Loans

9 Months Ended

Sep. 30, 2024

Receivables [Abstract]

Loans

Loans

Loans were as follows:

	September 30, 2024		December 31, 2023
Commercial and industrial	$	5,822,976	$	5,967,182
Energy:
Production	846,434		681,568
Service	205,829		194,126
Other	17,455		61,043
Total energy	1,069,718		936,737
Commercial real estate:
Commercial mortgages	6,961,403		6,746,709
Construction	2,305,255		1,680,724
Land	513,862		555,211
Total commercial real estate	9,780,520		8,982,644
Consumer real estate:
Home equity lines of credit	864,702		792,876
Home equity loans	862,284		694,966
Home improvement loans	840,292		765,887
Other	355,599		206,997
Total consumer real estate	2,922,877		2,460,726
Total real estate	12,703,397		11,443,370
Consumer and other	458,772		476,962
Total loans	$	20,054,863	$	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 September 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 5.6% of total loans and the energy industry, which totaled 5.3% of total loans. Unfunded commitments to extend credit and standby letters of credit issued to customers in the automobile dealership industry totaled $405.4 million and $20.3 million, respectively, as of September 30, 2024, while unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.1 billion and $70.5 million, respectively, as of September 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 September 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 $278.3 million at September 30, 2024 and $416.1 million at December 31, 2023.

Accrued Interest Receivable. Accrued interest receivable on loans totaled $85.8 million and $90.8 million at September 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:

	September 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	$	51,059	$	9,461	$	19,545	$	5,391
Energy	8,165		5,463		11,500		7,398
Commercial real estate:
Buildings, land, and other	38,908		19,206		22,420		4,983
Construction	—		—		—		—
Consumer real estate	6,371		3,852		7,442		5,160
Consumer and other	374		—		—		—
Total	$	104,877	$	37,982	$	60,907	$	22,932

The following table presents non-accrual loans as of September 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	$	22,756	$	2,822	$	4,335	$	2,088	$	494	$	2,171	$	730	$	15,663	$	51,059
Energy	4,086		—		—		—		56		1,321		2,702		—		8,165
Commercial real estate:
Buildings, land, and other	328		18,867		10,911		3,242		1,248		1,594		2,718		—		38,908
Construction	—		—		—		—		—		—		—		—		—
Consumer real estate	—		—		—		—		36		2,258		493		3,584		6,371
Consumer and other	—		374		—		—		—		—		—		—		374
Total	$	27,170	$	22,063	$	15,246	$	5,330	$	1,834	$	7,344	$	6,643	$	19,247	$	104,877

In the table above, loans reported as 2024 originations as of September 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 $1.5 million and $4.0 million for the three and nine months ended September 30, 2024 and approximately $1.2 million and $2.7 million for the three and nine months ended September 30, 2023.

An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of September 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	$	29,565	$	27,860	$	57,425	$	5,765,551	$	5,822,976	$	4,084
Energy	1,600		4,079		5,679		1,064,039		1,069,718		—
Commercial real estate:
Buildings, land, and other	77,260		28,878		106,138		7,369,127		7,475,265		46
Construction	1,400		131		1,531		2,303,724		2,305,255		131
Consumer real estate	13,421		9,706		23,127		2,899,750		2,922,877		3,695
Consumer and other	5,940		425		6,365		452,407		458,772		425
Total	$	129,186	$	71,079	$	200,265	$	19,854,598	$	20,054,863	$	8,381

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 nine months ended September 30, 2024 and 2023 are set forth in the table below, regardless of whether such modifications resulted in a new loan. There were $52.0 million in commitments to lend additional funds to these borrowers at September 30, 2024.

	Payment Delay		Percent of Total Class of Loans		Combination: Payment Delay and Term Extension		Percent of Total Class of Loans		Combination: Interest Rate Reduction and Term Extension		Percent of Total Class of Loans
September 30, 2024
Commercial and industrial	$	1,823	—	%	$	46,925	0.8	%	$	—	—	%
Commercial real estate:
Buildings, land, and other	2,061		—		—		—		—		—
Construction	—		—		—		—		—		—
Consumer real estate	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
	$	3,884	—		$	46,925	0.2		$	—	—
September 30, 2023
Commercial and industrial	$	—	—	%	$	15,912	0.3	%	$	—	—	%
Commercial real estate:
Buildings, land, and other	—		—		19,785		0.3		2,100		—
	$	—	—		$	35,697	0.2		$	2,100	—

The financial effects of the loan modifications made to borrowers experiencing financial difficulty were not significant during the nine months ended September 30, 2024. During the nine months ended September 30, 2023, we modified the interest rate on one loan from a variable rate of prime plus a spread of 1.75% (10.25% as of the modification date) to a fixed rate of 6.74% in addition to extending the term of the loan. The loan modifications reported in the table above did not significantly impact our determination of the allowance for credit losses on loans during their respective reporting periods.

Information as of September 30, 2024 and September 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.

	September 30, 2024				September 30, 2023
	Payment Delay		Combination: Payment Delay and Term Extension		Combination: Interest Rate Reduction and Term Extension
Past due in excess of 90 days or on non-accrual status at period-end:
Commercial and industrial	$	1,823	$	19,994	$	—
Commercial real estate:
Buildings, land, and other	2,061		—		2,100
	$	3,884	$	19,994	$	2,100

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 September 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	$	1,117,081	$	608,162	$	467,493	$	297,464	$	293,499	$	291,128	$	2,130,893	$	40,570	$	5,246,290	6.34
Risk grade 9	17,309		13,000		92,050		11,848		4,481		10,212		106,701		5,102		260,703		9.00
Risk grade 10	6,900		5,377		14,054		1,215		132		12,591		26,412		1,418		68,099		10.00
Risk grade 11	49,220		16,214		18,840		22,893		5,331		2,112		77,935		4,280		196,825		11.00
Risk grade 12	15,220		2,272		2,856		2,060		483		2,171		723		9,873		35,658		12.00
Risk grade 13	7,536		550		1,479		28		11		—		7		5,790		15,401		13.00
	$	1,213,266	$	645,575	$	596,772	$	335,508	$	303,937	$	318,214	$	2,342,671	$	67,033	$	5,822,976	6.71
W/A risk grade	6.93		6.99		7.49		7.20		5.70		6.07		6.42		8.89		6.71
Energy
Risk grades 1-8	$	325,589	$	23,800	$	47,276	$	43,113	$	3,378	$	4,499	$	568,678	$	5,783	$	1,022,116	5.72
Risk grade 9	—		2,487		3,318		2,040		—		406		17,517		630		26,398		9.00
Risk grade 10	—		—		—		16		—		—		3,000		—		3,016		10.00
Risk grade 11	—		—		2,063		—		54		3,139		4,767		—		10,023		11.00
Risk grade 12	4,086		—		—		—		56		1,321		2		—		5,465		12.00
Risk grade 13	—		—		—		—		—		—		2,700		—		2,700		13.00
	$	329,675	$	26,287	$	52,657	$	45,169	$	3,488	$	9,365	$	596,664	$	6,413	$	1,069,718	5.91
W/A risk grade	6.27		7.16		7.24		6.09		6.81		9.06		5.46		7.06		5.91

	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		W/A Risk Grade
Commercial real estate:
Buildings, land, other
Risk grades 1-8	$	996,825	$	1,382,808	$	1,393,417	$	1,075,231	$	683,603	$	1,022,727	$	119,987	$	90,009	$	6,764,607	7.03
Risk grade 9	18,021		17,294		127,554		48,332		11,198		41,484		10,560		65,540		339,983		9.00
Risk grade 10	2,576		32,349		51,933		25,609		16,692		13,015		—		1,718		143,892		10.00
Risk grade 11	10,505		7,469		53,958		21,731		11,606		82,606		—		—		187,875		11.00
Risk grade 12	328		14,717		10,911		3,020		1,126		1,594		2,437		—		34,133		12.00
Risk grade 13	—		4,150		—		222		122		—		281		—		4,775		13.00
	$	1,028,255	$	1,458,787	$	1,637,773	$	1,174,145	$	724,347	$	1,161,426	$	133,265	$	157,267	$	7,475,265	7.31
W/A risk grade	7.21		7.34		7.43		7.40		7.13		7.16		7.24		7.61		7.31
Construction
Risk grades 1-8	$	468,262	$	543,840	$	497,630	$	53,892	$	27,978	$	711	$	232,768	$	161	$	1,825,242	7.14
Risk grade 9	90,353		—		93,883		176,903		—		—		6,621		—		367,760		9.00
Risk grade 10	14,816		34,842		1,208		49,088		—		—		—		—		99,954		10.00
Risk grade 11	—		—		12,299		—		—		—		—		—		12,299		11.00
Risk grade 12	—		—		—		—		—		—		—		—		—		12.00
Risk grade 13	—		—		—		—		—		—		—		—		—		13.00
	$	573,431	$	578,682	$	605,020	$	279,883	$	27,978	$	711	$	239,389	$	161	$	2,305,255	7.58
W/A risk grade	7.68		7.52		7.79		8.85		2.53		7.71		6.04		7.03		7.58
Total commercial real estate	$	1,601,686	$	2,037,469	$	2,242,793	$	1,454,028	$	752,325	$	1,162,137	$	372,654	$	157,428	$	9,780,520	7.37
W/A risk grade	7.38		7.39		7.52		7.68		6.96		7.16		6.47		7.61		7.37

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 September 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	$	110	$	1,212	$	1,695	$	1,556	$	286	$	2,431	$	5,982	$	149	$	13,421
Past due 90 or more days	—		50		704		519		324		2,641		1,667		3,801		9,706
Total past due	110		1,262		2,399		2,075		610		5,072		7,649		3,950		23,127
Current loans	510,521		562,979		398,297		255,966		152,220		166,586		844,925		8,256		2,899,750
Total	$	510,631	$	564,241	$	400,696	$	258,041	$	152,830	$	171,658	$	852,574	$	12,206	$	2,922,877
Consumer and other:
Past due 30-89 days	$	2,849	$	527	$	302	$	75	$	49	$	26	$	1,806	$	306	$	5,940
Past due 90 or more days	120		—		2		—		—		—		122		181		425
Total past due	2,969		527		304		75		49		26		1,928		487		6,365
Current loans	46,864		32,369		15,052		3,420		2,447		1,299		327,574		23,382		452,407
Total	$	49,833	$	32,896	$	15,356	$	3,495	$	2,496	$	1,325	$	329,502	$	23,869	$	458,772

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Commercial and industrial	$	8,631	$	13,144	$	23,464	$	18,246
Energy	67		3,451		695		4,050
Commercial real estate:
Buildings, land and other	49		—		67,932		5,635
Construction	19		—		162		—
Consumer real estate	1,155		709		2,770		1,630
Consumer and other	2,818		1,699		8,415		5,151
Total	$	12,739	$	19,003	$	103,438	$	34,712

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 126.9 at September 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 September 30, 2024 and December 31, 2023.

September 30, 2024	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Modeled expected credit losses	$	49,113	$	3,653	$	19,148	$	16,247	$	6,696	$	94,857
Q-Factor and other qualitative adjustments	16,062		5,768		118,902		569		3,072		144,373
Specific allocations	15,401		2,700		4,775		836		187		23,899
Total	$	80,576	$	12,121	$	142,825	$	17,652	$	9,955	$	263,129
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 nine months ended September 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:
September 30, 2024
Beginning balance	$	78,554	$	11,485	$	140,020	$	15,707	$	10,541	$	256,307
Credit loss expense (benefit)	4,697		146		2,791		3,838		4,990		16,462
Charge-offs	(3,907)		—		—		(2,013)		(8,007)		(13,927)
Recoveries	1,232		490		14		120		2,431		4,287
Net (charge-offs) recoveries	(2,675)		490		14		(1,893)		(5,576)		(9,640)
Ending balance	$	80,576	$	12,121	$	142,825	$	17,652	$	9,955	$	263,129
September 30, 2023
Beginning balance	$	75,166	$	14,929	$	120,926	$	13,035	$	9,563	$	233,619
Credit loss expense (benefit)	(623)		1,784		5,424		2,130		4,893		13,608
Charge-offs	(943)		—		(62)		(170)		(8,189)		(9,364)
Recoveries	707		353		204		44		3,064		4,372
Net (charge-offs) recoveries	(236)		353		142		(126)		(5,125)		(4,992)
Ending balance	$	74,307	$	17,066	$	126,492	$	15,039	$	9,331	$	242,235

	Commercial and Industrial		Energy		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
Nine months ended:
September 30, 2024
Beginning balance	$	74,006	$	17,814	$	130,598	$	13,538	$	10,040	$	245,996
Credit loss expense (benefit)	13,625		(6,668)		12,304		7,819		16,768		43,848
Charge-offs	(10,333)		(79)		(122)		(4,090)		(24,624)		(39,248)
Recoveries	3,278		1,054		45		385		7,771		12,533
Net (charge-offs) recoveries	(7,055)		975		(77)		(3,705)		(16,853)		(26,715)
Ending balance	$	80,576	$	12,121	$	142,825	$	17,652	$	9,955	$	263,129
September 30, 2023
Beginning balance	$	104,237	$	18,062	$	90,301	$	8,004	$	7,017	$	227,621
Credit loss expense (benefit)	(18,903)		(1,683)		35,918		7,235		15,649		38,216
Charge-offs	(14,259)		(518)		(62)		(1,500)		(22,147)		(38,486)
Recoveries	3,232		1,205		335		1,300		8,812		14,884
Net (charge-offs) recoveries	(11,027)		687		273		(200)		(13,335)		(23,602)
Ending balance	$	74,307	$	17,066	$	126,492	$	15,039	$	9,331	$	242,235

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

	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial	$	5	$	1,741	$	755	$	487	$	402	$	625	$	5,252	$	1,066	$	10,333
Energy	—		79		—		—		—		—		—		—		79
Commercial real estate:
Buildings, land and other	—		—		122		—		—		—		—		—		122
Construction	—		—		—		—		—		—		—		—		—
Consumer real estate	—		407		315		253		—		558		2,490		67		4,090
Consumer and other	16,546		5,768		189		53		27		61		1,949		31		24,624
Total	$	16,551	$	7,995	$	1,381	$	793	$	429	$	1,244	$	9,691	$	1,164	$	39,248

In the table above, $16.3 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 September 30, 2024 and December 31, 2023.

	September 30, 2024				December 31, 2023
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
Commercial and industrial	$	50,127	$	15,401	$	18,670	$	2,435
Energy	8,165		2,700		11,353		2,700
Commercial real estate:
Buildings, land and other	35,654		4,272		21,373		2,650
Construction	2,061		503		—		—
Consumer real estate	6,096		836		7,235		741
Consumer and other	374		187		—		—
Total	$	102,477	$	23,899	$	58,631	$	8,526