Loans

9 Months Ended

Sep. 30, 2022

Loans were as follows:


	September 30, 2022		December 31, 2021
Commercial and industrial	$	5,531,820	$	5,364,954
Energy:
Production	701,975		878,436
Service	127,065		105,901
Other	89,085		93,455
Total energy	918,125		1,077,792
Paycheck Protection Program	51,048		428,882
Commercial real estate:
Commercial mortgages	6,149,504		5,867,062
Construction	1,557,415		1,304,271
Land	524,423		405,277
Total commercial real estate	8,231,342		7,576,610
Consumer real estate:
Home equity loans	401,234		324,157
Home equity lines of credit	661,618		519,098
Other	652,884		567,535
Total consumer real estate	1,715,736		1,410,790
Total real estate	9,947,078		8,987,400
Consumer and other	502,558		477,369
Total loans	$	16,950,629	$	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 September 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 5.4% of total loans (also 5.4% excluding PPP loans). Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.1 billion and $117.0 million, respectively, as of September 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 September 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 $356.4 million at September 30, 2022 and $350.5 million at December 31, 2021.

Accrued Interest Receivable. Accrued interest receivable on loans totaled $48.7 million and $40.0 million at September 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:


	September 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	$	7,267	$	4,425	$	22,582	$	4,701
Energy	16,134		7,277		14,433		8,533
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	5,489		2,497		15,297		13,817
Construction	—		—		948		—
Consumer real estate	1,014		712		440		138
Consumer and other	—		—		13		13
Total	$	29,904	$	14,911	$	53,713	$	27,202

The following table presents non-accrual loans as of September 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	$	—	$	85	$	1,065	$	3,245	$	1,439	$	234	$	467	$	732	$	7,267
Energy	5,154		—		72		1,394		15		—		7,746		1,753		16,134
Paycheck Protection Program	—		—		—		—		—		—		—		—		—
Commercial real estate:
Buildings, land and other	1,083		2,408		—		223		275		1,500		—		—		5,489
Construction	—		—		—		—		—		—		—		—		—
Consumer real estate	—		—		—		—		—		363		—		651		1,014
Consumer and other	—		—		—		—		—		—		—		—		—
Total	$	6,237	$	2,493	$	1,137	$	4,862	$	1,729	$	2,097	$	8,213	$	3,136	$	29,904

Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $372 thousand and $1.2 million for the three and nine months ended September 30, 2022, respectively, and approximately $474 thousand and $1.4 million for the three and nine months ended September 30, 2021, respectively.

An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of September 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	$	26,481	$	4,629	$	31,110	$	5,500,710	$	5,531,820	$	2,443
Energy	2,211		7,745		9,956		908,169		918,125		—
Paycheck Protection Program	13,841		7,879		21,720		29,328		51,048		7,879
Commercial real estate:
Buildings, land and other	20,434		2,341		22,775		6,651,152		6,673,927		1,731
Construction	1,238		—		1,238		1,556,177		1,557,415		—
Consumer real estate	7,169		2,110		9,279		1,706,457		1,715,736		1,803
Consumer and other	5,611		491		6,102		496,456		502,558		491
Total	$	76,985	$	25,195	$	102,180	$	16,848,449	$	16,950,629	$	14,347

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


	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 2021
	Balance at Restructure		Balance at Period-End		Balance at Restructure		Balance at Period-End
Commercial and industrial	$	—	$	—	$	1,312	$	1,237
Energy	—		—		3,817		3,566
Commercial real estate:
Buildings, land and other	1,155		1,083		1,888		1,875



	$	1,155	$	1,083	$	7,017	$	6,678

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 nine months ended September 30, 2022 and 2021 related to loans restructured during the preceding twelve months is set forth in the following table.


	September 30, 2022		September 30, 2021
Restructured loans past due in excess of 90 days at period-end:
Number of loans	—		1
Dollar amount of loans	$	—	$	306
Restructured loans on non-accrual status at period end	1,083		5,072
Charge-offs of restructured loans:
Recognized in connection with restructuring	—		—
Recognized on previously restructured loans	723		1,433
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 September 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	$	1,214,942	$	706,035	$	529,894	$	242,581	$	136,161	$	199,629	$	2,180,437	$	47,088	$	5,256,767	6.25
Risk grade 9	34,065		28,895		6,211		6,909		12,436		9,923		94,984		11,133		204,556		9.00
Risk grade 10	2,131		636		814		4,513		1,518		143		21,207		2,207		33,169		10.00
Risk grade 11	35		3,984		6,444		4,332		1,391		1,942		8,188		3,745		30,061		11.00
Risk grade 12	—		85		837		2,975		1,419		234		467		436		6,453		12.00
Risk grade 13	—		—		228		270		20		—		—		296		814		13.00
	$	1,251,173	$	739,635	$	544,428	$	261,580	$	152,945	$	211,871	$	2,305,283	$	64,905	$	5,531,820	6.41
W/A risk grade	6.44		7.05		6.04		6.66		6.92		5.73		6.25		7.57		6.41
Energy
Risk grades 1-8	$	319,910	$	105,110	$	5,238	$	5,674	$	2,346	$	4,146	$	386,836	$	45,123	$	874,383	5.61
Risk grade 9	1,722		147		245		659		829		—		10,016		35		13,653		9.00
Risk grade 10	—		—		—		456		226		—		—		47		729		10.00
Risk grade 11	8,714		186		173		3,183		819		151		—		—		13,226		11.00
Risk grade 12	4,104		—		72		1,394		15		—		4,571		303		10,459		12.00
Risk grade 13	1,050		—		—		—		—		—		3,175		1,450		5,675		13.00
	$	335,500	$	105,443	$	5,728	$	11,366	$	4,235	$	4,297	$	404,598	$	46,958	$	918,125	5.86
W/A risk grade	6.22		5.64		7.67		8.81		8.52		6.70		5.40		6.46		5.86
Commercial real estate:
Buildings, land, other
Risk grades 1-8	$	1,434,936	$	1,556,836	$	936,889	$	731,589	$	361,215	$	868,933	$	101,817	$	105,168	$	6,097,383	6.91
Risk grade 9	51,425		20,259		109,106		79,833		24,749		54,595		4,558		2,134		346,659		9.00
Risk grade 10	33,233		14,484		11,364		42,672		29,990		6,012		—		—		137,755		10.00
Risk grade 11	12,808		14,684		4,520		6,393		6,401		38,266		2,993		576		86,641		11.00
Risk grade 12	613		2,082		—		223		275		1,500		—		—		4,693		12.00
Risk grade 13	470		326		—		—		—		—		—		—		796		13.00
	$	1,533,485	$	1,608,671	$	1,061,879	$	860,710	$	422,630	$	969,306	$	109,368	$	107,878	$	6,673,927	7.14
W/A risk grade	7.11		7.19		7.27		7.20		7.35		6.90		7.26		6.45		7.14
Construction
Risk grades 1-8	$	464,837	$	568,694	$	162,262	$	35,986	$	490	$	1,762	$	243,723	$	4,414	$	1,482,168	6.85
Risk grade 9	11,270		2,253		2,100		—		—		—		17,382		—		33,005		9.00
Risk grade 10	28,851		75		—		—		—		—		—		—		28,926		10.00
Risk grade 11	—		—		—		13,316		—		—		—		—		13,316		11.00
Risk grade 12	—		—		—		—		—		—		—		—		—		12.00
Risk grade 13	—		—		—		—		—		—		—		—		—		13.00
	$	504,958	$	571,022	$	164,362	$	49,302	$	490	$	1,762	$	261,105	$	4,414	$	1,557,415	6.99
W/A risk grade	7.11		7.21		6.55		8.08		6.00		6.76		6.36		5.01		6.99
Total commercial real estate	$	2,038,443	$	2,179,693	$	1,226,241	$	910,012	$	423,120	$	971,068	$	370,473	$	112,292	$	8,231,342	7.11
W/A risk grade	7.11		7.20		7.17		7.24		7.35		6.90		6.63		6.39		7.11

In the table above, certain 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 September 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	$	90	$	726	$	689	$	503	$	405	$	1,605	$	1,549	$	1,602	$	7,169
Past due 90 or more days	—		—		64		341		151		1,116		208		230		2,110
Total past due	90		726		753		844		556		2,721		1,757		1,832		9,279
Current loans	283,431		317,862		201,281		74,855		41,146		129,830		649,300		8,752		1,706,457
Total	$	283,521	$	318,588	$	202,034	$	75,699	$	41,702	$	132,551	$	651,057	$	10,584	$	1,715,736
Consumer and other:
Past due 30-89 days	$	1,985	$	245	$	935	$	51	$	6	$	43	$	218	$	2,128	$	5,611
Past due 90 or more days	435		—		—		16		—		—		1		39		491
Total past due	2,420		245		935		67		6		43		219		2,167		6,102
Current loans	46,561		24,877		7,985		3,428		1,499		1,732		388,104		22,270		496,456
Total	$	48,981	$	25,122	$	8,920	$	3,495	$	1,505	$	1,775	$	388,323	$	24,437	$	502,558

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Commercial and industrial	$	2,368	$	12,009	$	22,579	$	39,551
Energy	1,582		52,055		1,806		57,871
Commercial real estate:
Buildings, land and other	—		6,012		10,759		37,093
Construction	—		—		4,414		—
Consumer real estate	700		330		2,223		1,172
Consumer and other	1,963		1,523		7,691		7,017
Total	$	6,613	$	71,929	$	49,472	$	142,704

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 130.3 at September 30, 2022 and 135.9 at December 31, 2021. 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. 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 September 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.


September 30, 2022	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Modeled expected credit losses	$	57,625	$	8,657	$	24,404	$	7,797	$	5,459	$	103,942
Q-Factor and other qualitative adjustments	39,931		4,519		74,307		156		2,533		121,446
Specific allocations	1,274		5,675		1,896		82		—		8,927
Total	$	98,830	$	18,851	$	100,607	$	8,035	$	7,992	$	234,315
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 nine months ended September 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:
September 30, 2022
Beginning balance	$	87,270	$	16,267	$	117,106	$	6,854	$	12,135	$	239,632
Credit loss expense (benefit)	10,844		2,491		(16,522)		940		(216)		(2,463)
Charge-offs	(572)		—		—		(68)		(6,549)		(7,189)
Recoveries	1,288		93		23		309		2,622		4,335
Net (charge-offs) recoveries	716		93		23		241		(3,927)		(2,854)
Ending balance	$	98,830	$	18,851	$	100,607	$	8,035	$	7,992	$	234,315
September 30, 2021
Beginning balance	$	65,271	$	28,010	$	147,993	$	6,154	$	7,860	$	255,288
Credit loss expense (benefit)	(1,020)		(7,720)		4,007		(982)		2,692		(3,023)
Charge-offs	(1,611)		—		—		—		(5,073)		(6,684)
Recoveries	1,126		159		54		857		2,373		4,569
Net (charge-offs) recoveries	(485)		159		54		857		(2,700)		(2,115)
Ending balance	$	63,766	$	20,449	$	152,054	$	6,029	$	7,852	$	250,150


	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Nine months ended:
September 30, 2022
Beginning balance	$	72,091	$	17,217	$	144,936	$	6,585	$	7,837	$	248,666
Credit loss expense (benefit)	29,347		874		(44,363)		1,497		10,250		(2,395)
Charge-offs	(5,918)		(371)		(702)		(430)		(17,642)		(25,063)
Recoveries	3,310		1,131		736		383		7,547		13,107
Net (charge-offs) recoveries	(2,608)		760		34		(47)		(10,095)		(11,956)
Ending balance	$	98,830	$	18,851	$	100,607	$	8,035	$	7,992	$	234,315
September 30, 2021
Beginning balance	$	73,843	$	39,553	$	134,892	$	7,926	$	6,963	$	263,177
Credit loss expense (benefit)	(8,886)		(19,048)		16,583		(3,093)		7,042		(7,402)
Charge-offs	(4,485)		(1,433)		(137)		(672)		(13,015)		(19,742)
Recoveries	3,294		1,377		716		1,868		6,862		14,117
Net (charge-offs) recoveries	(1,191)		(56)		579		1,196		(6,153)		(5,625)
Ending balance	$	63,766	$	20,449	$	152,054	$	6,029	$	7,852	$	250,150

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 September 30, 2022 and December 31, 2021.


	September 30, 2022				December 31, 2021
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
Commercial and industrial	$	8,655	$	1,274	$	24,523	$	10,536
Energy	15,947		5,675		16,393		5,480
Paycheck Protection Program	—		—		—		—
Commercial real estate:
Buildings, land and other	19,790		1,896		24,670		200
Construction	—		—		948		200
Consumer real estate	934		82		303		36
Consumer and other	—		—		—		—
Total	$	45,326	$	8,927	$	66,837	$	16,452