Loans

3 Months Ended

Mar. 31, 2022

Receivables [Abstract]

Loans

Loans

Loans were as follows:

	March 31, 2022		December 31, 2021
Commercial and industrial	$	5,584,117	$	5,364,954
Energy:
Production	820,107		878,436
Service	113,708		105,901
Other	102,764		93,455
Total energy	1,036,579		1,077,792
Paycheck Protection Program	207,669		428,882
Commercial real estate:
Commercial mortgages	5,918,011		5,867,062
Construction	1,421,878		1,304,271
Land	458,510		405,277
Total commercial real estate	7,798,399		7,576,610
Consumer real estate:
Home equity loans	321,842		324,157
Home equity lines of credit	544,822		519,098
Other	566,961		567,535
Total consumer real estate	1,433,625		1,410,790
Total real estate	9,232,024		8,987,400
Consumer and other	482,148		477,369
Total loans	$	16,542,537	$	16,336,397

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, 2022, 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 6.3% of total loans (also 6.3% excluding PPP loans). Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $862.2 million and $76.0 million, respectively, as of March 31, 2022.

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, 2022 or December 31, 2021.

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 $346.5 million at March 31, 2022 and $350.5 million at December 31, 2021.

Accrued Interest Receivable. Accrued interest receivable on loans totaled $39.5 million and $40.0 million at March 31, 2022 and December 31, 2021, respectively and is included in accrued interest receivable and other assets in the accompany consolidated balance sheets.

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, 2022				December 31, 2021
	Total Non-Accrual		Non-Accrual with No Credit Loss Allowance		Total Non-Accrual		Non-Accrual with No Credit Loss Allowance
Commercial and industrial	$	16,693	$	6,135	$	22,582	$	4,701
Energy	12,271		6,912		14,433		8,533
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	19,003		17,005		15,297		13,817
Construction	583		583		948		—
Consumer real estate	416		114		440		138
Consumer and other	—		—		13		13
Total	$	48,966	$	30,749	$	53,713	$	27,202

The following table presents non-accrual loans as of March 31, 2022 by class and year of origination.

	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	$	—	$	478	$	4,101	$	3,910	$	1,552	$	1,033	$	2,038	$	3,581	$	16,693
Energy	—		—		—		5,039		1,137		—		5,997		98		12,271
Paycheck Protection Program	—		—		—		—		—		—		—		—		—
Commercial real estate:
Buildings, land and other	—		8,407		296		1,199		394		2,932		—		5,775		19,003
Construction	—		—		583		—		—		—		—		—		583
Consumer real estate	—		—		—		—		—		390		—		26		416
Consumer and other	—		—		—		—		—		—		—		—		—
Total	$	—	$	8,885	$	4,980	$	10,148	$	3,083	$	4,355	$	8,035	$	9,480	$	48,966

Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $407 thousand for the three months ended March 31, 2022, and approximately $453 thousand for the three months ended March 31, 2021.

An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of March 31, 2022 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	$	13,016	$	8,042	$	21,058	$	5,563,059	$	5,584,117	$	4,166
Energy	—		6,382		6,382		1,030,197		1,036,579		287
Paycheck Protection Program	671		8,377		9,048		198,621		207,669		8,377
Commercial real estate:
Buildings, land and other	21,542		11,546		33,088		6,343,433		6,376,521		1,046
Construction	1,988		—		1,988		1,419,890		1,421,878		—
Consumer real estate	4,210		2,409		6,619		1,427,006		1,433,625		2,103
Consumer and other	6,393		593		6,986		475,162		482,148		593
Total	$	47,820	$	37,349	$	85,169	$	16,457,368	$	16,542,537	$	16,572

Troubled Debt Restructurings. There were no loans modified as troubled debt restructurings during the three months ended March 31, 2022 and 2021. 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. Modifications have not generally had a significant impact on our determination of the allowance for credit losses on loans. Information as of or for the three months ended March 31, 2022 and 2021 related to loans restructured during the last twelve months is set forth in the following table.

	March 31, 2022		March 31, 2021
Restructured loans past due in excess of 90 days at period-end:
Number of loans	2		2
Dollar amount of loans	$	572	$	1,392
Charge-offs of restructured loans:
Recognized on previously restructured loans	723		1,433

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 2021 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, 2022. Paycheck Protection Program (“PPP”) loans are excluded as such loans are fully guaranteed by the Small Business Administration (“SBA”).

	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		W/A Risk Grade
Commercial and industrial
Risk grades 1-8	$	836,152	$	894,663	$	592,780	$	305,667	$	160,622	$	243,869	$	2,255,878	$	44,778	$	5,334,409	6.18
Risk grade 9	4,702		34,513		6,562		11,434		21,841		8,319		54,008		4,721		146,100		9.00
Risk grade 10	3,500		22,084		6,527		1,039		4,007		578		13,899		1,198		52,832		10.00
Risk grade 11	—		1,926		6,672		9,679		1,697		2,200		5,958		5,951		34,083		11.00
Risk grade 12	—		478		2,644		3,510		1,488		619		941		2,015		11,695		12.00
Risk grade 13	—		—		1,457		400		64		414		1,097		1,566		4,998		13.00
	$	844,354	$	953,664	$	616,642	$	331,729	$	189,719	$	255,999	$	2,331,781	$	60,229	$	5,584,117	6.34
W/A risk grade	6.16		6.87		6.17		6.75		7.00		5.80		6.14		7.82		6.34
Energy
Risk grades 1-8	$	279,051	$	125,435	$	7,519	$	8,444	$	4,068	$	5,665	$	509,657	$	59,424	$	999,263	5.71
Risk grade 9	1,425		103		508		1,407		96		—		5,668		43		9,250		9.00
Risk grade 10	—		—		90		580		351		—		—		515		1,536		10.00
Risk grade 11	9,097		265		512		3,256		951		178		—		—		14,259		11.00
Risk grade 12	—		—		—		3,708		58		—		3,215		98		7,079		12.00
Risk grade 13	—		—		—		1,331		1,079		—		2,782		—		5,192		13.00
	$	289,573	$	125,803	$	8,629	$	18,726	$	6,603	$	5,843	$	521,322	$	60,080	$	1,036,579	5.89
W/A risk grade	6.36		5.77		7.73		9.34		9.24		7.16		5.41		6.31		5.89

	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		W/A Risk Grade
Commercial real estate:
Buildings, land, other
Risk grades 1-8	$	607,883	$	1,554,611	$	1,113,230	$	809,206	$	498,477	$	1,057,840	$	72,704	$	96,924	$	5,810,875	6.89
Risk grade 9	6,163		20,766		108,943		53,448		23,459		45,034		5,516		2,618		265,947		9.00
Risk grade 10	46,125		22,716		7,310		66,821		24,539		57,602		—		—		225,113		10.00
Risk grade 11	—		260		1,293		7,328		6,788		36,699		3,215		—		55,583		11.00
Risk grade 12	—		8,081		296		1,199		394		2,932		—		5,775		18,677		12.00
Risk grade 13	—		326		—		—		—		—		—		—		326		13.00
	$	660,171	$	1,606,760	$	1,231,072	$	938,002	$	553,657	$	1,200,107	$	81,435	$	105,317	$	6,376,521	7.14
W/A risk grade	7.08		7.22		7.04		7.32		7.27		6.97		7.06		6.99		7.14
Construction
Risk grades 1-8	$	202,413	$	634,897	$	195,127	$	141,510	$	636	$	1,842	$	207,182	$	3,666	$	1,387,273	6.96
Risk grade 9	171		28,069		5,359		—		—		423		—		—		34,022		9.00
Risk grade 10	—		—		—		—		—		—		—		—		—		10.00
Risk grade 11	—		—		—		—		—		—		—		—		—		11.00
Risk grade 12	—		—		583		—		—		—		—		—		583		12.00
Risk grade 13	—		—		—		—		—		—		—		—		—		13.00
	$	202,584	$	662,966	$	201,069	$	141,510	$	636	$	2,265	$	207,182	$	3,666	$	1,421,878	7.01
W/A risk grade	6.83		7.28		6.38		7.98		6.22		7.17		6.28		8.00		7.01
Total commercial real estate	$	862,755	$	2,269,726	$	1,432,141	$	1,079,512	$	554,293	$	1,202,372	$	288,617	$	108,983	$	7,798,399	7.11
W/A risk grade	7.02		7.24		6.95		7.41		7.27		6.97		6.50		7.03		7.11

In the table above, certain energy loans are reported as 2022 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 2022 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, 2021. Refer to our 2021 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	6.01	$	5,063,847	5.78	$	1,008,370	6.91	$	5,574,922	6.99	$	1,262,200	6.92	$	6,837,122
Risk grade 9	9.00	187,870		9.00	36,622		9.00	321,533		9.00	41,123		9.00	362,656
Risk grade 10	10.00	59,137		10.00	1,773		10.00	269,447		10.00	—		10.00	269,447
Risk grade 11	11.00	31,518		11.00	16,594		11.00	91,140		11.00	—		11.00	91,140
Risk grade 12	12.00	12,535		12.00	8,953		12.00	15,097		12.00	748		12.00	15,845
Risk grade 13	13.00	10,047		13.00	5,480		13.00	200		13.00	200		13.00	400
Total	6.22	$	5,364,954	6.06	$	1,077,792	7.22	$	6,272,339	7.06	$	1,304,271	7.19	$	7,576,610

Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of March 31, 2022 was as follows:

	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Consumer real estate:
Past due 30-89 days	$	—	$	303	$	55	$	465	$	309	$	1,587	$	60	$	1,431	$	4,210
Past due 90 or more days	—		—		4		—		297		854		1,004		250		2,409
Total past due	—		303		59		465		606		2,441		1,064		1,681		6,619
Current loans	51,321		322,814		225,921		86,664		48,481		149,677		533,182		8,946		1,427,006
Total	$	51,321	$	323,117	$	225,980	$	87,129	$	49,087	$	152,118	$	534,246	$	10,627	$	1,433,625
Consumer and other:
Past due 30-89 days	$	1,470	$	385	$	53	$	69	$	54	$	24	$	2,344	$	1,994	$	6,393
Past due 90 or more days	—		499		—		23		—		13		—		58		593
Total past due	1,470		884		53		92		54		37		2,344		2,052		6,986
Current loans	21,692		34,798		13,127		4,936		2,207		2,520		371,266		24,616		475,162
Total	$	23,162	$	35,682	$	13,180	$	5,028	$	2,261	$	2,557	$	373,610	$	26,668	$	482,148

Revolving loans that converted to term during the three months ended March 31, 2022 and 2021 were as follows:

	Three Months Ended March 31,
	2021		2020
Commercial and industrial	$	5,763	$	11,843
Energy	—		5,928
Commercial real estate:
Buildings, land and other	47		23,303
Construction	3,666		—
Consumer real estate	858		793
Consumer and other	4,222		3,861
Total	$	14,556	$	45,728

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 2021 Form 10-K, totaled 141.2 at March 31, 2022 and 135.9 at December 31, 2021. 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 2021 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, 2022 and December 31, 2021. No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.

March 31, 2022	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Modeled expected credit losses	$	46,635	$	5,971	$	17,110	$	6,260	$	7,634	$	83,610
Q-Factor and other qualitative adjustments	33,916		4,260		111,518		63		1,440		151,197
Specific allocations	6,475		5,191		326		36		—		12,028
Total	$	87,026	$	15,422	$	128,954	$	6,359	$	9,074	$	246,835
December 31, 2021
Modeled expected credit losses	$	46,946	$	6,363	$	16,676	$	6,484	$	6,397	$	82,866
Q-Factor and other qualitative adjustments	14,609		5,374		127,860		65		1,440		149,348
Specific allocations	10,536		5,480		400		36		—		16,452
Total	$	72,091	$	17,217	$	144,936	$	6,585	$	7,837	$	248,666

The following table details activity in the allowance for credit losses on loans by portfolio segment for the three months ended March 31, 2022 and 2021. 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, 2022
Beginning balance	$	72,091	$	17,217	$	144,936	$	6,585	$	7,837	$	248,666
Credit loss expense (benefit)	17,561		(2,044)		(15,609)		(26)		4,582		4,464
Charge-offs	(3,455)		(371)		(702)		(231)		(5,771)		(10,530)
Recoveries	829		620		329		31		2,426		4,235
Net charge-offs	(2,626)		249		(373)		(200)		(3,345)		(6,295)
Ending balance	$	87,026	$	15,422	$	128,954	$	6,359	$	9,074	$	246,835
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	(986)		(280)		626		432		(1,711)		(1,919)
Ending balance	$	70,892	$	33,472	$	144,440	$	5,636	$	6,818	$	261,258

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, 2022 and December 31, 2021.

	March 31, 2022				December 31, 2021
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
Commercial and industrial	$	21,529	$	6,475	$	24,523	$	10,536
Energy	11,931		5,191		16,393		5,480
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	28,806		326		24,670		200
Construction	—		—		948		200
Consumer real estate	302		36		303		36
Consumer and other	—		—		—		—
Total	$	62,568	$	12,028	$	66,837	$	16,452