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LOANS AND ALLOWANCE FOR CREDIT LOSSES
9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
LOANS AND ALLOWANCE FOR CREDIT LOSSES LOANS AND ALLOWANCE FOR CREDIT LOSSES
The loan portfolio balances, net of unearned income and fees, consist of various types of loans primarily made to borrowers located within Texas and are segregated by class of loan as follows:
September 30, 2023December 31, 2022
(In thousands)
Commercial and industrial$1,474,600 $1,455,795 
Paycheck Protection Program (PPP)5,968 13,226 
Real estate:
Commercial real estate (including multi-family residential)4,076,606 3,931,480 
Commercial real estate construction and land development1,078,265 1,037,678 
1-4 family residential (including home equity)1,024,945 1,000,956 
Residential construction289,553 268,150 
Consumer and other54,591 47,466 
Total loans8,004,528 7,754,751 
Allowance for credit losses on loans(93,575)(93,180)
Loans, net$7,910,953 $7,661,571 
Nonaccrual and Past Due Loans
An aging analysis of the recorded investment in past due loans, segregated by class of loans, is included below. The Company defines recorded investment as the outstanding loan balances including net deferred loan fees, and excluding accrued interest receivable of $36.4 million and $34.1 million as of September 30, 2023 and December 31, 2022, respectively, due to immateriality.
September 30, 2023
Loans Past Due and Still AccruingNonaccrual
Loans
Current
Loans
Total
Loans
30-89
Days
90 or More
Days
Total Past
Due Loans
(In thousands)
Commercial and industrial$3,535 $— $3,535 $14,971 $1,456,094 $1,474,600 
Paycheck Protection Program (PPP)85 — 85 20 5,863 5,968 
Real estate:
Commercial real estate (including
     multi-family residential)
19,649 — 19,649 13,563 4,043,394 4,076,606 
Commercial real estate construction
    and land development
4,405 — 4,405 170 1,073,690 1,078,265 
1-4 family residential (including
    home equity)
4,742 — 4,742 8,442 1,011,761 1,024,945 
Residential construction3,389 — 3,389 635 285,529 289,553 
Consumer and other215 — 215 490 53,886 54,591 
Total loans$36,020 $— $36,020 $38,291 $7,930,217 $8,004,528 
December 31, 2022
Loans Past Due and Still AccruingNonaccrual
Loans
Current
Loans
Total
Loans
30-89
Days
90 or More
Days
Total Past
Due Loans
(In thousands)
Commercial and industrial$1,591 $— $1,591 $25,297 $1,428,907 $1,455,795 
Paycheck Protection Program (PPP)517 — 517 105 12,604 13,226 
Real estate:
Commercial real estate (including
    multi-family residential)
3,222 — 3,222 9,970 3,918,288 3,931,480 
Commercial real estate construction
    and land development
851 — 851 — 1,036,827 1,037,678 
1-4 family residential (including
    home equity)
3,385 — 3,385 9,404 988,167 1,000,956 
Residential construction— — — — 268,150 268,150 
Consumer and other192 — 192 272 47,002 47,466 
Total loans$9,758 $— $9,758 $45,048 $7,699,945 $7,754,751 
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt. The Company utilizes a risk rating matrix to assign a risk rating to each of its loans. Loans are rated on a scale of 10 to 90. Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes including lending management monitoring, executive management and board committee oversight, and independent credit review. As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio and methodology for calculating the allowance for credit losses, management assigns and tracks certain risk ratings to be used as credit quality indicators including trends related to (1) the weighted-average risk grade of loans, (2) the level of classified loans, (3) the delinquency status of loans, (4) nonperforming loans and (5) the general economic conditions in the our markets. Individual bankers, under the oversight of credit administration, review updated financial information for all pass grade commercial loans to reassess the risk grade on at least an annual basis. When a loan reaches a set of internally designated criteria, including Substandard or higher, a special assets officer will be involved in the monitoring of the loan on an on-going basis.
The following is a general description of the risk ratings used by the Company:
Pass—Credits in this category contain an acceptable amount of risk.
Special Mention—Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Substandard—Loans classified as substandard have well-defined weaknesses on a continuing basis and are inadequately protected by the current net worth and paying capacity of the borrower, declining collateral values, or a continuing downturn in their industry which is reducing their profits to below zero and having a significantly negative impact on their cash flow. These loans so classified are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful—Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values, highly questionable and improbable.
Loss—Loans classified as loss are to be charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.
The following table presents risk ratings by category and the gross charge-offs by primary loan type and year of origination or renewal. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. The following summarizes the amortized cost basis of loans by year of origination/renewal and credit quality indicator by class of loan as of September 30, 2023 and December 31, 2022:
 September 30, 2023
December 31, 2022
Term Loans Amortized Cost Basis by Origination YearRevolving
Loans
Revolving Loans
Converted to Term Loans
TotalTotal
20232022202120202019Prior
(In thousands)
Commercial and industrial
Pass$249,626 $299,874 $194,032 $47,217 $31,150 $23,062 $528,399 $63,180 $1,436,540 $1,400,191 
Special Mention2,786 403 508 438 861 — 3,054 102 8,152 18,982 
Substandard1,250 3,925 9,303 1,140 12,131 281 1,057 771 29,858 36,568 
Doubtful— 50 — — — — — — 50 54 
Total commercial and industrial
    loans
$253,662 $304,252 $203,843 $48,795 $44,142 $23,343 $532,510 $64,053 $1,474,600 $1,455,795 
Current period gross charge-offs$— $130 $4,264 $456 $129 $— $4,143 $531 $9,653 
Paycheck Protection Program (PPP)
Pass$— $— $3,218 $2,750 $— $— $— $— $5,968 $13,226 
Special Mention— — — — — — — — — — 
Substandard— — — — — — — — — — 
Doubtful— — — — — — — — — — 
Total PPP loans$— $— $3,218 $2,750 $— $— $— $— $5,968 $13,226 
Current period gross charge-offs$— $— $— $— $— $— $— $— $— 
Commercial real estate
    (including multi-family residential)
Pass$366,601 $1,327,957 $863,078 $467,867 $348,105 $480,980 $128,848 $11,052 $3,994,488 $3,844,951 
Special Mention934 508 7,756 8,409 1,716 12,414 305 — 32,042 18,183 
Substandard3,906 5,050 16,003 6,832 5,009 12,890 286 100 50,076 68,346 
Doubtful— — — — — — — — — — 
Total commercial real estate
    (including multi-family
    residential) loans
$371,441 $1,333,515 $886,837 $483,108 354830$506,284 $129,439 $11,152 $4,076,606 $3,931,480 
Current period gross charge-offs$— $— $— $— $— $— $— $— $— 
Commercial real estate construction
    and land development
Pass$211,096 $518,943 $227,438 $29,351 $9,689 $6,189 $58,463 $693 $1,061,862 $1,025,141 
Special Mention— 2,222 2,062 139 — 202 — — 4,625 832 
Substandard22 1,016 10,406 88 80 17 — 149 11,778 11,705 
Doubtful— — — — — — — — — — 
Total commercial real estate
    construction and land development
$211,118 $522,181 $239,906 $29,578 $9,769 $6,408 $58,463 $842 $1,078,265 $1,037,678 
Current period gross charge-offs$— $— $— $— $— $— $— $— $— 
 September 30, 2023
December 31, 2022
Term Loans Amortized Cost Basis by Origination YearRevolving LoansRevolving Loans
Converted to Term Loans
20232022202120202019PriorTotalTotal
(In thousands)
1-4 family residential (including
    home equity)
Pass$132,680 $252,160 $224,562 $116,514 $72,701 $90,921 $94,320 $10,248 $994,106 $969,396 
Special Mention499 569 — 1,996 333 195 98 — 3,690 3,714 
Substandard1,940 2,399 3,103 1,468 3,893 4,493 7,071 2,782 27,149 27,846 
Doubtful— — — — — — — — — — 
Total 1-4 family residential
    (including home equity)
$135,119 $255,128 $227,665 $119,978 $76,927 $95,609 $101,489 $13,030 $1,024,945 $1,000,956 
Current period gross charge-offs$— $— $— $— $— $23 $— $— $23 
Residential construction
Pass$116,508 $136,500 $6,341 $4,117 $658 $499 $21,710 $— $286,333 $266,943 
Special Mention— 634 — — — — — — 634 421 
Substandard— 635 1,951 — — — — — 2,586 786 
Doubtful— — — — — — — — — — 
Total residential construction$116,508 $137,769 $8,292 $4,117 $658 $499 $21,710 $— $289,553 $268,150 
Current period gross charge-offs$— $— $— $— $— $— $— $— $— 
Consumer and other
Pass
$23,489 $9,146 $4,130 $2,005 $676 $465 $13,192 $901 $54,004 $47,062 
Special Mention— 26 — — — — 45 — 71 43 
Substandard— 312 35 — 56 104 516 361 
Doubtful— — — — — — — — — — 
Total consumer and other$23,489 $9,484 $4,165 $2,005 $732 $470 $13,241 $1,005 $54,591 $47,466 
Current period gross charge-offs$— $44 $— $— $— $— $$— $45 
Total loans
Pass$1,100,000 $2,544,580 $1,522,799 $669,821 $462,979 $602,116 $844,932 $86,074 $7,833,301 $7,566,910 
Special Mention4,219 4,362 10,326 10,982 2,910 12,811 3,502 102 49,214 42,175 
Substandard7,118 13,337 40,801 9,528 21,169 17,686 8,418 3,906 121,963 145,612 
Doubtful— 50 — — — — — — 50 54 
Total loans$1,111,337 $2,562,329 $1,573,926 $690,331 $487,058 $632,613 $856,852 $90,082 $8,004,528 $7,754,751 
Current period gross charge-offs$— $174 $4,264 $456 $129 $23 $4,144 $531 $9,721 
The following table presents the activity in the allowance for credit losses on loans by portfolio type for the three and nine months ended September 30, 2023 and 2022:
Commercial
and industrial
Paycheck Protection
Program (PPP)
Commercial real
estate (including multi-family
residential)
Commercial real
estate construction and land
development
1-4 family residential
(including
home equity)
Residential
construction
Consumer
and other
Total
(In thousands)
Allowance for credit losses on
    loans:
Three Months Ended
Balance June 30, 2023$38,505 $— $38,963 $14,500 $4,757 $3,080 $390 $100,195 
Provision for credit losses on loans
2,173 — 58 (791)34 (221)243 1,496 
Charge-offs(8,169)— — — — — (7)(8,176)
Recoveries55 — — — — 60 
Net charge-offs(8,114)— — — — (4)(8,116)
Balance September 30, 2023
$32,564 $— $39,023 $13,709 $4,791 $2,859 $629 $93,575 
Nine Months Ended
Balance December 31, 2022
$41,236 $— $32,970 $14,121 $2,709 $1,796 $348 $93,180 
Provision for credit losses on loans
(143)— 6,037 (412)2,096 1,063 298 8,939 
Charge-offs(9,653)— — — (23)— (45)(9,721)
Recoveries1,124 — 16 — — 28 1,177 
Net charge-offs(8,529)— 16 — (14)— (17)(8,544)
Balance September 30, 2023
$32,564 $— $39,023 $13,709 $4,791 $2,859 $629 $93,575 
Three Months Ended
Balance June 30, 2022$16,701 $— $24,000 $7,399 $1,036 $1,048 $58 $50,242 
Provision for credit losses on loans
(1,091)— 1,606 952 (9)188 14 1,660 
Charge-offs(2)— (56)— — — (17)(75)
Recoveries319 — — — — — 320 
Net recoveries317 — (56)— — — (16)245 
Balance September 30, 2022
$15,927 $— $25,550 $8,351 $1,027 $1,236 $56 $52,147 
Nine Months Ended
Balance December 31, 2021
$16,629 $— $23,143 $6,263 $847 $975 $83 $47,940 
Provision for credit losses on loans
(464)— 2,740 2,096 180 261 37 4,850 
Charge-offs(958)— (383)(63)— — (65)(1,469)
Recoveries720 — 50 55 — — 826 
Net charge-offs(238)— (333)(8)— — (64)(643)
Balance September 30, 2022
$15,927 $— $25,550 $8,351 $1,027 $1,236 $56 $52,147 
Allowance for Credit Losses on Unfunded Commitments

In addition to the allowance for credit losses on loans, the Company has established an allowance for credit losses on unfunded commitments, classified in other liabilities and adjusted as a provision for credit loss expense. The allowance represents estimates of expected credit losses over the contractual period in which there is exposure to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on the commitments expected to fund. The estimate of commitments expected to fund is informed by historical analysis looking at utilization rates. The expected credit loss rates applied to the commitments expected to fund is informed by the general valuation allowance utilized for outstanding balances with the same underlying assumptions and drivers. The allowance for credit losses on unfunded commitments as of September 30, 2023 and December 31, 2022 was $10.9 million and $12.0 million, respectively. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The Company recorded an $818 thousand provision on unfunded commitments during the three months ended September 30, 2023 compared to $302 thousand for the three months ended September 30, 2022 and recorded a $1.0 million reversal of provision on unfunded commitments for the nine months ended September 30, 2023 compared to a provision of $1.1 million for the nine months ended September 30, 2022.
Collateral dependent loans are secured by real estate assets, accounts receivable, inventory and equipment. For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis adjusted for selling costs, when appropriate. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for credit losses on loans as a specific allocation.
The following tables present the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses as of September 30, 2023 and December 31, 2022:
September 30, 2023
Real EstateBusiness AssetsOtherTotal
(In thousands)
Commercial and industrial$— $7,476 $— $7,476 
Real estate:
Commercial real estate (including multi-family residential)3,411 — — 3,411 
Commercial real estate construction and land development— — — 
1-4 family residential (including home equity)— — — — 
Residential construction— — — — 
Consumer and other— — — — 
Total$3,411 $7,476 $— $10,887 
December 31, 2022
Real EstateBusiness AssetsOtherTotal
(In thousands)
Commercial and industrial$— $18,411 $30 $18,441 
Real estate:
Commercial real estate (including multi-family residential)1,612 — — 1,612 
Commercial real estate construction and land development— — — — 
1-4 family residential (including home equity)3,478 — — 3,478 
Residential construction— — — — 
Consumer and other— — — — 
Total$5,090 $18,411 $30 $23,531 
The following tables present additional information regarding nonaccrual loans. No interest income was recognized on nonaccrual loans as of September 30, 2023 and December 31, 2022.
September 30, 2023
Nonaccrual Loans with No Related AllowanceNonaccrual Loans with Related AllowanceTotal Nonaccrual Loans
(In thousands)
Commercial and industrial$10,337 $4,634 $14,971 
Paycheck Protection Program (PPP)20 — 20 
Real estate:
Commercial real estate (including multi-family residential)10,820 2,743 13,563 
Commercial real estate construction and land development170 — 170 
1-4 family residential (including home equity)6,849 1,593 8,442 
Residential construction635 — 635 
Consumer and other81 409 490 
Total loans$28,912  $9,379  $38,291 
 December 31, 2022
Nonaccrual Loans with No Related AllowanceNonaccrual Loans with Related AllowanceTotal Nonaccrual Loans
(In thousands)
Commercial and industrial$2,776 $22,521 $25,297 
Paycheck Protection Program (PPP)105 — 105 
Real estate:
Commercial real estate (including multi-family residential)8,704 1,266 9,970 
Commercial real estate construction and land development— — — 
1-4 family residential (including home equity)4,856 4,548 9,404 
Residential construction— — — 
Consumer and other94 178 272 
Total loans$16,535 $28,513 $45,048 
Loan Modifications and Troubled Debt Restructurings
Effective January 1, 2023, under ASU 2022-02, loan modifications are reported if concessions have been granted to borrowers that are experiencing financial difficulty. Information on these loan modifications originated after the effective date is presented according to the new accounting guidance. Reporting periods prior to the adoption of ASU 2022-02 present information on troubled debt restructurings ("TDRs") under the previous disclosure requirements. The percentage of loans modified comprised less than 1% of their respective classes of loan portfolios at September 30, 2023.
The following tables present information regarding loans that were modified due to the borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023:
Three Months Ended September 30, 2023
Interest Rate ReductionTerm ExtensionPayment DelayPrincipal forgivenessCombination Term Extension and Principal ForgivenessCombination Term Extension and Payment Delay Total
(In thousands)
Commercial and industrial$— $— $— $— $— $— $— 
Real estate:
Commercial real estate (including
    multi-family residential)
1,8901,890
Commercial real estate construction and land development
1-4 family residential (including home equity)
3229971492
Residential construction
Consumer and other
Total$— $2,212 $— $— $— $71 $2,382 
Nine Months Ended September 30, 2023
Interest Rate ReductionTerm ExtensionPayment DelayPrincipal forgivenessCombination Term Extension and Principal ForgivenessCombination Term Extension and Payment DelayTotal
(In thousands)
Commercial and industrial$89 $2,185 $— $— $— $260 $2,534 
Real estate:
Commercial real estate (including multi-family residential)
— 2,670 — — — 1,703 4,373 
Commercial real estate construction and land development
— 6,850 — — — — 6,850 
1-4 family residential (including home equity)
— 1,037 99 — — 71 1,207 
Residential construction— — — — — — — 
Consumer and other— 94 — — — — 94 
Total$89 $12,836 $99 $— $— $2,034 $15,058 

The following table summarizes, by loan portfolio, the financial effect of the Company's loan modifications for the three and nine months ended September 30, 2023:
Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
Weighted Average Interest Rate ReductionWeighted Average Term ExtensionWeighted Average Interest Rate ReductionWeighted Average Term Extension
(months)(months)
Commercial and industrial— %2.0 %12
Real estate:
Commercial real estate (including multi-family residential)
— %6— %9
Commercial real estate construction and land development
— %— %12
1-4 family residential (including home equity)
1.5 %241.5 %16
Residential construction— %— %
Consumer and other— %— %7
The following table summarizes loans that had a payment default within the past twelve months that were modified due to the borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023:
Interest Rate ReductionTerm ExtensionPayment DelayPrincipal forgiveness
(In thousands)
Commercial and industrial$89 $670 $— $— 
Real estate:
Commercial real estate (including multi-family residential)
Commercial real estate construction and land development
1-4 family residential (including home equity)
71599
Residential construction
Consumer and other
$89 $1,385 $99 $— 
The following table presents information regarding loans modified in a troubled debt restructuring during the three and nine months ended September 30, 2022:
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
Number of ContractsPre-modifications of Outstanding Recorded InvestmentPost-modifications of Outstanding Recorded InvestmentNumber of ContractsPre-modifications of Outstanding Recorded InvestmentPost-modifications of Outstanding Recorded Investment
(Dollars in thousands)
Troubled Debt Restructurings
Commercial and industrial$224 $224 4$768 $768 
Real estate:
Commercial real estate (including multi-family residential)
— — 41,2071,207
Consumer and other145 45 14545
Total$269 $269 $2,020 $2,020 
Troubled debt restructurings resulted in no charge-offs during the nine months ended September 30, 2022. There were no loans modified under a trouble debt restructuring during the previous twelve-month period that subsequently defaulted during the nine-month period ended September 30, 2022. Default is determined to at 90 or more days past due. The trouble debt restructurings related to extending the amortization periods of the loans. The Company did not grant principal reductions on any restructured loans during the nine months ended September 30, 2022. There were no commitments to lend additional amounts to borrowers with trouble debt restructured loans for the three and nine months ended September 30, 2022.