Loans

3 Months Ended

Mar. 31, 2021

Receivables [Abstract]

Loans

Loans

Loans were as follows:

	March 31, 2021		Percentage of Total		December 31, 2020		Percentage of Total
Commercial and industrial	$	4,770,228	26.7	%	$	4,955,341	28.4	%
Energy:
Production	886,627		5.0		976,473		5.6
Service	90,510		0.5		116,825		0.7
Other	125,072		0.7		141,900		0.8
Total energy	1,102,209		6.2		1,235,198		7.1
Paycheck Protection Program	3,129,244		17.5		2,433,849		13.9
Commercial real estate:
Commercial mortgages	5,566,367		31.1		5,478,806		31.3
Construction	1,236,994		6.9		1,223,814		7.0
Land	300,669		1.7		317,847		1.8
Total commercial real estate	7,104,030		39.7		7,020,467		40.1
Consumer real estate:
Home equity loans	318,215		1.8		329,390		1.9
Home equity lines of credit	454,722		2.5		452,854		2.6
Other	549,217		3.0		548,530		3.1
Total consumer real estate	1,322,154		7.3		1,330,774		7.6
Total real estate	8,426,184		47.0		8,351,241		47.7
Consumer and other	461,786		2.6		505,680		2.9
Total loans	$	17,889,651	100.0	%	$	17,481,309	100.0	%

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 March 31, 2021, 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 6.2% of total loans, or 7.5% excluding PPP loans. Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $968.9 million and $70.4 million, respectively, as of March 31, 2021.

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 March 31, 2021 or December 31, 2020.

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”). Such loans totaled $365.6 million at March 31, 2021 and $353.1 million at December 31, 2020.

Accrued Interest Receivable. Accrued interest receivable on loans totaled $51.7 million and $48.7 million at March 31, 2021 and December 31, 2020, 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 March 31, 2021, there were 22 loans in COVID-19 related deferment with an aggregate outstanding balance of approximately $11.4 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.

Non-accrual loans, segregated by class of loans, were as follows:

	March 31, 2021				December 31, 2020
	Total Non-Accrual		Non-Accrual with No Credit Loss Allowance		Total Non-Accrual		Non-Accrual with No Credit Loss Allowance
Commercial and industrial	$	18,509	$	4,486	$	19,849	$	4,479
Energy	16,042		8,203		23,168		639
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	14,246		13,896		15,737		14,116
Construction	1,653		1,653		1,684		1,684
Consumer real estate	508		508		993		993
Consumer and other	18		—		18		—
Total	$	50,976	$	28,746	$	61,449	$	21,911

The following table presents non-accrual loans as of March 31, 2021 by class and year of origination.

	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	$	—	$	10,344	$	2,463	$	921	$	1,204	$	114	$	827	$	2,636	$	18,509
Energy	—		900		6,314		1,901		—		347		6,466		114		16,042
Paycheck Protection Program	—		—		—		—		—		—		—		—		—
Commercial real estate:
Buildings, land and other	—		1,700		2,995		989		2,114		3,261		3,187		—		14,246
Construction	—		1,653		—		—		—		—		—		—		1,653
Consumer real estate	—		—		—		—		—		464		—		44		508
Consumer and other	—		—		—		—		—		—		18		—		18
Total	$	—	$	14,597	$	11,772	$	3,811	$	3,318	$	4,186	$	10,498	$	2,794	$	50,976

Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $453 thousand for the three months ended March 31, 2021, and approximately $1.0 million for the three months ended March 31, 2020.

An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of March 31, 2021 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	$	24,542	$	10,216	$	34,758	$	4,735,470	$	4,770,228	$	7,547
Energy	11,125		3,918		15,043		1,087,166		1,102,209		1,086
Paycheck Protection Program	—		—		—		3,129,244		3,129,244		—
Commercial real estate:
Buildings, land and other	27,876		15,713		43,589		5,823,447		5,867,036		5,045
Construction	22,726		—		22,726		1,214,268		1,236,994		—
Consumer real estate	5,973		3,254		9,227		1,312,927		1,322,154		2,826
Consumer and other	3,197		447		3,644		458,142		461,786		430
Total	$	95,439	$	33,548	$	128,987	$	17,760,664	$	17,889,651	$	16,934

Troubled Debt Restructurings. Troubled debt restructurings during the three months ended March 31, 2021 and 2020 are set forth in the following table.

	Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
	Balance at Restructure		Balance at Period-End		Balance at Restructure		Balance at Period-End
Commercial and industrial	$	—	$	—	$	2,191	$	2,198

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 as of or for the three months ended March 31, 2021 and 2020 is set forth in the following table.

	March 31, 2021		March 31, 2020
Restructured loans past due in excess of 90 days at period-end:
Number of loans	2		3
Dollar amount of loans	$	1,392	$	1,733
Restructured loans on non-accrual status at period end	—		2,198
Charge-offs of restructured loans:
Recognized on previously restructured loans	1,433		1,533

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 set forth in our 2020 Form 10-K. 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 March 31, 2021. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).

	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		W/A Risk Grade
Commercial and industrial
Risk grades 1-8	$	486,852	$	874,754	$	512,101	$	260,536	$	193,920	$	198,420	$	1,782,914	$	58,427	$	4,367,924	6.18
Risk grade 9	11,174		40,156		34,652		29,911		16,891		14,197		59,650		10,015		216,646		9.00
Risk grade 10	25,740		11,803		3,264		7,392		2,769		278		56,961		5,856		114,063		10.00
Risk grade 11	9		4,374		10,409		6,075		3,127		1,074		19,143		8,875		53,086		11.00
Risk grade 12	—		7,564		1,919		921		724		114		553		2,277		14,072		12.00
Risk grade 13	—		2,780		544		—		480		—		274		359		4,437		13.00
	$	523,775	$	941,431	$	562,889	$	304,835	$	217,911	$	214,083	$	1,919,495	$	85,809	$	4,770,228	6.48
W/A risk grade	6.33		6.33		6.88		7.17		6.32		6.03		6.37		7.70		6.48
Energy
Risk grades 1-8	$	344,718	$	45,560	$	16,767	$	8,861	$	7,330	$	5,470	$	453,529	$	17,177	$	899,412	6.29
Risk grade 9	61,308		8,400		2,247		1,481		—		—		15,617		5,188		94,241		9.00
Risk grade 10	1,317		369		814		1,258		—		750		7,833		3,753		16,094		10.00
Risk grade 11	11,481		1,647		19,510		1,245		—		627		35,634		6,276		76,420		11.00
Risk grade 12	—		900		4,624		478		—		347		4,108		114		10,571		12.00
Risk grade 13	—		—		1,690		1,423		—		—		2,358		—		5,471		13.00
	$	418,824	$	56,876	$	45,652	$	14,746	$	7,330	$	7,194	$	519,079	$	32,508	$	1,102,209	6.99
W/A risk grade	6.93		6.94		9.70		8.67		7.42		7.83		6.64		8.63		6.99
Commercial real estate:
Buildings, land, other
Risk grades 1-8	$	356,814	$	1,497,610	$	914,168	$	666,186	$	570,468	$	969,182	$	56,513	$	66,100	$	5,097,041	6.93
Risk grade 9	22,563		62,562		82,497		59,815		46,457		57,414		4,885		2,484		338,677		9.00
Risk grade 10	2,638		20,217		27,966		56,444		67,214		79,519		—		11,083		265,081		10.00
Risk grade 11	2,003		22,411		14,074		13,549		39,196		57,418		3,200		140		151,991		11.00
Risk grade 12	—		1,700		2,995		989		2,114		3,011		3,187		—		13,996		12.00
Risk grade 13	—		—		—		—		—		250		—		—		250		13.00
	$	384,018	$	1,604,500	$	1,041,700	$	796,983	$	725,449	$	1,166,794	$	67,785	$	79,807	$	5,867,036	7.31
W/A risk grade	7.21		7.18		7.29		7.48		7.53		7.27		7.68		7.12		7.31
Construction
Risk grades 1-8	$	180,644	$	277,006	$	439,531	$	124,821	$	60	$	2,848	$	128,827	$	—	$	1,153,737	7.01
Risk grade 9	2,955		33,213		—		—		2,813		—		13,793		—		52,774		9.00
Risk grade 10	—		—		—		27,720		—		—		—		—		27,720		10.00
Risk grade 11	—		1,110		—		—		—		—		—		—		1,110		11.00
Risk grade 12	—		1,653		—		—		—		—		—		—		1,653		12.00
Risk grade 13	—		—		—		—		—		—		—		—		—		13.00
	$	183,599	$	312,982	$	439,531	$	152,541	$	2,873	$	2,848	$	142,620	$	—	$	1,236,994	7.17
W/A risk grade	6.84		6.85		7.13		8.24		8.96		6.79		7.23		—		7.17
Total commercial real estate	$	567,617	$	1,917,482	$	1,481,231	$	949,524	$	728,322	$	1,169,642	$	210,405	$	79,807	$	7,104,030	7.28
W/A risk grade	7.09		7.12		7.24		7.61		7.53		7.27		7.37		7.12		7.28

In the table above, certain loans are reported as 2021 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 2021 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, 2020. Refer to our 2020 Form 10-K for details of these loans by year of origination/renewal.

	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	6.13	$	4,506,121	5.99	$	968,144	6.97	$	5,047,873	6.99	$	1,110,025	6.98	$	6,157,898
Risk grade 9	9.00	256,198		9.00	133,547		9.00	325,227		9.00	72,287		9.00	397,514
Risk grade 10	10.00	125,977		10.00	46,427		10.00	258,454		10.00	38,962		10.00	297,416
Risk grade 11	11.00	47,196		11.00	63,912		11.00	149,362		11.00	856		11.00	150,218
Risk grade 12	12.00	14,528		12.00	13,741		12.00	15,224		12.00	1,684		12.00	16,908
Risk grade 13	13.00	5,321		13.00	9,427		13.00	513		13.00	—		13.00	513
Total	6.45	$	4,955,341	6.85	$	1,235,198	7.34	$	5,796,653	7.22	$	1,223,814	7.32	$	7,020,467

Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of March 31, 2021 was as follows:

	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Consumer real estate:
Past due 30-89 days	$	—	$	230	$	255	$	1,418	$	716	$	1,464	$	994	$	896	$	5,973
Past due 90 or more days	—		—		470		—		404		1,558		492		330		3,254
Total past due	—		230		725		1,418		1,120		3,022		1,486		1,226		9,227
Current loans	62,908		331,440		144,445		81,559		71,346		169,122		437,555		14,552		1,312,927
Total	$	62,908	$	331,670	$	145,170	$	82,977	$	72,466	$	172,144	$	439,041	$	15,778	$	1,322,154
Consumer and other:
Past due 30-89 days	$	4	$	1,266	$	131	$	144	$	83	$	24	$	695	$	850	$	3,197
Past due 90 or more days	—		110		—		113		—		—		45		179		447
Total past due	4		1,376		131		257		83		24		740		1,029		3,644
Current loans	20,060		31,370		18,966		4,669		2,408		1,914		349,628		29,127		458,142
Total	$	20,064	$	32,746	$	19,097	$	4,926	$	2,491	$	1,938	$	350,368	$	30,156	$	461,786

Revolving loans that converted to term during the three months ended March 31, 2021 and 2020 were as follows:

	Three months ended March 31,
	2021		2020
Commercial and industrial	$	11,843	$	11,346
Energy	5,928		15,353
Commercial real estate:
Buildings, land and other	23,303		7,639
Construction	—		—
Consumer real estate	793		1,071
Consumer and other	3,861		—
Total	$	45,728	$	35,409

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, the components of which are more fully described in our 2020 Form 10-K, totaled 121.4 at March 31, 2021 and 118.6 at December 31, 2020. A higher TLI value implies more 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. 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. Our allowance methodology is more fully described in our 2020 Form 10-K.

The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of March 31, 2021 and December 31, 2020. No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.

March 31, 2021	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Modeled expected credit losses	$	54,849	$	11,560	$	40,831	$	5,608	$	6,794	$	119,642
Q-Factor and other qualitative adjustments	10,964		15,047		103,359		28		6		129,404
Specific allocations	5,079		6,865		250		—		18		12,212
Total	$	70,892	$	33,472	$	144,440	$	5,636	$	6,818	$	261,258
December 31, 2020
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 details activity in the allowance for credit losses on loans by portfolio segment for the three months ended March 31, 2021 and 2020. 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
Three months ended:
March 31, 2021
Beginning balance	$	73,843	$	39,553	$	134,892	$	7,926	$	6,963	$	263,177
Credit loss expense (benefit)	(1,965)		(5,801)		8,922		(2,722)		1,566		—
Charge-offs	(2,189)		(1,433)		—		(284)		(4,060)		(7,966)
Recoveries	1,203		1,153		626		716		2,349		6,047
Net (charge-offs) recoveries	(986)		(280)		626		432		(1,711)		(1,919)
Ending balance	$	70,892	$	33,472	$	144,440	$	5,636	$	6,818	$	261,258
March 31, 2020
Beginning balance	$	51,593	$	37,382	$	31,037	$	4,113	$	8,042	$	132,167
Impact of adopting ASC 326	21,263		(10,453)		(13,519)		2,392		(2,248)		(2,565)
Credit loss expense	21,950		110,006		34,761		1,570		4,638		172,925
Charge-offs	(4,369)		(33,800)		(73)		(285)		(5,005)		(43,532)
Recoveries	1,715		66		113		380		2,612		4,886
Net (charge-offs) recoveries	(2,654)		(33,734)		40		95		(2,393)		(38,646)
Ending balance	$	92,152	$	103,201	$	52,319	$	8,170	$	8,039	$	263,881

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 March 31, 2021 and December 31, 2020.

	March 31, 2021				December 31, 2020
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
Commercial and industrial	$	21,858	$	5,079	$	21,287	$	5,321
Energy	22,496		6,865		22,888		9,427
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	32,345		250		34,057		513
Construction	1,653		—		1,684		—
Consumer real estate	302		—		561		—
Consumer and other	18		18		18		18
Total	$	78,672	$	12,212	$	80,495	$	15,279