of 10% of total loans other than energy loans, which totaled 11.2% of total loans at such date. Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $919.1 million and $60.7 million, respectively, as of December 31, 2020.

Foreign Loans. We have U.S. dollar denominated loans and commitments to borrowers in Mexico. The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at December 31, 2020 or 2019.

Overdrafts. Deposit account overdrafts reported as loans totaled $5.6 million and $9.0 million at December 31, 2020 and 2019.

Related Party Loans. In the ordinary course of business, we have granted loans to certain directors, executive officers and their affiliates (collectively referred to as “related parties”). Activity in related party loans during 2020 is presented in the following table. Other changes were primarily related to changes in related-party status.

Balance outstanding at December 31, 2019	$	298,528
Principal additions	267,951
Principal reductions	(212,157)
Other changes	(1,217)
Balance outstanding at December 31, 2020	$	353,105

Accrued Interest Receivable. Accrued interest receivable on loans totaled $48.7 million and $45.5 million at December 31, 2020 and 2019, respectively and is included in accrued interest receivable and other assets in the accompany consolidated balance sheets.

COVID-19 Loan Deferments. Certain borrowers are currently unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral, and a small proportion of our customers have requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as troubled debt restructurings, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). At December 31, 2020, there were 39 loans in COVID-19 related deferment with an aggregate outstanding balance of approximately $45.9 million.

Non-Accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on non-accrual loans is recognized only to the extent that cash payments are received in excess of principal due. 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.

Year-end non-accrual loans, segregated by class of loans, were as follows:

	December 31, 2020				December 31, 2019
	Total Non-Accrual		Non-Accrual with No Credit Loss Allowance		Total Non-Accrual		Non-Accrual with No Credit Loss Allowance
Commercial and industrial	$	19,849	$	4,479	$	26,038	$	13,266
Energy	23,168		639		65,761		3,281
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	15,737		14,116		8,912		6,558
Construction	1,684		1,684		665		665
Consumer real estate	993		993		922		922
Consumer and other	18		—		5		—
Total	$	61,449	$	21,911	$	102,303	$	24,692

The following table presents non-accrual loans as of December 31, 2020 by class and year of origination.

	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	$	9,479	$	3,351	$	1,846	$	1,489	$	105	$	29	$	839	$	2,711	$	19,849
Energy	2,421		6,772		2,144		—		—		359		11,193		279		23,168
Paycheck Protection Program	—		—		—		—		—		—		—		—		—
Commercial real estate:
Buildings, land and other	2,914		5,031		999		2,019		1,933		2,736		105		—		15,737
Construction	1,684		—		—		—		—		—		—		—		1,684
Consumer real estate	—		—		—		211		—		408		259		115		993
Consumer and other	—		—		—		—		—		—		18		—		18
Total	$	16,498	$	15,154	$	4,989	$	3,719	$	2,038	$	3,532	$	12,414	$	3,105	$	61,449

In the table above, loans reported as 2020 originations were, for the most part, first originated in various years prior to 2020 but were renewed in the current year. Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $2.9 million in 2020, $3.9 million in 2019 and $5.2 million in 2018.

An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of December 31, 2020 was as follows:

	Loans 30-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Commercial and industrial	$	45,416	$	9,616	$	55,032	$	4,900,309	$	4,955,341	$	5,615
Energy	14,833		11,237		26,070		1,209,128		1,235,198		3,696
Paycheck Protection Program	—		—		—		2,433,849		2,433,849		—
Commercial real estate:
Buildings, land and other	22,130		6,304		28,434		5,768,219		5,796,653		1,275
Construction	856		—		856		1,222,958		1,223,814		—
Consumer real estate	8,090		3,047		11,137		1,319,637		1,330,774		2,469
Consumer and other	5,537		1,251		6,788		498,892		505,680		1,233
Total	$	96,862	$	31,455	$	128,317	$	17,352,992	$	17,481,309	$	14,288

Impaired Loans. Prior to the adoption of ASC 326 on January 1, 2020, loans were reported as impaired when, based on then current information and events, it was probable we would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment was evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan was impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectibility of the principal amount was reasonably assured, in which case interest was recognized on a cash basis. Impaired loans, or portions thereof, were charged off when deemed uncollectible.

Impaired loans as of December 31, 2019 and the average recorded investment in impaired loans during 2019 and 2018 are set forth in the following table. No interest income was recognized on impaired loans subsequent to their classification as impaired.

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment 2019		Average Recorded Investment 2018
2019
Commercial and industrial	$	30,909	$	11,588	$	12,772	$	24,360	$	7,849	$	14,913	$	18,246
Energy	87,103		2,764		62,480		65,244		20,246		53,563		75,453
Commercial real estate:
Buildings, land and other	9,252		6,255		2,354		8,609		383		13,690		12,799
Construction	697		665		—		665		—		354		—
Consumer real estate	570		570		—		570		—		547		704
Consumer and other	5		—		5		5		5		1,285		925
Total	$	128,536	$	21,842	$	77,611	$	99,453	$	28,483	$	84,352	$	108,127

Troubled Debt Restructurings. The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules, reductions in collateral and other actions intended to minimize potential losses. Troubled debt restructurings that occurred during 2020, 2019 and 2018 are set forth in the following table.

	2020				2019				2018
	Balance at Restructure		Balance at Year-end		Balance at Restructure		Balance at Year-end		Balance at Restructure		Balance at Year-end
Commercial and industrial	$	3,661	$	192	$	3,845	$	2,161	$	2,203	$	—
Energy	2,432		2,421		—		—		13,708		—
Commercial real estate:
Buildings, land and other	9,310		4,922		9,457		9,393		—		—
Construction	1,017		1,017		—		—		—		—
Consumer real estate	—		—		124		120		—		—
Consumer and other	1,104		—		—		—		—		—
	$	17,524	$	8,552	$	13,426	$	11,674	$	15,911	$	—

Loan modifications are typically related to extending amortization periods, converting loans to interest only for a limited period of time, deferral of interest payments, waiver of certain covenants, consolidating notes and/or reducing collateral or interest rates. The modifications during the reported periods did not significantly impact our determination of the allowance for credit losses on loans.

Additional information related to restructured loans was as follows:

	2020		2019		2018
Restructured loans past due in excess of 90 days at period-end:
Number of loans	1		4		—
Dollar amount of loans	$	2,008	$	3,340	$	—
Restructured loans on non-accrual status at period end	8,552		5,576		—
Charge-offs of restructured loans:
Recognized in connection with restructuring	337		—		—
Recognized on previously restructured loans	3,894		1,500		7,650
Proceeds from sale of restructured loans	—		—		15,750

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of our loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk grade of commercial loans, (ii) the level of classified commercial loans, (iii) the delinquency status of consumer loans (iv) non-performing loans (see details above) and (vi) the general economic conditions in the State of Texas.

We utilize a risk grading matrix to assign a risk grade to each of our commercial loans. Loans are graded on a scale of 1 to 14. A description of the general characteristics of the 14 risk grades is as follows:

•Grades 1, 2 and 3 - These grades include loans to very high credit quality borrowers of investment or near investment grade. These borrowers are generally publicly traded (grades 1 and 2), have significant capital strength, moderate leverage, stable earnings and growth, and readily available financing alternatives. Smaller entities, regardless of strength, would generally not fit in these grades.

•Grades 4 and 5 - These grades include loans to borrowers of solid credit quality with moderate risk. Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality and the stability of the industry or market area.

•Grades 6, 7 and 8 - These grades include “pass grade” loans to borrowers of acceptable credit quality and risk. Such borrowers are differentiated from Grades 4 and 5 in terms of size, secondary sources of repayment or they are of lesser stature in other key credit metrics in that they may be over-leveraged, under capitalized, inconsistent in performance or in an industry or an economic area that is known to have a higher level of risk, volatility, or susceptibility to weaknesses in the economy.

•Grade 9 - This grade includes loans on management’s “watch list” and is intended to be utilized on a temporary basis for pass grade borrowers where a significant risk-modifying action is anticipated in the near term.

•Grade 10 - This grade is for “Other Assets Especially Mentioned” in accordance with regulatory guidelines. This grade is intended to be temporary and includes loans to borrowers whose credit quality has clearly deteriorated and are at risk of further decline unless active measures are taken to correct the situation.

•Grade 11 - This grade includes “Substandard” loans, in accordance with regulatory guidelines, for which the accrual of interest has not been stopped. By definition under regulatory guidelines, a “Substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business.

•Grade 12 - This grade includes “Substandard” loans, in accordance with regulatory guidelines, for which the accrual of interest has been stopped. This grade includes loans where interest is more than 120 days past due and not fully secured and loans where a specific valuation allowance may be necessary, but generally does not exceed 30% of the principal balance.

•Grade 13 - This grade includes “Doubtful” loans in accordance with regulatory guidelines. Such loans are placed on non-accrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. Additionally, these loans generally have a specific valuation allowance in excess of 30% of the principal balance.

•Grade 14 - This grade includes “Loss” loans in accordance with regulatory guidelines. Such loans are to be charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.

In monitoring credit quality trends in the context of assessing the appropriate level of the allowance for credit losses on loans, we monitor portfolio credit quality by the weighted-average risk grade of each class of commercial loan. Individual relationship managers, under the oversight of credit administration, review updated financial information for all pass grade loans to reassess the risk grade on at least an annual basis. When a loan has a risk grade of 9, it is still considered a pass grade loan; however, it is considered to be on management’s “watch list,” where a significant risk-modifying action is anticipated in the near term. When a loan has a risk grade of 10 or higher, a special assets officer monitors the loan on an on-going basis.

The following tables present weighted-average risk grades for all commercial loans, by class and year of origination/renewal as of December 31, 2020. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).

	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial
Risk grades 1-8	$	1,300,844	$	552,885	$	290,088	$	226,232	$	107,063	$	113,458	$	1,852,341	$	63,210	$	4,506,121
Risk grade 9	50,785		37,865		33,961		20,851		12,348		5,510		85,756		9,122		256,198
Risk grade 10	31,333		7,361		11,379		6,749		710		113		65,180		3,152		125,977
Risk grade 11	4,700		7,002		6,551		3,416		1,426		140		15,005		8,956		47,196
Risk grade 12	6,899		2,399		1,195		1,005		105		29		480		2,416		14,528
Risk grade 13	2,580		952		651		484		—		—		359		295		5,321
	$	1,397,141	$	608,464	$	343,825	$	258,737	$	121,652	$	119,250	$	2,019,121	$	87,151	$	4,955,341
W/A risk grade	6.19		6.88		7.22		6.39		6.32		5.84		6.38		7.51		6.45
Energy
Risk grades 1-8	$	403,156	$	18,911	$	9,759	$	8,083	$	1,415	$	4,326	$	494,946	$	27,548	$	968,144
Risk grade 9	105,772		2,272		1,743		—		—		—		18,194		5,566		133,547
Risk grade 10	703		4,049		1,339		—		759		—		37,637		1,940		46,427
Risk grade 11	12,218		16,849		1,325		—		—		661		30,124		2,735		63,912
Risk grade 12	1,101		4,580		654		—		—		359		6,768		279		13,741
Risk grade 13	1,320		2,192		1,490		—		—		—		4,425		—		9,427
	$	524,270	$	48,853	$	16,310	$	8,083	$	2,174	$	5,346	$	592,094	$	38,068	$	1,235,198
W/A risk grade	6.86		9.57		8.68		7.40		7.85		8.06		6.45		8.20		6.85
Commercial real estate:
Buildings, land, other
Risk grades 1-8	$	1,544,558	$	947,102	$	749,879	$	605,152	$	432,941	$	661,301	$	56,600	$	50,340	$	5,047,873
Risk grade 9	45,527		81,224		75,893		45,485		26,745		37,728		10,521		2,104		325,227
Risk grade 10	14,183		36,414		45,014		71,814		25,343		60,225		200		5,261		258,454
Risk grade 11	22,633		16,302		11,916		39,727		8,655		42,904		6,977		248		149,362
Risk grade 12	2,714		5,031		999		2,019		1,683		2,736		42		—		15,224
Risk grade 13	200		—		—		—		250		—		63		—		513
	$	1,629,815	$	1,086,073	$	883,701	$	764,197	$	495,617	$	804,894	$	74,403	$	57,953	$	5,796,653
W/A risk grade	7.13		7.36		7.54		7.55		7.54		7.20		7.54		7.12		7.34
Construction
Risk grades 1-8	$	374,661	$	436,077	$	168,517	$	67	$	1,144	$	1,758	$	127,801	$	—	$	1,110,025
Risk grade 9	37,430		16,567		—		2,848		—		—		14,311		1,131		72,287
Risk grade 10	5,846		—		27,653		—		—		—		5,463		—		38,962
Risk grade 11	856		—		—		—		—		—		—		—		856
Risk grade 12	1,684		—		—		—		—		—		—		—		1,684
Risk grade 13	—		—		—		—		—		—		—		—		—
	$	420,477	$	452,644	$	196,170	$	2,915	$	1,144	$	1,758	$	147,575	$	1,131	$	1,223,814
W/A risk grade	6.82		7.18		8.08		8.95		7.30		6.44		7.29		9.00		7.22
Total commercial real estate	$	2,050,292	$	1,538,717	$	1,079,871	$	767,112	$	496,761	$	806,652	$	221,978	$	59,084	$	7,020,467
W/A risk grade	7.06		7.31		7.64		7.56		7.54		7.20		7.37		7.15		7.32

The weighted-average risk grades for “pass grade” (risk grades 1-8) loans was 6.13 for commercial and industrial, 5.99 for energy, 6.97 for commercial real estate - buildings, land and other and 6.99 for commercial real estate - construction). Furthermore, in the tables above, certain loans are reported as 2020 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 2020 but were renewed in the current year.

The following tables present weighted average risk grades for all commercial loans by class as of December 31, 2019.

	Commercial and Industrial			Energy			Commercial Real Estate - Buildings, Land and Other			Commercial Real Estate - Construction			Total Commercial Real Estate
	W/A Risk Grade	Loans		W/A Risk Grade	Loans		W/A Risk Grade	Loans		W/A Risk Grade	Loans		W/A Risk Grade	Loans
Risk grades 1-8	6.17	$	4,788,857	5.90	$	1,488,301	6.78	$	4,523,271	7.25	$	1,274,098	6.88	$	5,797,369
Risk grade 9	9.00	247,212		9.00	32,163		9.00	163,714		9.00	21,509		9.00	185,223
Risk grade 10	10.00	71,472		10.00	51,898		10.00	103,626		10.00	15,243		10.00	118,869
Risk grade 11	11.00	53,887		11.00	14,760		11.00	84,057		11.00	1,144		11.00	85,201
Risk grade 12	12.00	18,189		12.00	45,514		12.00	8,529		12.00	665		12.00	9,194
Risk grade 13	13.00	7,849		13.00	20,246		13.00	383		13.00	—		13.00	383
Total	6.44	$	5,187,466	6.39	$	1,652,882	7.01	$	4,883,580	7.31	$	1,312,659	7.07	$	6,196,239

Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of December 31, 2020 was as follows:

	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Consumer real estate:
Past due 30-89 days	$	225	$	1,038	$	1,556	$	553	$	628	$	2,907	$	652	$	531	$	8,090
Past due 90 or more days	15		139		109		706		25		1,287		615		151		3,047
Total past due	240		1,177		1,665		1,259		653		4,194		1,267		682		11,137
Current loans	336,441		166,323		94,374		80,625		66,241		124,590		434,939		16,104		1,319,637
Total	$	336,681	$	167,500	$	96,039	$	81,884	$	66,894	$	128,784	$	436,206	$	16,786	$	1,330,774
Consumer and other:
Past due 30-89 days	$	1,750	$	300	$	453	$	52	$	17	$	—	$	2,238	$	727	$	5,537
Past due 90 or more days	71		10		118		—		—		—		1,031		21		1,251
Total past due	1,821		310		571		52		17		—		3,269		748		6,788
Current loans	45,286		27,813		5,397		2,799		1,705		572		386,791		28,529		498,892
Total	$	47,107	$	28,123	$	5,968	$	2,851	$	1,722	$	572	$	390,060	$	29,277	$	505,680

Revolving loans that converted to term during 2020 were as follows:

Commercial and industrial	$	47,562
Energy	33,150
Commercial real estate:
Buildings, land and other	10,505
Construction	1,131
Consumer real estate	2,264
Consumer and other	16,395
Total	$	111,007

In assessing the general economic conditions in the State of Texas, management monitors and tracks the Texas Leading Index (“TLI”), which is produced by the Federal Reserve Bank of Dallas. The TLI is a single summary statistic that is designed to signal the likelihood of the Texas economy’s transition from expansion to recession and vice versa. Management believes this index provides a reliable indication of the direction of overall credit quality. The TLI is a composite of the following eight leading indicators: (i) Texas Value of the Dollar, (ii) U.S. Leading Index, (iii) real oil prices (iv) well permits, (v) initial claims for unemployment insurance, (vi) Texas Stock Index, (vii) Help-Wanted Index and (viii) average weekly hours worked in manufacturing. The TLI totaled 118.3 at December 31, 2020 (most recent date available) and 127.1 at December 31, 2019. A lower TLI value implies less favorable economic conditions.

Allowance For Credit Losses - Loans. The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectibility over the loans' contractual terms, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless (i) management has a reasonable expectation that a trouble debt restructuring will be executed with an individual borrower or (ii) such extension or renewal options are not unconditionally cancellable by us and, in such cases, the borrower is likely to meet applicable conditions and likely to request extension or renewal. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Credit loss expense related to loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. 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. While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For modeling purposes, our loan pools include (i) commercial and industrial and energy - non-revolving, (ii) commercial and industrial and energy - revolving, (iii) commercial real estate - owner occupied, (iv) commercial real estate - non-owner occupied, (v) commercial real estate - construction/land development, (vi) consumer real estate and (vii) consumer and other. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary.

For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of models which measure (i) probability of default (“PD”), which is the likelihood that loan will stop performing/default, (ii) probability of attrition (“PA”), which is the likelihood that a loan will pay-off prior to maturity, (iii) loss given default (“LGD”), which is the expected loss rate for loans in default and (iv) exposure at default (“EAD”), which is the estimated outstanding principal balance of the loans upon default, including the expected funding of unfunded commitments outstanding as of the measurement date. For certain commercial loan portfolios, the PD is calculated using a transition matrix to determine the likelihood of a customer’s risk grade migrating from one specified range of risk grades to a different specified range. Expected credit losses are calculated as the product of PD (adjusted for attrition), LGD and EAD. This methodology builds on default probabilities already incorporated into our risk grading process by utilizing pool-specific historical loss rates to calculate expected credit losses. These pool-specific historical loss rates may be adjusted for current macroeconomic assumptions, as further discussed below, and other factors such as differences in underwriting standards, portfolio mix, or when historical asset terms do not reflect the contractual terms of the financial assets being evaluated as of the measurement date. Each time we measure expected credit losses, we assess the relevancy of historical loss information and consider any necessary adjustments to address any differences in asset-specific characteristics. Due to their short-term nature, expected credit losses for overdrafts included in consumer and other loans are based solely upon a weighting of recent historical charge-offs over a period of three years.

The measurement of expected credit losses is impacted by loan/borrower attributes and certain macroeconomic variables. Significant loan/borrower attributes utilized in our modeling processes include, among other things, (i) origination date, (ii) maturity date, (iii) payment type, (iv) collateral type and amount, (v) current risk grade, (vi) current unpaid balance and commitment utilization rate, (vii) payment status/delinquency history and (viii) expected recoveries of previously charged-off amounts. Significant macroeconomic variables utilized in our modeling processes include, among other things, (i) Gross State Product for Texas and U.S. Gross Domestic Product, (ii) selected market interest rates including U.S. Treasury rates, bank prime rate, 30-year fixed mortgage rate, BBB corporate bond rate, among others, (iii) unemployment rates, (iv) commercial and residential property prices in Texas and the U.S. as a whole, (v) West Texas Intermediate crude oil price and (vi) total stock market index.

PD and PA were estimated by analyzing internally-sourced data related to historical performance of each loan pool over a complete economic cycle. PD and PA are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period. We have determined that we are reasonably able to forecast the macroeconomic variables used in our modeling processes with an acceptable degree of confidence for a total of two years with the last twelve months of the forecast period encompassing a reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean utilizing a rational, systematic basis. The macroeconomic variables utilized as inputs in our modeling processes were subjected to a variety of analysis procedures and were selected primarily based on statistical relevancy and correlation to our historical credit losses. By reverting these modeling inputs to their historical mean and considering loan/borrower specific attributes, our models are intended to yield a measurement of expected credit losses that reflects our average historical loss rates for periods subsequent to the twelve-month reversion period. The LGD is based on historical recovery averages for each loan pool, adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a two-year forecast period, with the final twelve months of the forecast period encompassing a reversion process, which management considers to be both reasonable and supportable. This same forecast/reversion period is used for all macroeconomic variables used in all of our models. EAD is estimated using a linear regression model that estimates the average percentage of the loan balance that remains at the time of a default event.

Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the loan pools, (iii) changes in the nature and volume of the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by our internal appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The fair value of collateral supporting collateral dependent construction loans is based on an “as is” valuation.

The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of December 31, 2020, calculated in accordance with the CECL methodology described above. No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.

	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Modeled expected credit losses	$	65,645	$	8,910	$	125,126	$	7,926	$	6,945	$	214,552
Q-Factor and other qualitative adjustments	2,877		21,216		9,253		—		—		33,346
Specific allocations	5,321		9,427		513		—		18		15,279
Total	$	73,843	$	39,553	$	134,892	$	7,926	$	6,963	$	263,177

The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of December 31, 2019, calculated in accordance with our prior incurred loss methodology described in our 2019 Form 10-K.

	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Historical valuation allowances	$	29,015	$	7,873	$	21,947	$	2,690	$	7,562	$	69,087
Specific valuation allowances	7,849		20,246		383		—		5		28,483
General valuation allowances	9,840		5,196		4,201		904		(409)		19,732
Macroeconomic valuation allowances	4,889		4,067		4,506		519		884		14,865
Total	$	51,593	$	37,382	$	31,037	$	4,113	$	8,042	$	132,167

The following table details activity in the allowance for credit losses on loans by portfolio segment for 2020, 2019 and 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.

	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
2020
Beginning balance	$	51,593	$	37,382	$	31,037	$	4,113	$	8,042	$	132,167
Impacting of adopting ASC 326	21,263		(10,453)		(13,519)		2,392		(2,248)		(2,565)
Credit loss expense	15,156		85,889		124,427		1,906		9,632		237,010
Charge-offs	(18,908)		(76,107)		(7,499)		(2,186)		(17,830)		(122,530)
Recoveries	4,739		2,842		446		1,701		9,367		19,095
Net charge-offs	(14,169)		(73,265)		(7,053)		(485)		(8,463)		(103,435)
Ending balance	$	73,843	$	39,553	$	134,892	$	7,926	$	6,963	$	263,177
2019
Beginning balance	$	48,580	$	29,052	$	38,777	$	6,103	$	9,620	$	132,132
Credit loss expense	13,144		14,388		(6,934)		467		12,694		33,759
Charge-offs	(14,117)		(7,500)		(1,025)		(3,665)		(24,725)		(51,032)
Recoveries	3,986		1,442		219		1,208		10,453		17,308
Net charge-offs	(10,131)		(6,058)		(806)		(2,457)		(14,272)		(33,724)
Ending balance	$	51,593	$	37,382	$	31,037	$	4,113	$	8,042	$	132,167
2018
Beginning balance	$	59,614	$	51,528	$	30,948	$	5,657	$	7,617	$	155,364
Credit loss expense	11,354		(9,355)		8,079		1,984		9,551		21,613
Charge-offs	(26,076)		(13,940)		(619)		(2,143)		(17,197)		(59,975)
Recoveries	3,688		819		369		605		9,649		15,130
Net charge-offs	(22,388)		(13,121)		(250)		(1,538)		(7,548)		(44,845)
Ending balance	$	48,580	$	29,052	$	38,777	$	6,103	$	9,620	$	132,132

Generally, a commercial loan, or a portion thereof, is charged-off immediately when it is determined, through the analysis of any available current financial information with regards to the borrower, that the borrower is incapable of servicing unsecured debt, there is little or no prospect for near term improvement and no realistic strengthening action of significance is pending or, in the case of secured debt, when it is determined, through analysis of current information with regards to our collateral position, that amounts due from the borrower are in excess of the calculated current fair value of the collateral. Notwithstanding the foregoing, generally, commercial loans that become past due 180 cumulative days are charged-off. Generally, a consumer loan, or a portion thereof, is charged-off in accordance with regulatory guidelines which provide that such loans be charged-off when we become aware of the loss, such as from a triggering event that may include new information about a borrower’s intent/ability to repay the loan, bankruptcy, fraud or death, among other things, but in any event the charge-off must be taken within specified delinquency time frames. Such delinquency time frames state that closed-end retail loans (loans with pre-defined maturity dates, such as real estate mortgages, home equity loans and consumer installment loans) that become past due 120 cumulative days and open-end retail loans (loans that roll-over at the end of each term, such as home equity lines of credit) that become past due 180 cumulative days should be classified as a loss and charged-off.

The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan portfolio segment as of December 31, 2020 and December 31, 2019.

	December 31, 2020				December 31, 2019
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
Commercial and industrial	$	21,287	$	5,321	$	24,360	$	7,849
Energy	22,888		9,427		65,244		20,246
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	34,057		513		8,609		383
Construction	1,684		—		665		—
Consumer real estate	561		—		570		—
Consumer and other	18		18		5		5
Total	$	80,495	$	15,279	$	99,453	$	28,483