Loans

3 Months Ended

Mar. 31, 2024

Loans were as follows:


	March 31, 2024		December 31, 2023
Commercial and industrial	$	6,108,136	$	5,967,182
Energy:
Production	663,436		681,568
Service	195,227		194,126
Other	79,217		61,043
Total energy	937,880		936,737
Commercial real estate:
Commercial mortgages	6,980,116		6,746,709
Construction	1,772,416		1,680,724
Land	568,106		555,211
Total commercial real estate	9,320,638		8,982,644
Consumer real estate:
Home equity lines of credit	810,053		792,876
Home equity loans	731,736		694,966
Home improvement loans	786,681		765,887
Other	230,200		206,997
Total consumer real estate	2,558,670		2,460,726
Total real estate	11,879,308		11,443,370
Consumer and other	462,882		476,962
Total loans	$	19,388,206	$	18,824,251

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, 2024, there were no concentrations of loans related to any single industry in excess of 10% of total loans. At that date, the largest industry concentrations were related to the automobile dealerships industry, which totaled 5.8% of total loans and the energy industry, which totaled 4.8% of total loans. Unfunded commitments to extend credit and standby letters of credit issued to customers in the automobile dealership industry totaled $490.9 million and $20.3 million, respectively, as of March 31, 2024, while unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.1 billion and $91.7 million, respectively, as of March 31, 2024.

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, 2024 or December 31, 2023.

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 $425.9 million at March 31, 2024 and $416.1 million at December 31, 2023.

Accrued Interest Receivable. Accrued interest receivable on loans totaled $94.0 million and $90.8 million at March 31, 2024 and December 31, 2023, respectively, and is included in accrued interest receivable and other assets in the accompanying 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, 2024				December 31, 2023
	Total Non-Accrual		Non-Accrual with No Credit Loss Allowance		Total Non-Accrual		Non-Accrual with No Credit Loss Allowance
Commercial and industrial	$	25,446	$	6,119	$	19,545	$	5,391
Energy	10,293		6,791		11,500		7,398
Commercial real estate:
Buildings, land, and other	30,012		12,519		22,420		4,983
Construction	—		—		—		—
Consumer real estate	5,764		3,533		7,442		5,160
Consumer and other	—		—		—		—
Total	$	71,515	$	28,962	$	60,907	$	22,932

The following table presents non-accrual loans as of March 31, 2024 by class and year of origination.


	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	$	11	$	2,059	$	394	$	2,941	$	935	$	2,719	$	2,178	$	14,209	$	25,446
Energy	5,268		—		—		—		56		1,321		3,502		146		10,293
Commercial real estate:
Buildings, land, and other	—		19,812		3,360		3,656		—		3,184		—		—		30,012
Construction	—		—		—		—		—		—		—		—		—
Consumer real estate	—		—		—		—		38		2,712		—		3,014		5,764
Consumer and other	—		—		—		—		—		—		—		—		—
Total	$	5,279	$	21,871	$	3,754	$	6,597	$	1,029	$	9,936	$	5,680	$	17,369	$	71,515

In the table above, energy and commercial and industrial loans reported as 2024 originations as of March 31, 2024 were first originated in years prior to 2024 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 $1.2 million for the three months ended March 31, 2024 and approximately $600 thousand for the three months ended March 31, 2023.

An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of March 31, 2024 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	$	34,328	$	25,713	$	60,041	$	6,048,095	$	6,108,136	$	7,319
Energy	2,349		24,375		26,724		911,156		937,880		19,351
Commercial real estate:
Buildings, land, and other	43,836		11,206		55,042		7,493,180		7,548,222		8,223
Construction	891		—		891		1,771,525		1,772,416		—
Consumer real estate	13,913		6,442		20,355		2,538,315		2,558,670		2,954
Consumer and other	5,889		253		6,142		456,740		462,882		253
Total	$	101,206	$	67,989	$	169,195	$	19,219,011	$	19,388,206	$	38,100

Modifications to Borrowers Experiencing Financial Difficulty. From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers experiencing financial difficulty may be in the form of a principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension or a combination thereof, among other things. During the three months ended March 31, 2024, we modified one commercial and industrial loan to a borrower who was experiencing financial difficulty. The loan had an outstanding balance of $28.9 million at March 31, 2024 and the modification included a payment delay and a term extension. There were no commitments to lend additional funds to this borrower. The financial effects of this loan modification were not significant and the modification did not significantly impact our determination of the allowance for credit losses on loans during the three months ended March 31, 2024. There were no modifications to borrowers experiencing financial difficulty during the three months ended March 31, 2023.

Information as of or for the three months ended March 31, 2024 and March 31, 2023 related to loans modified (by type of modification) in the preceding twelve months, respectively, whereby the borrower was experiencing financial difficulty at the time of modification is set forth in the following table.


	March 31, 2024		March 31, 2023
	Combination: Payment Delay and Term Extension		Combination: Payment Delay and Term Extension
Past due in excess of 90 days or on non-accrual status at period-end:
Commercial and industrial	$	13,644	$	—

Commercial real estate:
Buildings, land, and other	19,137		—



	$	32,781	$	—

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 2023 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 table presents weighted-average risk grades for all commercial loans, by class and year of origination/renewal, as of March 31, 2024.


	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		W/A Risk Grade
Commercial and industrial
Risk grades 1-8	$	788,259	$	799,207	$	640,565	$	413,197	$	331,143	$	343,646	$	2,103,487	$	50,085	$	5,469,589	6.28
Risk grade 9	41,562		43,457		43,429		6,436		5,063		17,960		89,123		5,008		252,038		9.00
Risk grade 10	25,688		5,250		5,278		15,136		2,927		4,848		100,864		707		160,698		10.00
Risk grade 11	23,260		23,096		20,467		24,455		6,621		2,941		91,166		8,359		200,365		11.00
Risk grade 12	11		1,257		250		2,937		924		2,719		450		11,779		20,327		12.00
Risk grade 13	—		802		144		4		11		—		1,728		2,430		5,119		13.00
	$	878,780	$	873,069	$	710,133	$	462,165	$	346,689	$	372,114	$	2,386,818	$	78,368	$	6,108,136	6.67
W/A risk grade	6.52		6.91		7.13		7.30		5.82		6.09		6.54		8.53		6.67
Energy
Risk grades 1-8	$	222,335	$	32,898	$	53,057	$	69,990	$	4,467	$	5,496	$	480,392	$	7,897	$	876,532	5.69
Risk grade 9	—		2,353		3,814		897		—		437		17,700		54		25,255		9.00
Risk grade 10	—		—		—		27		—		734		1,129		—		1,890		10.00
Risk grade 11	—		—		2,094		18		89		2,963		18,311		435		23,910		11.00
Risk grade 12	5,268		—		—		—		56		1,321		802		146		7,593		12.00
Risk grade 13	—		—		—		—		—		—		2,700		—		2,700		13.00
	$	227,603	$	35,251	$	58,965	$	70,932	$	4,612	$	10,951	$	521,034	$	8,532	$	937,880	6.00
W/A risk grade	5.89		6.95		7.17		5.98		6.37		8.90		5.76		7.27		6.00

Commercial real estate:
Buildings, land, other
Risk grades 1-8	$	408,058	$	1,515,706	$	1,569,318	$	1,195,050	$	726,365	$	1,285,229	$	128,573	$	97,011	$	6,925,310	7.04
Risk grade 9	613		7,036		108,049		68,104		9,145		37,054		110,533		541		341,075		9.00
Risk grade 10	—		6,048		35,944		15,690		48,851		15,918		3,709		—		126,160		10.00
Risk grade 11	58		12,277		28,800		20,214		14,200		49,260		856		—		125,665		11.00
Risk grade 12	—		15,663		3,237		3,656		—		3,184		—		—		25,740		12.00
Risk grade 13	—		4,149		123		—		—		—		—		—		4,272		13.00
	$	408,729	$	1,560,879	$	1,745,471	$	1,302,714	$	798,561	$	1,390,645	$	243,671	$	97,552	$	7,548,222	7.26
W/A risk grade	7.00		7.27		7.30		7.35		7.24		7.09		8.24		6.71		7.26
Construction
Risk grades 1-8	$	227,895	$	433,679	$	520,522	$	187,481	$	28,028	$	1,353	$	166,140	$	—	$	1,565,098	7.29
Risk grade 9	1,499		6,358		30,611		76,103		—		—		5,396		—		119,967		9.00
Risk grade 10	13,555		—		12,299		15,000		—		—		—		—		40,854		10.00
Risk grade 11	—		—		35,367		11,130		—		—		—		—		46,497		11.00
Risk grade 12	—		—		—		—		—		—		—		—		—		12.00
Risk grade 13	—		—		—		—		—		—		—		—		—		13.00
	$	242,949	$	440,037	$	598,799	$	289,714	$	28,028	$	1,353	$	171,536	$	—	$	1,772,416	7.56
W/A risk grade	7.46		7.39		7.70		8.28		2.54		6.82		7.27		—		7.56
Total commercial real estate	$	651,678	$	2,000,916	$	2,344,270	$	1,592,428	$	826,589	$	1,391,998	$	415,207	$	97,552	$	9,320,638	7.32
W/A risk grade	7.17		7.30		7.40		7.52		7.08		7.09		7.84		6.71		7.32

In the table above, certain loans are reported as 2024 originations and have risk grades of 11 or higher. These loans were, for the most part, first originated in various years prior to 2024 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, 2023. Refer to our 2023 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	6.32	$	5,507,878	5.73	$	871,221	7.03	$	6,895,358	7.27	$	1,526,086	7.07	$	8,421,444
Risk grade 9	9.00	205,244		9.00	27,643		9.00	173,470		9.00	127,102		9.00	300,572
Risk grade 10	10.00	109,254		10.00	818		10.00	96,601		10.00	17,035		10.00	113,636
Risk grade 11	11.00	125,261		11.00	25,555		11.00	114,071		11.00	10,501		11.00	124,572
Risk grade 12	12.00	17,102		12.00	8,800		12.00	19,770		12.00	—		12.00	19,770
Risk grade 13	13.00	2,443		13.00	2,700		13.00	2,650		13.00	—		13.00	2,650
Total	6.60	$	5,967,182	6.05	$	936,737	7.20	$	7,301,920	7.45	$	1,680,724	7.24	$	8,982,644

Information about the payment status of consumer loans, segregated by portfolio segment and year of origination, as of March 31, 2024 was as follows:


	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Consumer real estate:
Past due 30-89 days	$	—	$	1,216	$	1,811	$	1,601	$	767	$	2,390	$	5,159	$	969	$	13,913
Past due 90 or more days	—		366		606		390		207		1,050		805		3,018		6,442
Total past due	—		1,582		2,417		1,991		974		3,440		5,964		3,987		20,355
Current loans	111,517		580,838		423,878		272,415		164,536		184,967		792,971		7,193		2,538,315
Total	$	111,517	$	582,420	$	426,295	$	274,406	$	165,510	$	188,407	$	798,935	$	11,180	$	2,558,670
Consumer and other:
Past due 30-89 days	$	2,013	$	600	$	200	$	75	$	68	$	34	$	2,835	$	64	$	5,889
Past due 90 or more days	72		—		55		—		—		12		101		13		253
Total past due	2,085		600		255		75		68		46		2,936		77		6,142
Current loans	30,106		46,779		25,114		4,709		3,062		1,961		322,406		22,603		456,740
Total	$	32,191	$	47,379	$	25,369	$	4,784	$	3,130	$	2,007	$	325,342	$	22,680	$	462,882

Revolving loans that converted to term during the three months ended March 31, 2024 and 2023 were as follows:


	Three Months Ended March 31,
		2024		2023
Commercial and industrial		$	20,972	$	15,490
Energy		44		3,435
Commercial real estate:
Buildings, land and other		3,081		—
Construction		—		—
Consumer real estate		792		707
Consumer and other		3,020		6,342
Total		$	27,909	$	25,974

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 2023 Form 10-K, totaled 128.2 at March 31, 2024 and 127.1 at December 31, 2023. 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 2023 Form 10-K.

During the first quarter of 2024, we updated our non-owner-occupied commercial real estate loan models as well as our consumer and other loan models. Our prior non-owner-occupied commercial real estate loan models were legacy models developed for stress-testing purposes by a third-party using external market data. The updated non-owner-occupied commercial real estate loan models are now based on internal historical loan data and risk grade information and the modeling processes are now consistent with those used with our other commercial loan models. Our prior consumer and other loan models relied upon certain components that did not use loan level attributes and were less sensitive to macroeconomic variables. The updated consumer and other loan models are now based on internal historical loan data and utilize more loan-level attributes and the modeling processes are now consistent with those used with our consumer real estate loan models. The overall approximate impact of the model updates during the first quarter was a $7.2 million increase ($6.2 million related to non-owner-occupied commercial real estate loans and $923 thousand related to consumer and other loans) in modeled expected credit losses on loans; however, the impact of this increase was largely offset by reductions in qualitative adjustments as some of the risks to which those qualitative adjustments related are now considered and incorporated in the updated models.

The following table presents details of the allowance for credit losses on loans segregated by loan portfolio segment as of March 31, 2024 and December 31, 2023.


March 31, 2024	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Modeled expected credit losses	$	52,835	$	5,471	$	20,199	$	12,705	$	6,293	$	97,503
Q-Factor and other qualitative adjustments	17,642		6,047		113,753		444		2,109		139,995
Specific allocations	5,119		2,700		4,272		708		—		12,799
Total	$	75,596	$	14,218	$	138,224	$	13,857	$	8,402	$	250,297
December 31, 2023
Modeled expected credit losses	$	50,959	$	7,838	$	15,443	$	12,364	$	5,969	$	92,573
Q-Factor and other qualitative adjustments	20,612		7,276		112,505		433		4,071		144,897
Specific allocations	2,435		2,700		2,650		741		—		8,526
Total	$	74,006	$	17,814	$	130,598	$	13,538	$	10,040	$	245,996

The following table details activity in the allowance for credit losses on loans by portfolio segment for the three months ended March 31, 2024 and 2023. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Three months ended:
March 31, 2024
Beginning balance	$	74,006	$	17,814	$	130,598	$	13,538	$	10,040	$	245,996
Credit loss expense (benefit)	1,992		(3,776)		7,610		1,806		4,018		11,650
Charge-offs	(2,144)		—		—		(1,669)		(8,257)		(12,070)
Recoveries	1,742		180		16		182		2,601		4,721
Net (charge-offs) recoveries	(402)		180		16		(1,487)		(5,656)		(7,349)
Ending balance	$	75,596	$	14,218	$	138,224	$	13,857	$	8,402	$	250,297


	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
March 31, 2023
Beginning balance	$	104,237	$	18,062	$	90,301	$	8,004	$	7,017	$	227,621
Credit loss expense (benefit)	(20,684)		966		25,361		1,283		5,749		12,675
Charge-offs	(6,180)		—		—		(250)		(6,942)		(13,372)
Recoveries	1,092		163		31		671		2,633		4,590
Net (charge-offs) recoveries	(5,088)		163		31		421		(4,309)		(8,782)
Ending balance	$	78,465	$	19,191	$	115,693	$	9,708	$	8,457	$	231,514

The following table presents year-to-date gross charge-offs by year of origination as of March 31, 2024.


	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	$	—	$	96	$	572	$	439	$	6	$	13	$	794	$	224	$	2,144
Energy	—		—		—		—		—		—		—		—		—
Commercial real estate:
Buildings, land and other	—		—		—		—		—		—		—		—		—
Construction	—		—		—		—		—		—		—		—		—
Consumer real estate	—		—		148		253		—		280		921		67		1,669
Consumer and other	1,958		5,543		64		4		4		34		650		—		8,257
Total	$	1,958	$	5,639	$	784	$	696	$	10	$	327	$	2,365	$	291	$	12,070

In the table above, $2.0 million of the consumer and other loan charge-offs reported as 2024 originations and $5.5 million of the total reported as 2023 originations were related to deposit overdrafts.

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, 2024 and December 31, 2023.


	March 31, 2024				December 31, 2023
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
Commercial and industrial	$	24,743	$	5,119	$	18,670	$	2,435
Energy	10,147		2,700		11,353		2,700
Commercial real estate:
Buildings, land and other	29,211		4,272		21,373		2,650
Construction	—		—		—		—
Consumer real estate	5,584		708		7,235		741
Consumer and other	—		—		—		—
Total	$	69,685	$	12,799	$	58,631	$	8,526