Loans

6 Months Ended

Jun. 30, 2024

Loans were as follows:


	June 30, 2024		December 31, 2023
Commercial and industrial	$	6,210,179	$	5,967,182
Energy:
Production	858,990		681,568
Service	209,658		194,126
Other	28,009		61,043
Total energy	1,096,657		936,737
Commercial real estate:
Commercial mortgages	6,955,118		6,746,709
Construction	1,997,545		1,680,724
Land	542,549		555,211
Total commercial real estate	9,495,212		8,982,644
Consumer real estate:
Home equity lines of credit	832,307		792,876
Home equity loans	790,727		694,966
Home improvement loans	813,799		765,887
Other	303,895		206,997
Total consumer real estate	2,740,728		2,460,726
Total real estate	12,235,940		11,443,370
Consumer and other	452,980		476,962
Total loans	$	19,995,756	$	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 June 30, 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 5.4% of total loans. Unfunded commitments to extend credit and standby letters of credit issued to customers in the automobile dealership industry totaled $490.4 million and $20.3 million, respectively, as of June 30, 2024, while unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.0 billion and $65.8 million, respectively, as of June 30, 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 June 30, 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 $281.0 million at June 30, 2024 and $416.1 million at December 31, 2023.

Accrued Interest Receivable. Accrued interest receivable on loans totaled $96.2 million and $90.8 million at June 30, 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:


	June 30, 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	$	26,329	$	8,044	$	19,545	$	5,391
Energy	9,147		6,045		11,500		7,398
Commercial real estate:
Buildings, land, and other	33,092		14,099		22,420		4,983
Construction	—		—		—		—
Consumer real estate	6,419		4,188		7,442		5,160
Consumer and other	—		—		—		—
Total	$	74,987	$	32,376	$	60,907	$	22,932

The following table presents non-accrual loans as of June 30, 2024 by class and year of origination.


	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	$	746	$	3,764	$	1,159	$	3,066	$	514	$	2,197	$	2,149	$	12,734	$	26,329
Energy	4,522		—		—		—		56		1,321		3,102		146		9,147
Commercial real estate:
Buildings, land, and other	328		20,115		3,027		5,374		—		1,411		2,837		—		33,092
Construction	—		—		—		—		—		—		—		—		—
Consumer real estate	—		—		—		—		—		6,419		—		—		6,419
Consumer and other	—		—		—		—		—		—		—		—		—
Total	$	5,596	$	23,879	$	4,186	$	8,440	$	570	$	11,348	$	8,088	$	12,880	$	74,987

In the table above, loans reported as 2024 originations as of June 30, 2024 were, for the most part, 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 $1.3 million and $2.5 million for the three and six months ended June 30, 2024 and approximately $835 thousand and $1.4 million for the three and six months ended June 30, 2023.

An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of June 30, 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	$	38,806	$	24,640	$	63,446	$	6,146,733	$	6,210,179	$	5,568
Energy	—		4,625		4,625		1,092,032		1,096,657		—
Commercial real estate:
Buildings, land, and other	20,272		14,620		34,892		7,462,775		7,497,667		1,687
Construction	24,535		—		24,535		1,973,010		1,997,545		—
Consumer real estate	17,659		8,819		26,478		2,714,250		2,740,728		4,707
Consumer and other	5,734		577		6,311		446,669		452,980		577
Total	$	107,006	$	53,281	$	160,287	$	19,835,469	$	19,995,756	$	12,539

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. The period-end balance of loan modifications, segregated by type of modification, to borrowers experiencing financial difficulty during the six months ended June 30, 2024 and 2023 are set forth in the table below, regardless of whether such modifications resulted in a new loan. There were no commitments to lend additional funds to these borrowers at June 30, 2024.


	Combination: Payment Delay and Term Extension		Percent of Total Class of Loans
June 30, 2024
Commercial and industrial	$	27,731	0.4	%







June 30, 2023
Commercial and industrial	$	16,020	0.3	%

Commercial real estate:
Buildings, land, and other	20,466		0.3



	$	36,486	0.2

The financial effects of the loan modifications made to borrowers experiencing financial difficulty were not significant during the six months ended June 30, 2024 and June 30, 2023. Furthermore, such modifications did not significantly impact our determination of the allowance for credit losses during those periods.

Information as of June 30, 2024 and June 30, 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.


	June 30, 2024		June 30, 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	$	—	$	16,020

Commercial real estate:
Buildings, land, and other	—		20,466



	$	—	$	36,486

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 June 30, 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	$	1,095,611	$	672,837	$	566,640	$	340,735	$	310,052	$	316,544	$	2,208,140	$	45,210	$	5,555,769	6.40
Risk grade 9	16,980		9,095		65,217		10,609		5,220		9,906		92,920		4,372		214,319		9.00
Risk grade 10	1,114		434		14,799		687		218		12,285		43,049		3,775		76,361		10.00
Risk grade 11	93,737		32,948		20,080		36,358		5,840		2,046		140,163		6,229		337,401		11.00
Risk grade 12	746		2,474		1,015		3,062		503		2,197		646		9,658		20,301		12.00
Risk grade 13	—		1,290		144		4		11		—		1,503		3,076		6,028		13.00
	$	1,208,188	$	719,078	$	667,895	$	391,455	$	321,844	$	342,978	$	2,486,421	$	72,320	$	6,210,179	6.81
W/A risk grade	7.27		6.93		7.29		7.32		5.72		6.07		6.53		8.52		6.81
Energy
Risk grades 1-8	$	300,048	$	34,672	$	49,350	$	49,328	$	3,927	$	5,041	$	597,664	$	6,669	$	1,046,699	5.63
Risk grade 9	—		1,342		3,634		755		—		414		23,888		652		30,685		9.00
Risk grade 10	—		—		—		21		—		694		4,100		—		4,815		10.00
Risk grade 11	—		—		2,075		—		72		2,945		—		219		5,311		11.00
Risk grade 12	4,522		—		—		—		56		1,321		402		146		6,447		12.00
Risk grade 13	—		—		—		—		—		—		2,700		—		2,700		13.00
	$	304,570	$	36,014	$	55,059	$	50,104	$	4,055	$	10,415	$	628,754	$	7,686	$	1,096,657	5.83
W/A risk grade	6.11		6.80		7.00		5.88		6.56		9.00		5.44		7.32		5.83
Commercial real estate:
Buildings, land, other
Risk grades 1-8	$	675,926	$	1,431,165	$	1,485,228	$	1,150,261	$	706,667	$	1,153,397	$	119,008	$	96,456	$	6,818,108	7.05
Risk grade 9	4,176		5,529		128,935		35,986		7,420		38,849		43,689		61,767		326,351		9.00
Risk grade 10	5,047		24,596		53,834		18,244		15,912		11,330		1,723		—		130,686		10.00
Risk grade 11	5,177		8,854		37,368		24,337		21,975		91,719		—		—		189,430		11.00
Risk grade 12	328		15,965		3,027		5,152		—		1,411		2,593		—		28,476		12.00
Risk grade 13	—		4,150		—		222		—		—		244		—		4,616		13.00
	$	690,654	$	1,490,259	$	1,708,392	$	1,234,202	$	751,974	$	1,296,706	$	167,257	$	158,223	$	7,497,667	7.31
W/A risk grade	7.21		7.31		7.39		7.34		7.17		7.18		8.02		7.53		7.31
Construction
Risk grades 1-8	$	247,162	$	475,920	$	575,573	$	119,299	$	28,003	$	1,296	$	149,756	$	165	$	1,597,174	7.32
Risk grade 9	90,634		5,282		26,585		118,546		—		—		5,650		—		246,697		9.00
Risk grade 10	13,601		34,842		13,513		49,088		—		—		—		—		111,044		10.00
Risk grade 11	—		—		31,500		11,130		—		—		—		—		42,630		11.00
Risk grade 12	—		—		—		—		—		—		—		—		—		12.00
Risk grade 13	—		—		—		—		—		—		—		—		—		13.00
	$	351,397	$	516,044	$	647,171	$	298,063	$	28,003	$	1,296	$	155,406	$	165	$	1,997,545	7.75
W/A risk grade	7.68		7.54		7.83		8.70		2.53		6.81		7.46		6.98		7.75
Total commercial real estate	$	1,042,051	$	2,006,303	$	2,355,563	$	1,532,265	$	779,977	$	1,298,002	$	322,663	$	158,388	$	9,495,212	7.40
W/A risk grade	7.36		7.37		7.51		7.61		7.00		7.18		7.75		7.53		7.40

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 June 30, 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	$	158	$	450	$	1,396	$	2,151	$	1,005	$	4,813	$	7,284	$	402	$	17,659
Past due 90 or more days	—		565		772		309		60		772		2,624		3,717		8,819
Total past due	158		1,015		2,168		2,460		1,065		5,585		9,908		4,119		26,478
Current loans	314,290		575,925		410,016		263,679		158,204		173,773		810,696		7,667		2,714,250
Total	$	314,448	$	576,940	$	412,184	$	266,139	$	159,269	$	179,358	$	820,604	$	11,786	$	2,740,728
Consumer and other:
Past due 30-89 days	$	2,429	$	174	$	231	$	122	$	118	$	64	$	2,559	$	37	$	5,734
Past due 90 or more days	217		—		16		1		—		—		162		181		577
Total past due	2,646		174		247		123		118		64		2,721		218		6,311
Current loans	35,410		40,943		19,574		3,921		2,691		1,457		319,622		23,051		446,669
Total	$	38,056	$	41,117	$	19,821	$	4,044	$	2,809	$	1,521	$	322,343	$	23,269	$	452,980

Period-end balances for revolving loans that converted to term during the three and six months ended June 30, 2024 and 2023 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Commercial and industrial	$	10,557	$	3,835	$	24,813	$	14,606
Energy	604		—		646		2,567
Commercial real estate:
Buildings, land and other	65,642		5,944		66,238		5,944
Construction	165		—		165		—
Consumer real estate	971		1,064		1,703		1,743
Consumer and other	3,541		1,669		6,094		3,671
Total	$	81,480	$	12,512	$	99,659	$	28,531

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 116.9 at June 30, 2024 and 127.2 at December 31, 2023. 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 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 June 30, 2024 and December 31, 2023.


June 30, 2024	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Modeled expected credit losses	$	56,937	$	3,841	$	20,961	$	14,508	$	7,415	$	103,662
Q-Factor and other qualitative adjustments	15,589		4,944		114,443		508		3,126		138,610
Specific allocations	6,028		2,700		4,616		691		—		14,035
Total	$	78,554	$	11,485	$	140,020	$	15,707	$	10,541	$	256,307
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 and six months ended June 30, 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:
June 30, 2024
Beginning balance	$	75,596	$	14,218	$	138,224	$	13,857	$	8,402	$	250,297
Credit loss expense (benefit)	6,936		(3,038)		1,903		2,175		7,760		15,736
Charge-offs	(4,282)		(79)		(122)		(408)		(8,360)		(13,251)
Recoveries	304		384		15		83		2,739		3,525
Net (charge-offs) recoveries	(3,978)		305		(107)		(325)		(5,621)		(9,726)
Ending balance	$	78,554	$	11,485	$	140,020	$	15,707	$	10,541	$	256,307

June 30, 2023
Beginning balance	78,465		19,191		115,693		9,708		8,457		$	231,514
Credit loss expense (benefit)	2,404		(4,433)		5,133		3,822		5,007		11,933
Charge-offs	(7,136)		(518)		—		(1,080)		(7,016)		(15,750)
Recoveries	1,433		689		100		585		3,115		5,922
Net (charge-offs) recoveries	(5,703)		171		100		(495)		(3,901)		(9,828)
Ending balance	$	75,166	$	14,929	$	120,926	$	13,035	$	9,563	$	233,619
Six months ended:
June 30, 2024
Beginning balance	$	74,006	$	17,814	$	130,598	$	13,538	$	10,040	$	245,996
Credit loss expense (benefit)	8,928		(6,814)		9,513		3,981		11,778		27,386
Charge-offs	(6,426)		(79)		(122)		(2,077)		(16,617)		(25,321)
Recoveries	2,046		564		31		265		5,340		8,246
Net (charge-offs) recoveries	(4,380)		485		(91)		(1,812)		(11,277)		(17,075)
Ending balance	$	78,554	$	11,485	$	140,020	$	15,707	$	10,541	$	256,307
June 30, 2023
Beginning balance	104,237		18,062		90,301		8,004		7,017		$	227,621
Credit loss expense (benefit)	(18,280)		(3,467)		30,494		5,105		10,756		24,608
Charge-offs	(13,316)		(518)		—		(1,330)		(13,958)		(29,122)
Recoveries	2,525		852		131		1,256		5,748		10,512
Net (charge-offs) recoveries	(10,791)		334		131		(74)		(8,210)		(18,610)
Ending balance	$	75,166	$	14,929	$	120,926	$	13,035	$	9,563	$	233,619

The following table presents year-to-date gross charge-offs by year of origination as of June 30, 2024.


	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	$	—	$	471	$	676	$	467	$	401	$	625	$	2,902	$	884	$	6,426
Energy	—		79		—		—		—		—		—		—		79
Commercial real estate:
Buildings, land and other	—		—		122		—		—		—		—		—		122
Construction	—		—		—		—		—		—		—		—		—
Consumer real estate	—		—		148		253		—		384		1,225		67		2,077
Consumer and other	9,369		5,713		131		4		4		51		1,332		13		16,617
Total	$	9,369	$	6,263	$	1,077	$	724	$	405	$	1,060	$	5,459	$	964	$	25,321

In the table above, $9.4 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 June 30, 2024 and December 31, 2023.


	June 30, 2024				December 31, 2023
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
Commercial and industrial	$	25,508	$	6,028	$	18,670	$	2,435
Energy	9,001		2,700		11,353		2,700
Commercial real estate:
Buildings, land and other	32,316		4,616		21,373		2,650
Construction	—		—		—		—
Consumer real estate	5,807		691		7,235		741
Consumer and other	—		—		—		—
Total	$	72,632	$	14,035	$	58,631	$	8,526