Loans

6 Months Ended

Jun. 30, 2022

Loans were as follows:


	June 30, 2022		December 31, 2021
Commercial and industrial	$	5,539,277	$	5,364,954
Energy:
Production	762,625		878,436
Service	121,356		105,901
Other	103,944		93,455
Total energy	987,925		1,077,792
Paycheck Protection Program	91,919		428,882
Commercial real estate:
Commercial mortgages	6,041,606		5,867,062
Construction	1,535,808		1,304,271
Land	478,674		405,277
Total commercial real estate	8,056,088		7,576,610
Consumer real estate:
Home equity loans	352,633		324,157
Home equity lines of credit	603,907		519,098
Other	604,495		567,535
Total consumer real estate	1,561,035		1,410,790
Total real estate	9,617,123		8,987,400
Consumer and other	499,782		477,369
Total loans	$	16,736,026	$	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 June 30, 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 5.9% of total loans (also 5.9% excluding PPP loans). Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $887.3 million and $79.1 million, respectively, as of June 30, 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 June 30, 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 $342.5 million at June 30, 2022 and $350.5 million at December 31, 2021.

Accrued Interest Receivable. Accrued interest receivable on loans totaled $44.8 million and $40.0 million at June 30, 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:


	June 30, 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	$	11,170	$	3,093	$	22,582	$	4,701
Energy	11,114		6,442		14,433		8,533
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	11,806		6,419		15,297		13,817
Construction	—		—		948		—
Consumer real estate	1,035		732		440		138
Consumer and other	—		—		13		13
Total	$	35,125	$	16,686	$	53,713	$	27,202

The following table presents non-accrual loans as of June 30, 2022 by class and year of origination.


	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	$	—	$	98	$	3,520	$	3,507	$	1,491	$	653	$	108	$	1,793	$	11,170
Energy	5,779		—		—		—		21		—		5,127		187		11,114
Paycheck Protection Program	—		—		—		—		—		—		—		—		—
Commercial real estate:
Buildings, land and other	1,116		7,556		—		229		313		2,592		—		—		11,806
Construction	—		—		—		—		—		—		—		—		—
Consumer real estate	—		—		—		—		—		380		—		655		1,035
Consumer and other	—		—		—		—		—		—		—		—		—
Total	$	6,895	$	7,654	$	3,520	$	3,736	$	1,825	$	3,625	$	5,235	$	2,635	$	35,125

Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $436 thousand and $843 thousand for the three and six months ended June 30, 2022, respectively, and approximately $427 thousand and $881 thousand for the three and six months ended June 30, 2021, respectively.

An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of June 30, 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	$	14,529	$	3,993	$	18,522	$	5,520,755	$	5,539,277	$	3,280
Energy	200		3,275		3,475		984,450		987,925		—
Paycheck Protection Program	5,919		5,063		10,982		80,937		91,919		5,063
Commercial real estate:
Buildings, land and other	17,852		7,441		25,293		6,494,987		6,520,280		781
Construction	832		—		832		1,534,976		1,535,808		—
Consumer real estate	6,921		1,268		8,189		1,552,846		1,561,035		903
Consumer and other	4,443		598		5,041		494,741		499,782		598
Total	$	50,696	$	21,638	$	72,334	$	16,663,692	$	16,736,026	$	10,625

Troubled Debt Restructurings. Troubled debt restructurings during the six months ended June 30, 2022 and 2021 are set forth in the following table.


	Six Months Ended June 30, 2022				Six Months Ended June 30, 2021
	Balance at Restructure		Balance at Period-End		Balance at Restructure		Balance at Period-End

Energy	$	—	$	—	$	3,817	$	3,817
Commercial real estate:
Buildings, land and other	1,155		1,116		582		579



	$	1,155	$	1,116	$	4,399	$	4,396

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.

Information as of or for the six months ended June 30, 2022 and 2021 related to loans restructured during the preceding twelve months is set forth in the following table.


	June 30, 2022		June 30, 2021
Restructured loans past due in excess of 90 days at period-end:
Number of loans	—		1
Dollar amount of loans	$	—	$	1,322
Restructured loans on non-accrual status at period end	1,116		4,090
Charge-offs of restructured loans:
Recognized in connection with restructuring	—		—
Recognized on previously restructured loans	723		—
Proceeds from sale of restructured loans	1,070		—

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 (v) 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 June 30, 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	$	1,009,520	$	805,675	$	563,122	$	267,129	$	142,114	$	221,192	$	2,213,761	$	54,235	$	5,276,748	6.23
Risk grade 9	12,633		21,474		6,914		9,067		20,961		8,682		79,546		5,662		164,939		9.00
Risk grade 10	5,000		23,293		2,437		705		1,808		255		20,879		2,093		56,470		10.00
Risk grade 11	—		1,651		6,280		9,490		1,556		2,027		4,100		4,846		29,950		11.00
Risk grade 12	—		98		2,569		3,106		1,427		251		108		747		8,306		12.00
Risk grade 13	—		—		951		401		64		402		—		1,046		2,864		13.00
	$	1,027,153	$	852,191	$	582,273	$	289,898	$	167,930	$	232,809	$	2,318,394	$	68,629	$	5,539,277	6.38
W/A risk grade	6.28		7.03		6.10		6.75		7.01		5.79		6.20		7.52		6.38
Energy
Risk grades 1-8	$	312,271	$	111,163	$	6,939	$	6,332	$	3,564	$	5,239	$	446,460	$	49,185	$	941,153	5.57
Risk grade 9	1,660		95		268		1,192		26		—		10,955		39		14,235		9.00
Risk grade 10	—		—		73		515		239		—		—		58		885		10.00
Risk grade 11	9,097		221		541		4,630		885		164		5,000		—		20,538		11.00
Risk grade 12	3,463		—		—		—		21		—		2,771		187		6,442		12.00
Risk grade 13	2,316		—		—		—		—		—		2,356		—		4,672		13.00
	$	328,807	$	111,479	$	7,821	$	12,669	$	4,735	$	5,403	$	467,542	$	49,469	$	987,925	5.82
W/A risk grade	6.09		5.66		7.69		8.63		8.30		7.17		5.46		6.25		5.82
Commercial real estate:
Buildings, land, other
Risk grades 1-8	$	1,101,851	$	1,495,414	$	999,836	$	788,421	$	428,539	$	963,918	$	84,964	$	106,450	$	5,969,393	6.90
Risk grade 9	64,026		27,271		99,934		47,898		20,773		35,908		7,412		2,848		306,070		9.00
Risk grade 10	5,851		17,824		17,104		52,210		20,353		53,622		3,500		—		170,464		10.00
Risk grade 11	162		434		1,269		7,189		8,969		44,318		206		—		62,547		11.00
Risk grade 12	646		6,545		—		229		313		2,592		—		—		10,325		12.00
Risk grade 13	470		1,011		—		—		—		—		—		—		1,481		13.00
	$	1,173,006	$	1,548,499	$	1,118,143	$	895,947	$	478,947	$	1,100,358	$	96,082	$	109,298	$	6,520,280	7.12
W/A risk grade	7.01		7.23		7.16		7.25		7.28		6.95		7.24		6.44		7.12
Construction
Risk grades 1-8	$	276,072	$	662,364	$	179,896	$	100,915	$	631	$	1,804	$	253,781	$	4,247	$	1,479,710	6.86
Risk grade 9	11,295		637		2,670		—		—		401		—		—		15,003		9.00
Risk grade 10	27,992		—		—		13,103		—		—		—		—		41,095		10.00
Risk grade 11	—		—		—		—		—		—		—		—		—		11.00
Risk grade 12	—		—		—		—		—		—		—		—		—		12.00
Risk grade 13	—		—		—		—		—		—		—		—		—		13.00
	$	315,359	$	663,001	$	182,566	$	114,018	$	631	$	2,205	$	253,781	$	4,247	$	1,535,808	6.96
W/A risk grade	7.10		7.12		6.64		8.21		6.21		7.16		6.10		5.01		6.96
Total commercial real estate	$	1,488,365	$	2,211,500	$	1,300,709	$	1,009,965	$	479,578	$	1,102,563	$	349,863	$	113,545	$	8,056,088	7.09
W/A risk grade	7.03		7.19		7.09		7.36		7.28		6.95		6.41		6.39		7.09

In the table above, certain energy and commercial real estate 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 June 30, 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	$	140	$	287	$	387	$	668	$	401	$	2,771	$	602	$	1,665	$	6,921
Past due 90 or more days	—		—		—		4		142		875		247		—		1,268
Total past due	140		287		387		672		543		3,646		849		1,665		8,189
Current loans	154,178		324,089		211,133		80,351		43,828		137,836		592,539		8,892		1,552,846
Total	$	154,318	$	324,376	$	211,520	$	81,023	$	44,371	$	141,482	$	593,388	$	10,557	$	1,561,035
Consumer and other:
Past due 30-89 days	$	1,974	$	69	$	64	$	44	$	5	$	45	$	32	$	2,210	$	4,443
Past due 90 or more days	439		—		—		19		11		—		—		129		598
Total past due	2,413		69		64		63		16		45		32		2,339		5,041
Current loans	31,230		30,712		10,798		4,166		1,814		2,042		391,713		22,266		494,741
Total	$	33,643	$	30,781	$	10,862	$	4,229	$	1,830	$	2,087	$	391,745	$	24,605	$	499,782

Revolving loans that converted to term during the three and six months ended June 30, 2022 and 2021 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Commercial and industrial	$	16,518	$	22,111	$	21,973	$	31,561
Energy	247		294		247		6,177
Commercial real estate:
Buildings, land and other	10,681		8,195		10,726		31,321
Construction	13		—		4,248		—
Consumer real estate	888		205		1,684		977
Consumer and other	1,792		1,961		5,868		5,696
Total	$	30,139	$	32,766	$	44,746	$	75,732

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 138.4 at June 30, 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 June 30, 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.


June 30, 2022	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Modeled expected credit losses	$	48,776	$	6,106	$	20,093	$	6,639	$	9,609	$	91,223
Q-Factor and other qualitative adjustments	35,134		3,989		95,532		133		2,526		137,314
Specific allocations	3,360		6,172		1,481		82		—		11,095
Total	$	87,270	$	16,267	$	117,106	$	6,854	$	12,135	$	239,632
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 and six months ended June 30, 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:
June 30, 2022
Beginning balance	$	87,026	$	15,422	$	128,954	$	6,359	$	9,074	$	246,835
Credit loss expense (benefit)	942		427		(12,232)		583		5,884		(4,396)
Charge-offs	(1,891)		—		—		(131)		(5,322)		(7,344)
Recoveries	1,193		418		384		43		2,499		4,537
Net charge-offs	(698)		418		384		(88)		(2,823)		(2,807)
Ending balance	$	87,270	$	16,267	$	117,106	$	6,854	$	12,135	$	239,632
June 30, 2021
Beginning balance	$	70,892	$	33,472	$	144,440	$	5,636	$	6,818	$	261,258
Credit loss expense (benefit)	(5,901)		(5,527)		3,654		611		2,784		(4,379)
Charge-offs	(685)		—		(137)		(388)		(3,882)		(5,092)
Recoveries	965		65		36		295		2,140		3,501
Net charge-offs	280		65		(101)		(93)		(1,742)		(1,591)
Ending balance	$	65,271	$	28,010	$	147,993	$	6,154	$	7,860	$	255,288


	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Six months ended:
June 30, 2022
Beginning balance	$	72,091	$	17,217	$	144,936	$	6,585	$	7,837	$	248,666
Credit loss expense (benefit)	18,503		(1,617)		(27,841)		557		10,466		68
Charge-offs	(5,346)		(371)		(702)		(362)		(11,093)		(17,874)
Recoveries	2,022		1,038		713		74		4,925		8,772
Net (charge-offs) recoveries	(3,324)		667		11		(288)		(6,168)		(9,102)
Ending balance	$	87,270	$	16,267	$	117,106	$	6,854	$	12,135	$	239,632
June 30, 2021
Beginning balance	$	73,843	$	39,553	$	134,892	$	7,926	$	6,963	$	263,177
Credit loss expense (benefit)	(7,866)		(11,328)		12,576		(2,111)		4,350		(4,379)
Charge-offs	(2,874)		(1,433)		(137)		(672)		(7,942)		(13,058)
Recoveries	2,168		1,218		662		1,011		4,489		9,548
Net (charge-offs) recoveries	(706)		(215)		525		339		(3,453)		(3,510)
Ending balance	$	65,271	$	28,010	$	147,993	$	6,154	$	7,860	$	255,288

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 June 30, 2022 and December 31, 2021.


	June 30, 2022				December 31, 2021
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
Commercial and industrial	$	12,539	$	3,360	$	24,523	$	10,536
Energy	15,906		6,172		16,393		5,480
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	21,205		1,481		24,670		200
Construction	—		—		948		200
Consumer real estate	934		82		303		36
Consumer and other	—		—		—		—
Total	$	50,584	$	11,095	$	66,837	$	16,452