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Loans | 12 Months Ended
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Dec. 31, 2016
Receivables [Abstract] |
Loans | Loans Year-end loans, including leases net of unearned discounts, consisted of the following:
| 2016 |  | 2015
Commercial and industrial | $ | 4,344,000 |  |  | $ | 4,120,522 |
Energy: |  |  |
Production | 971,767 |  |  | 1,249,678 |
Service | 221,213 |  |  | 272,934 |
Other | 193,081 |  |  | 235,583 |
Total energy | 1,386,061 |  |  | 1,758,195 |
Commercial real estate: |  |  |
Commercial mortgages | 3,481,157 |  |  | 3,285,041 |
Construction | 1,043,261 |  |  | 720,695 |
Land | 311,030 |  |  | 286,991 |
Total commercial real estate | 4,835,448 |  |  | 4,292,727 |
Consumer real estate: |  |  |
Home equity loans | 345,130 |  |  | 340,528 |
Home equity lines of credit | 264,862 |  |  | 233,525 |
Other | 326,793 |  |  | 306,696 |
Total consumer real estate | 936,785 |  |  | 880,749 |
Total real estate | 5,772,233 |  |  | 5,173,476 |
Consumer and other | 473,098 |  |  | 434,338 |
Total loans | $ | 11,975,392 |  |  | $ | 11,486,531 |
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 December 31, 2016 and 2015, there were no concentrations of loans related to any single industry in excess of 10% of total loans other than energy loans, which totaled 11.6% and 15.3% of total loans, respectively. Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.1 billion and $37.4 million, respectively, as of December 31, 2016. 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 December 31, 2016 or 2015. Overdrafts. Deposit account overdrafts reported as loans totaled $6.3 million and $7.3 million at December 31, 2016 and 2015. 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”). These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other unaffiliated persons and do not involve more than normal risk of collectibility. Activity in related party loans during 2016 is presented in the following table. Other changes were primarily related to changes in related-party status.
Balance outstanding at December 31, 2015 | $ | 84,766 |
Principal additions | 282,884 |
Principal reductions | (224,874 | )
Other changes | (5 | )
Balance outstanding at December 31, 2016 | $ | 142,771 |
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. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on non-accrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower. Year-end non-accrual loans, segregated by class of loans, were as follows:
| 2016 |  | 2015
Commercial and industrial | $ | 31,475 |  |  | $ | 25,111 |
Energy | 57,571 |  |  | 21,180 |
Commercial real estate: |  |  |
Buildings, land and other | 8,550 |  |  | 34,519 |
Construction | — |  |  | 569 |
Consumer real estate | 2,130 |  |  | 1,862 |
Consumer and other | 425 |  |  | 226 |
Total | $ | 100,151 |  |  | $ | 83,467 |
As of December 31, 2016 and 2015, non-accrual loans reported in the table above included $44.9 million and $536 thousand related to loans that were restructured as “troubled debt restructurings” during 2016 and 2015, respectively. See the section captioned “Troubled Debt Restructurings” elsewhere in this note. Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $3.1 million in 2016, $1.6 million in 2015 and $1.5 million in 2014. An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of December 31, 2016 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 | $ | 31,171 |  |  | $ | 25,734 |  |  | $ | 56,905 |  |  | $ | 4,287,095 |  |  | $ | 4,344,000 |  |  | $ | 9,270 |
Energy | 4,684 |  |  | 15,570 |  |  | 20,254 |  |  | 1,365,807 |  |  | 1,386,061 |  |  | 3,091 |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |
Buildings, land and other | 12,431 |  |  | 10,611 |  |  | 23,042 |  |  | 3,769,145 |  |  | 3,792,187 |  |  | 8,807 |
Construction | 3,170 |  |  | 2,305 |  |  | 5,475 |  |  | 1,037,786 |  |  | 1,043,261 |  |  | 2,305 |
Consumer real estate | 6,807 |  |  | 721 |  |  | 7,528 |  |  | 929,257 |  |  | 936,785 |  |  | 377 |
Consumer and other | 6,377 |  |  | 1,155 |  |  | 7,532 |  |  | 465,566 |  |  | 473,098 |  |  | 1,014 |
Total | $ | 64,640 |  |  | $ | 56,096 |  |  | $ | 120,736 |  |  | $ | 11,854,656 |  |  | $ | 11,975,392 |  |  | $ | 24,864 |
Impaired Loans. Loans are considered impaired when, based on current information and events, it is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectibility of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Regulatory guidelines require us to reevaluate the fair value of collateral supporting impaired collateral dependent loans on at least an annual basis. While our policy is to comply with the regulatory guidelines, our general practice is to reevaluate the fair value of collateral supporting impaired collateral dependent loans on a quarterly basis. Thus, appraisals are generally not considered to be outdated, and we typically do not make any adjustments to the appraised values. The fair value of collateral supporting impaired collateral dependent loans is evaluated by our internal appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The fair value of collateral supporting impaired collateral dependent construction loans is based on an “as is” valuation. Year-end impaired loans are set forth in the following table. No interest income was recognized on impaired loans subsequent to their classification as impaired.
| Unpaid Contractual Principal Balance |  | Recorded Investment With No Allowance |  | Recorded Investment With Allowance |  | Total Recorded Investment |  | Related Allowance |  | Average Recorded Investment
2016 |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 40,288 |  |  | $ | 19,862 |  |  | $ | 9,047 |  |  | $ | 28,909 |  |  | $ | 5,436 |  |  | $ | 26,074 |
Energy | 60,522 |  |  | 27,759 |  |  | 29,804 |  |  | 57,563 |  |  | 3,750 |  |  | 57,360 |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |
Buildings, land and other | 11,369 |  |  | 6,866 |  |  | — |  |  | 6,866 |  |  | — |  |  | 17,729 |
Construction | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 438 |
Consumer real estate | 977 |  |  | 655 |  |  | — |  |  | 655 |  |  | — |  |  | 537 |
Consumer and other | 32 |  |  | 30 |  |  | — |  |  | 30 |  |  | — |  |  | 25 |
Total | $ | 113,188 |  |  | $ | 55,172 |  |  | $ | 38,851 |  |  | $ | 94,023 |  |  | $ | 9,186 |  |  | $ | 102,163 |
2015 |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 26,067 |  |  | $ | 18,776 |  |  | $ | 4,084 |  |  | $ | 22,860 |  |  | $ | 2,378 |  |  | $ | 27,338 |
Energy | 25,240 |  |  | 8,689 |  |  | 12,450 |  |  | 21,139 |  |  | 2,000 |  |  | 7,235 |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |
Buildings, land and other | 37,126 |  |  | 32,425 |  |  | — |  |  | 32,425 |  |  | — |  |  | 18,211 |
Construction | 793 |  |  | 569 |  |  | — |  |  | 569 |  |  | — |  |  | 1,320 |
Consumer real estate | 755 |  |  | 485 |  |  | — |  |  | 485 |  |  | — |  |  | 664 |
Consumer and other | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 89,981 |  |  | $ | 60,944 |  |  | $ | 16,534 |  |  | $ | 77,478 |  |  | $ | 4,378 |  |  | $ | 54,768 |
2014 |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 42,212 |  |  | $ | 29,007 |  |  | $ | 2,853 |  |  | $ | 31,860 |  |  | $ | 1,613 |  |  | $ | 27,154 |
Energy | 706 |  |  | 636 |  |  | — |  |  | 636 |  |  | — |  |  | 571 |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |
Buildings, land and other | 22,919 |  |  | 17,441 |  |  | 265 |  |  | 17,706 |  |  | 67 |  |  | 20,339 |
Construction | 3,007 |  |  | 2,793 |  |  | — |  |  | 2,793 |  |  | — |  |  | 739 |
Consumer real estate | 812 |  |  | 596 |  |  | — |  |  | 596 |  |  | — |  |  | 674 |
Consumer and other | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 159 |
Total | $ | 69,656 |  |  | $ | 50,473 |  |  | $ | 3,118 |  |  | $ | 53,591 |  |  | $ | 1,680 |  |  | $ | 49,636 |
Troubled Debt Restructurings. The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules, reductions in collateral and other actions intended to minimize potential losses. Troubled debt restructurings that occurred during 2016, 2015 and 2014 are set forth in the following table.
| 2016 |  | 2015 |  | 2014
Balance at Restructure |  | Balance at Year-end |  | Balance at Restructure |  | Balance at Year-end |  | Balance at Restructure |  | Balance at Year-end
Commercial and industrial | $ | 2,148 |  |  | $ | 1,022 |  |  | $ | 709 |  |  | $ | 536 |  |  | $ | 5,795 |  |  | $ | 5,391 |
Energy | 87,572 |  |  | 43,841 |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |
Buildings, land and other | 1,455 |  |  | — |  |  | — |  |  | — |  |  | 3,121 |  |  | 2,948 |
Construction | 243 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
| $ | 91,418 |  |  | $ | 44,863 |  |  | $ | 709 |  |  | $ | 536 |  |  | $ | 8,916 |  |  | $ | 8,339 |
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 loan losses. As of December 31, 2016, there were two loans totaling $3.2 million restructured during 2016 that were in excess of 90 days past due. As of December 31, 2015, there was one loan totaling $259 thousand restructured during 2015 that was in excess of 90 days past due. During 2016, we recognized a charge-off of $9.5 million related to a loan relationship that was restructured earlier in the year. The loan relationship was subsequently sold with proceeds from the sale totaling $30.5 million. During 2016 and 2015,we also recognized charge-offs totaling $4.1 million and $88 thousand, respectively, in connection with loan restructurings. A $277 thousand commercial and industrial loan restructured during 2015 was related to a loan relationship previously restructured during 2014. During 2014, we charged off $627 thousand of commercial and industrial loans that were related to loans restructured during 2013. Approximately $2.7 million of commercial and industrial loans and $2.9 million of the commercial real estate loans restructured during 2014 were related to a single relationship that was previously restructured during 2013. During 2014, we also foreclosed upon certain commercial real estate loans that were restructured during 2013. We recognized $500 thousand of other real estate owned and no charge-offs in connection with these foreclosures. The aforementioned charge-offs and foreclosures during the reported periods did not significantly impact our determination of the allowance for loan losses. As of December 31, 2016, $44.9 million of the loans restructured in 2016 were on non-accrual status, while as of December 31, 2015, $536 thousand of the loans restructured in 2015 were on non-accrual status. See the section captioned “Non-accrual Loans” elsewhere in this note. 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 (see details above) (iv) net charge-offs, (v) non-performing loans (see details above) and (vi) 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 as follows:
• | Grades 1, 2 and 3 - These grades include loans to very high credit quality borrowers of investment or near investment grade. These borrowers are generally publicly traded (grades 1 and 2), have significant capital strength, moderate leverage, stable earnings and growth, and readily available financing alternatives. Smaller entities, regardless of strength, would generally not fit in these grades.
• | Grades 4 and 5 - These grades include loans to borrowers of solid credit quality with moderate risk. Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality and the stability of the industry or market area.
• | Grades 6, 7 and 8 - These grades include “pass grade” loans to borrowers of acceptable credit quality and risk. Such borrowers are differentiated from Grades 4 and 5 in terms of size, secondary sources of repayment or they are of lesser stature in other key credit metrics in that they may be over-leveraged, under capitalized, inconsistent in performance or in an industry or an economic area that is known to have a higher level of risk, volatility, or susceptibility to weaknesses in the economy.
• | Grade 9 - This grade includes loans on management’s “watch list” and is intended to be utilized on a temporary basis for pass grade borrowers where a significant risk-modifying action is anticipated in the near term.
• | Grade 10 - This grade is for “Other Assets Especially Mentioned” in accordance with regulatory guidelines. This grade is intended to be temporary and includes loans to borrowers whose credit quality has clearly deteriorated and are at risk of further decline unless active measures are taken to correct the situation.
• | Grade 11 - This grade includes “Substandard” loans, in accordance with regulatory guidelines, for which the accrual of interest has not been stopped. By definition under regulatory guidelines, a “Substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business.
• | Grade 12 - This grade includes “Substandard” loans, in accordance with regulatory guidelines, for which the accrual of interest has been stopped. This grade includes loans where interest is more than 120 days past due and not fully secured and loans where a specific valuation allowance may be necessary, but generally does not exceed 30% of the principal balance.
• | Grade 13 - This grade includes “Doubtful” loans in accordance with regulatory guidelines. Such loans are placed on non-accrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. Additionally, these loans generally have a specific valuation allowance in excess of 30% of the principal balance.
• | Grade 14 - This grade includes “Loss” loans in accordance with regulatory guidelines. Such loans 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.
In monitoring credit quality trends in the context of assessing the appropriate level of the allowance for loan losses, we monitor portfolio credit quality by the weighted-average risk grade of each class of commercial loan. Individual relationship managers review updated financial information for all pass grade loans to recalculate the risk grade on at least an annual basis. When a loan has a calculated 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 calculated 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.
| December 31, 2016 |  | December 31, 2015
| Weighted Average Risk Grade |  | Loans |  | Weighted Average Risk Grade |  | Loans
Commercial and industrial |  |  |  |  |  |  |
Risk grades 1-8 | 6.01 |  |  | $ | 3,989,722 |  |  | 5.88 |  |  | $ | 3,869,203 |
Risk grade 9 | 9.00 |  |  | 106,988 |  |  | 9.00 |  |  | 100,670 |
Risk grade 10 | 10.00 |  |  | 115,420 |  |  | 10.00 |  |  | 76,030 |
Risk grade 11 | 11.00 |  |  | 100,245 |  |  | 11.00 |  |  | 49,508 |
Risk grade 12 | 12.00 |  |  | 25,939 |  |  | 12.00 |  |  | 22,644 |
Risk grade 13 | 13.00 |  |  | 5,686 |  |  | 13.00 |  |  | 2,467 |
Total | 6.35 |  |  | $ | 4,344,000 |  |  | 6.13 |  |  | $ | 4,120,522 |
Energy |  |  |  |  |  |  |
Risk grades 1-8 | 6.34 |  |  | $ | 854,688 |  |  | 6.12 |  |  | $ | 1,385,749 |
Risk grade 9 | 9.00 |  |  | 78,524 |  |  | 9.00 |  |  | 212,250 |
Risk grade 10 | 10.00 |  |  | 150,872 |  |  | 10.00 |  |  | 62,163 |
Risk grade 11 | 11.00 |  |  | 244,406 |  |  | 11.00 |  |  | 76,853 |
Risk grade 12 | 12.00 |  |  | 53,821 |  |  | 12.00 |  |  | 19,180 |
Risk grade 13 | 13.00 |  |  | 3,750 |  |  | 13.00 |  |  | 2,000 |
Total | 7.95 |  |  | $ | 1,386,061 |  |  | 6.89 |  |  | $ | 1,758,195 |
Commercial real estate: |  |  |  |  |  |  |
Buildings, land and other |  |  |  |  |  |  |
Risk grades 1-8 | 6.67 |  |  | $ | 3,463,064 |  |  | 6.58 |  |  | $ | 3,280,435 |
Risk grade 9 | 9.00 |  |  | 109,110 |  |  | 9.00 |  |  | 140,900 |
Risk grade 10 | 10.00 |  |  | 145,067 |  |  | 10.00 |  |  | 72,577 |
Risk grade 11 | 11.00 |  |  | 66,396 |  |  | 11.00 |  |  | 43,601 |
Risk grade 12 | 12.00 |  |  | 8,550 |  |  | 12.00 |  |  | 34,519 |
Risk grade 13 | 13.00 |  |  | — |  |  | 13.00 |  |  | — |
Total | 6.95 |  |  | $ | 3,792,187 |  |  | 6.85 |  |  | $ | 3,572,032 |
Construction |  |  |  |  |  |  |
Risk grades 1-8 | 6.97 |  |  | $ | 1,023,194 |  |  | 6.91 |  |  | $ | 696,229 |
Risk grade 9 | 9.00 |  |  | 15,829 |  |  | 9.00 |  |  | 13,074 |
Risk grade 10 | 10.00 |  |  | 2,889 |  |  | 10.00 |  |  | 2,757 |
Risk grade 11 | 11.00 |  |  | 1,349 |  |  | 11.00 |  |  | 8,066 |
Risk grade 12 | 12.00 |  |  | — |  |  | 12.00 |  |  | 569 |
Risk grade 13 | 13.00 |  |  | — |  |  | 13.00 |  |  | — |
Total | 7.01 |  |  | $ | 1,043,261 |  |  | 7.01 |  |  | $ | 720,695 |
We have established maximum loan to value standards to be applied during the origination process of commercial and consumer real estate loans. We do not subsequently monitor loan-to-value ratios (either individually or on a weighted-average basis) for loans that are subsequently considered to be of a pass grade (grades 9 or better) and/or current with respect to principal and interest payments. As stated above, when an individual commercial real estate loan has a calculated risk grade of 10 or higher, a special assets officer analyzes the loan to determine whether the loan is impaired. At that time, we reassess the loan to value position in the loan. If the loan is determined to be collateral dependent, specific allocations of the allowance for loan losses are made for the amount of any collateral deficiency. If a collateral deficiency is ultimately deemed to be uncollectible, the amount is charged-off. These loans and related assessments of collateral position are monitored on an individual, case-by-case basis. We do not monitor loan-to-value ratios on a weighted-average portfolio-basis for commercial real estate loans having a calculated risk grade of 10 or higher as excess collateral from one borrower cannot be used to offset a collateral deficit for another borrower. When an individual consumer real estate loan becomes past due by more than 10 days, the assigned relationship manager will begin collection efforts. We only reassess the loan to value position in a consumer real estate loan if, during the course of the collections process, it is determined that the loan has become collateral dependent, and any collateral deficiency is recognized as a charge-off to the allowance for loan losses. Accordingly, we do not monitor loan-to-value ratios on a weighted-average basis for collateral dependent consumer real estate loans. Generally, a commercial loan, or a portion thereof, is charged-off immediately when it is determined, through the analysis of any available current financial information with regards to the borrower, that the borrower is incapable of servicing unsecured debt, there is little or no prospect for near term improvement and no realistic strengthening action of significance is pending or, in the case of secured debt, when it is determined, through analysis of current information with regards to our collateral position, that amounts due from the borrower are in excess of the calculated current fair value of the collateral. Notwithstanding the foregoing, generally, commercial loans that become past due 180 cumulative days are charged-off. Generally, a consumer loan, or a portion thereof, is charged-off in accordance with regulatory guidelines which provide that such loans be charged-off when we become aware of the loss, such as from a triggering event that may include new information about a borrower’s intent/ability to repay the loan, bankruptcy, fraud or death, among other things, but in any event the charge-off must be taken within specified delinquency time frames. Such delinquency time frames state that closed-end retail loans (loans with pre-defined maturity dates, such as real estate mortgages, home equity loans and consumer installment loans) that become past due 120 cumulative days and open-end retail loans (loans that roll-over at the end of each term, such as home equity lines of credit) that become past due 180 cumulative days should be classified as a loss and charged-off. Net (charge-offs)/recoveries, segregated by class of loan, were as follows:
| 2016 |  | 2015 |  | 2014
Commercial and industrial | $ | (12,259 | ) |  | $ | (6,535 | ) |  | $ | (2,911 | )
Energy | (18,588 | ) |  | (5,997 | ) |  | (1,237 | )
Commercial real estate: |  |  |  |  |
Buildings, land and other | 813 |  |  | 314 |  |  | (2,348 | )
Construction | 23 |  |  | 18 |  |  | 348 |
Consumer real estate | (257 | ) |  | (91 | ) |  | (733 | )
Consumer and other | (4,219 | ) |  | (3,237 | ) |  | (2,329 | )
Total | $ | (34,487 | ) |  | $ | (15,528 | ) |  | $ | (9,210 | )
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 is a single summary statistic that is designed to signal the likelihood of the Texas economy’s transition from expansion to recession and vice versa. Management believes this index provides a reliable indication of the direction of overall credit quality. The TLI is a composite of the following eight leading indicators: (i) Texas Value of the Dollar, (ii) U.S. Leading Index, (iii) real oil prices (iv) well permits, (v) initial claims for unemployment insurance, (vi) Texas Stock Index, (vii) Help-Wanted Index and (viii) average weekly hours worked in manufacturing. The TLI totaled 121.9 at November 30, 2016 (most recent date available) and 123.0 at December 31, 2015. A higher TLI value implies more favorable economic conditions. Allowance for Loan Losses. The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of inherent losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. Our allowance for loan loss methodology follows the accounting guidance set forth in U.S. generally accepted accounting principles and the Interagency Policy Statement on the Allowance for Loan and Lease Losses, which was jointly issued by U.S. bank regulatory agencies. In that regard, our allowance for loan losses includes allowance allocations calculated in accordance with ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.” Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. Our process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools. The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss and recovery experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. 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 determination of the appropriate level of the allowance is dependent upon a variety of factors beyond our control, including, among other things, the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. We monitor whether or not the allowance for loan loss allocation model, as a whole, calculates an appropriate level of allowance for loan losses that moves in direct correlation to the general macroeconomic and loan portfolio conditions we experience over time. Our allowance for loan losses consists of: (i) specific valuation allowances determined in accordance with ASC Topic 310 based on probable losses on specific loans; (ii) historical valuation allowances determined in accordance with ASC Topic 450 based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions; (iii) general valuation allowances determined in accordance with ASC Topic 450 based on various risk factors that are internal to us; and (iv) macroeconomic valuation allowances determined in accordance with ASC Topic 450 based on general economic conditions and other risk factors that are external to us. The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of problem loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the relationship manager level for all commercial loans. When a loan has a calculated grade of 10 or higher, a special assets officer analyzes the loan to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. Historical valuation allowances are calculated based on the historical gross loss experience of specific types of loans and the internal risk grade of such loans. We calculate historical gross loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the total population of loans in the pool. The historical gross loss ratios are periodically (no less than annually) updated based on actual charge-off experience. A historical valuation allowance is established for each pool of similar loans based upon the product of the historical gross loss ratio and the total dollar amount of the loans in the pool. Our pools of similar loans include similarly risk-graded groups of commercial and industrial loans, energy loans, commercial real estate loans, consumer real estate loans, consumer and other loans and overdrafts. Prior to 2016, we used a single, combined historical loss allocation factor for all consumer and other loans, which included overdrafts. In 2016, we began using two separate historical loss allocation factors for consumer and other loans, one historical loss allocation factor for consumer and other loans, excluding overdrafts, and a separate historical loss allocation factor for overdrafts. While the effect of this change resulted in a decrease in the estimated valuation allowances needed for consumer and other loans, the impact of the change was not significant to our overall allocation of the allowance for loan losses. General valuation allowances include allocations for groups of similar loans with similar risk characteristics that exceed certain concentration limits established by management and/or our board of directors. Concentration risk limits have been established, among other things, for certain industry concentrations, large balance and highly leveraged credit relationships that exceed specified risk grades and loans originated with policy exceptions that exceed specified risk grades. Additionally, general valuation allowances are provided for loans that did not undergo a separate, independent concurrence review during the underwriting process (generally those loans under $1.0 million at origination). Our allowance methodology for general valuation allowances also includes a reduction factor for recoveries of prior charge-offs to compensate for the fact that historical loss allocations are based upon gross charge-offs rather than net. The adjustment for recoveries is based on the lower of annualized, year-to-date gross recoveries or the total gross recoveries by loan portfolio segment for the preceding four quarters, adjusted, when necessary, for expected future trends in recoveries. The components of the macroeconomic valuation allowance include (i) reserves allocated as a result of applying an environmental risk adjustment factor to the base historical loss allocation, (ii) reserves allocated for loans to borrowers in distressed industries and (iii) reserves allocated based upon current economic trends and other quantitative and qualitative factors that could impact our loan portfolio segments. The aggregate sum of these components for each portfolio segment reflects management's assessment of current and expected economic conditions and other external factors that impact the inherent credit quality of loans in that portfolio segment. The environmental adjustment factor is based upon a more qualitative analysis of risk and is calculated through a survey of senior officers who are involved in credit making decisions at a corporate-wide and/or regional level. On a quarterly basis, survey participants rate the degree of various risks utilizing a numeric scale that translates to varying grades of high, moderate or low levels of risk. The results are then input into a risk-weighting matrix to determine an appropriate environmental risk adjustment factor. The various risks that may be considered in the determination of the environmental adjustment factor include, among other things, (i) the experience, ability and effectiveness of the bank’s lending management and staff; (ii) the effectiveness of our loan policies, procedures and internal controls; (iii) changes in asset quality; (iv) the impact of legislative and governmental influences affecting industry sectors; (v) the effectiveness of the internal loan review function; (vi) the impact of competition on loan structuring and pricing; and (vii) the impact of rising interest rates on portfolio risk. In periods where the surveyed risks are perceived to be higher, the risk-weighting matrix will generally result in a higher environmental adjustment factor, which, in turn will result in higher levels of general valuation allowance allocations. The opposite holds true in periods where the surveyed risks are perceived to be lower. Macroeconomic valuation allowances also include amounts allocated for loans to borrowers in distressed industries within our commercial loan portfolio segments. To determine the amount of the allocation for our commercial and industrial and commercial real estate loan portfolio segments, management calculates the weighted-average risk grade for all loans to borrowers in distressed industries by loan portfolio segment. A multiple is then applied to the amount by which the weighted-average risk grade for loans to borrowers in distressed industries exceeds the weighted-average risk grade for all pass-grade loans within the loan portfolio segment to derive an allocation factor for loans to borrowers in distressed industries. The amount of the allocation for each loan portfolio segment is the product of this allocation factor and the outstanding balance of pass-grade loans within the identified distressed industries that have a risk grade of 6 or higher. Management identifies potential distressed industries by analyzing industry trends related to delinquencies, classifications and charge-offs. At December 31, 2016 and 2015, certain segments of contractors were considered to be a distressed industry based on elevated levels of delinquencies, classifications and charge-offs relative to other industries within our commercial loan portfolios. Furthermore, we determined, through a review of borrower financial information that, as a whole, contractors have experienced, among other things, decreased revenues, reduced backlog of work, compressed margins and little, if any, net income. The aforementioned methodology for allocating reserves for distressed industries within commercial and industrial and commercial real estate loan portfolio segments does not translate to our energy loan portfolio segment as the segment is made up of a single industry. For energy loans, management analyzes current economic trends, commodity prices and various other quantitative and qualitative factors that impact the inherent credit quality of our energy loan portfolio segment. If, based upon this analysis, management concludes that the prevailing conditions could have an adverse impact on the credit quality of our energy loan portfolio, management performs a sensitivity stress test on individual loans within our energy loan portfolio. The sensitivity stress test includes a commodity price shock to 75% of the commodity price deck. We also assess the financial strength of individual borrowers, the quality of collateral, the relative experience of the individual borrowers and their ability to withstand an economic downturn. The sensitivity stress test allows us to identify potential credit issues during periods of economic uncertainty. Reserve allocations resulting from the sensitivity stress test are calculated by hypothetically increasing the risk grades for affected borrowers and applying our allowance methodology to determine the incremental reserves that would be required. Macroeconomic valuation allowances may also include additional reserves allocated based upon management's assessment of current and expected economic conditions, trends and other quantitative and qualitative factors that could impact the credit quality of our loan portfolio segments. Additional reserves are allocated when, based upon this assessment, management believes that there are inherent credit risks for a given portfolio segment that have not yet materialized through the migration of loan risk grades and, therefore, have not yet impacted our historical or general valuation allowances. The following table presents details of the allowance for loan losses, segregated by loan portfolio segment.
| Commercial and Industrial |  | Energy |  | Commercial Real Estate |  | Consumer Real Estate |  | Consumer and Other |  | Total
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |
Historical valuation allowances | $ | 33,251 |  |  | $ | 34,626 |  |  | $ | 16,976 |  |  | $ | 2,225 |  |  | $ | 4,585 |  |  | $ | 91,663 |
Specific valuation allowances | 5,436 |  |  | 3,750 |  |  | — |  |  | — |  |  | — |  |  | 9,186 |
General valuation allowances | 6,708 |  |  | 3,769 |  |  | 5,004 |  |  | 1,506 |  |  | (144 | ) |  | 16,843 |
Macroeconomic valuation allowances | 7,520 |  |  | 18,508 |  |  | 8,233 |  |  | 507 |  |  | 585 |  |  | 35,353 |
Total | $ | 52,915 |  |  | $ | 60,653 |  |  | $ | 30,213 |  |  | $ | 4,238 |  |  | $ | 5,026 |  |  | $ | 153,045 |
December 31, 2015 |  |  |  |  |  |  |  |  |  |  |
Historical valuation allowances | $ | 25,428 |  |  | $ | 21,195 |  |  | $ | 15,544 |  |  | $ | 2,109 |  |  | $ | 12,813 |  |  | $ | 77,089 |
Specific valuation allowances | 2,378 |  |  | 2,000 |  |  | — |  |  | — |  |  | — |  |  | 4,378 |
General valuation allowances | 7,339 |  |  | 5,525 |  |  | 4,619 |  |  | 2,052 |  |  | (6,932 | ) |  | 12,603 |
Macroeconomic valuation allowances | 7,848 |  |  | 25,976 |  |  | 4,150 |  |  | 498 |  |  | 3,317 |  |  | 41,789 |
Total | $ | 42,993 |  |  | $ | 54,696 |  |  | $ | 24,313 |  |  | $ | 4,659 |  |  | $ | 9,198 |  |  | $ | 135,859 |
We monitor whether or not the allowance for loan loss allocation model, as a whole, calculates an appropriate level of allowance for loan losses that moves in direct correlation to the general macroeconomic and loan portfolio conditions we experience over time. In assessing the general macroeconomic trends/conditions, we analyze trends in the components of the TLI, as well as any available information related to regional, national and international economic conditions and events and the impact such conditions and events may have on us and our customers. With regard to assessing loan portfolio conditions, we analyze trends in weighted-average portfolio risk-grades, classified and non-performing loans and charge-off activity. In periods where general macroeconomic and loan portfolio conditions are in a deteriorating trend or remain at deteriorated levels, based on historical trends, we would expect to see the allowance for loan loss allocation model, as a whole, calculate higher levels of required allowances than in periods where general macroeconomic and loan portfolio conditions are in an improving trend or remain at an elevated level, based on historical trends. The Corporation’s recorded investment in loans related to each balance in the allowance for loan losses by portfolio segment and detailed on the basis of the impairment methodology used by the Corporation was as follows:
| Commercial and Industrial |  | Energy |  | Commercial Real Estate |  | Consumer Real Estate |  | Consumer and Other |  | Total
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |
Individually evaluated | $ | 28,909 |  |  | $ | 57,563 |  |  | $ | 6,866 |  |  | $ | 655 |  |  | $ | 30 |  |  | $ | 94,023 |
Collectively evaluated | 4,315,091 |  |  | 1,328,498 |  |  | 4,828,582 |  |  | 936,130 |  |  | 473,068 |  |  | 11,881,369 |
Total | $ | 4,344,000 |  |  | $ | 1,386,061 |  |  | $ | 4,835,448 |  |  | $ | 936,785 |  |  | $ | 473,098 |  |  | $ | 11,975,392 |
December 31, 2015 |  |  |  |  |  |  |  |  |  |  |
Individually evaluated | $ | 22,860 |  |  | $ | 21,139 |  |  | $ | 32,994 |  |  | $ | 485 |  |  | $ | — |  |  | $ | 77,478 |
Collectively evaluated | 4,097,662 |  |  | 1,737,056 |  |  | 4,259,733 |  |  | 880,264 |  |  | 434,338 |  |  | 11,409,053 |
Total | $ | 4,120,522 |  |  | $ | 1,758,195 |  |  | $ | 4,292,727 |  |  | $ | 880,749 |  |  | $ | 434,338 |  |  | $ | 11,486,531 |
The following table details activity in the allowance for loan losses by portfolio segment for 2016, 2015 and 2014. 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 |  | Unallocated |  | Total
2016 |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 42,993 |  |  | $ | 54,696 |  |  | $ | 24,313 |  |  | $ | 4,659 |  |  | $ | 9,198 |  |  | $ | — |  |  | $ | 135,859 |
Provision for loan losses | 22,181 |  |  | 24,545 |  |  | 5,064 |  |  | (164 | ) |  | 47 |  |  | — |  |  | 51,673 |
Charge-offs | (15,910 | ) |  | (18,644 | ) |  | (82 | ) |  | (814 | ) |  | (12,878 | ) |  | — |  |  | (48,328 | )
Recoveries | 3,651 |  |  | 56 |  |  | 918 |  |  | 557 |  |  | 8,659 |  |  | — |  |  | 13,841 |
Net charge-offs | (12,259 | ) |  | (18,588 | ) |  | 836 |  |  | (257 | ) |  | (4,219 | ) |  | — |  |  | (34,487 | )
Ending balance | $ | 52,915 |  |  | $ | 60,653 |  |  | $ | 30,213 |  |  | $ | 4,238 |  |  | $ | 5,026 |  |  | $ | — |  |  | $ | 153,045 |
Allocated to loans: |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 5,436 |  |  | $ | 3,750 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 9,186 |
Collectively evaluated for impairment | 47,479 |  |  | 56,903 |  |  | 30,213 |  |  | 4,238 |  |  | 5,026 |  |  | — |  |  | 143,859 |
Ending balance | $ | 52,915 |  |  | $ | 60,653 |  |  | $ | 30,213 |  |  | $ | 4,238 |  |  | $ | 5,026 |  |  | $ | — |  |  | $ | 153,045 |
2015 |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 44,273 |  |  | $ | 14,919 |  |  | $ | 27,163 |  |  | $ | 5,178 |  |  | $ | 8,009 |  |  | $ | — |  |  | $ | 99,542 |
Provision for loan losses | 5,255 |  |  | 45,774 |  |  | (3,182 | ) |  | (428 | ) |  | 4,426 |  |  | — |  |  | 51,845 |
Charge-offs | (11,092 | ) |  | (6,000 | ) |  | (657 | ) |  | (577 | ) |  | (11,246 | ) |  | — |  |  | (29,572 | )
Recoveries | 4,557 |  |  | 3 |  |  | 989 |  |  | 486 |  |  | 8,009 |  |  | — |  |  | 14,044 |
Net charge-offs | (6,535 | ) |  | (5,997 | ) |  | 332 |  |  | (91 | ) |  | (3,237 | ) |  | — |  |  | (15,528 | )
Ending balance | $ | 42,993 |  |  | $ | 54,696 |  |  | $ | 24,313 |  |  | $ | 4,659 |  |  | $ | 9,198 |  |  | $ | — |  |  | $ | 135,859 |
Allocated to loans: |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 2,378 |  |  | $ | 2,000 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 4,378 |
Collectively evaluated for impairment | 40,615 |  |  | 52,696 |  |  | 24,313 |  |  | 4,659 |  |  | 9,198 |  |  | — |  |  | 131,481 |
Ending balance | $ | 42,993 |  |  | $ | 54,696 |  |  | $ | 24,313 |  |  | $ | 4,659 |  |  | $ | 9,198 |  |  | $ | — |  |  | $ | 135,859 |
2014 |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 46,700 |  |  | $ | 6,090 |  |  | $ | 22,590 |  |  | $ | 5,230 |  |  | $ | 5,010 |  |  | $ | 6,818 |  |  | $ | 92,438 |
Provision for loan losses | 484 |  |  | 10,066 |  |  | 6,573 |  |  | 681 |  |  | 5,328 |  |  | (6,818 | ) |  | 16,314 |
Charge-offs | (12,073 | ) |  | (1,747 | ) |  | (3,800 | ) |  | (1,097 | ) |  | (9,768 | ) |  | — |  |  | (28,485 | )
Recoveries | 9,162 |  |  | 510 |  |  | 1,800 |  |  | 364 |  |  | 7,439 |  |  | — |  |  | 19,275 |
Net charge-offs | (2,911 | ) |  | (1,237 | ) |  | (2,000 | ) |  | (733 | ) |  | (2,329 | ) |  | — |  |  | (9,210 | )
Ending balance | $ | 44,273 |  |  | $ | 14,919 |  |  | $ | 27,163 |  |  | $ | 5,178 |  |  | $ | 8,009 |  |  | $ | — |  |  | $ | 99,542 |
Allocated to loans: |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 1,613 |  |  | $ | 67 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,680 |
Collectively evaluated for impairment | 42,660 |  |  | 14,852 |  |  | 27,163 |  |  | 5,178 |  |  | 8,009 |  |  | — |  |  | 97,862 |
Ending balance | $ | 44,273 |  |  | $ | 14,919 |  |  | $ | 27,163 |  |  | $ | 5,178 |  |  | $ | 8,009 |  |  | $ | — |  |  | $ | 99,542 |

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=66008989&loc=d3e5066-111524 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02(4)) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-04(6)) -URI http://asc.fasb.org/extlink&oid=6488278&loc=d3e603758-122996 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02(3)) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=66008989&loc=d3e5162-111524 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.7-03(a)(5)) -URI http://asc.fasb.org/extlink&oid=6879938&loc=d3e572229-122910 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.9-03(7)) -URI http://asc.fasb.org/extlink&oid=6876686&loc=d3e534808-122878 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=66008989&loc=d3e5074-111524 + Details
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