Loans | Loans Loans were as follows: September 30, Percentage of Total December 31, Percentage of Total Commercial and industrial $ 5,029,754 36.4 % $ 4,792,388 36.4 % Energy: Production 1,220,771 8.8 1,182,326 9.0 Service 164,889 1.2 171,795 1.3 Other 133,708 1.0 144,972 1.1 Total energy 1,519,368 11.0 1,499,093 11.4 Commercial real estate: Commercial mortgages 4,078,787 29.5 3,887,742 29.6 Construction 1,208,870 8.7 1,066,696 8.1 Land 315,384 2.3 331,986 2.5 Total commercial real estate 5,603,041 40.5 5,286,424 40.2 Consumer real estate: Home equity loans 352,292 2.5 355,342 2.7 Home equity lines of credit 326,876 2.4 291,950 2.2 Other 419,965 3.1 376,002 2.9 Total consumer real estate 1,099,133 8.0 1,023,294 7.8 Total real estate 6,702,174 48.5 6,309,718 48.0 Consumer and other 563,542 4.1 544,466 4.2 Total loans $ 13,814,838 100.0 % $ 13,145,665 100.0 % 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, 2018 , there were no concentrations of loans related to any single industry in excess of 10% of total loans other than energy loans, which totaled 11.0% of total loans. Unfunded commitments to extend credit and standby letters of credit issued to customers in the energy industry totaled $1.1 billion and $46.7 million , respectively, as of September 30, 2018 . 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, 2018 or December 31, 2017 . 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 $238.6 million at September 30, 2018 and $166.4 million at December 31, 2017 . Non-Accrual and Past Due Loans. Non-accrual loans, segregated by class of loans, were as follows: September 30, December 31, Commercial and industrial $ 12,278 $ 46,186 Energy 51,802 94,302 Commercial real estate: Buildings, land and other 15,913 7,589 Construction — — Consumer real estate 971 2,109 Consumer and other 1,637 128 Total $ 82,601 $ 150,314 Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income, net of tax, of approximately $1.3 million and $4.2 million for the three and nine months ended September 30, 2018 , compared to $783 thousand and $2.4 million for the three and nine months ended September 30, 2017 . An age analysis of past due loans (including both accruing and non-accruing loans), segregated by class of loans, as of September 30, 2018 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 $ 33,985 $ 10,250 $ 44,235 $ 4,985,519 $ 5,029,754 $ 3,963 Energy 3,251 2,221 5,472 1,513,896 1,519,368 818 Commercial real estate: Buildings, land and other 21,596 2,980 24,576 4,369,595 4,394,171 2,606 Construction 784 1,042 1,826 1,207,044 1,208,870 1,042 Consumer real estate 7,743 1,773 9,516 1,089,617 1,099,133 1,432 Consumer and other 6,098 1,766 7,864 555,678 563,542 1,724 Total $ 73,457 $ 20,032 $ 93,489 $ 13,721,349 $ 13,814,838 $ 11,585 Impaired Loans. 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 September 30, 2018 Commercial and industrial $ 19,857 $ 3,153 $ 6,574 $ 9,727 $ 4,622 Energy 68,087 7,942 43,614 51,556 12,672 Commercial real estate: Buildings, land and other 15,961 2,309 12,876 15,185 2,599 Construction — — — — — Consumer real estate 293 293 — 293 — Consumer and other 1,595 — 1,595 1,595 1,595 Total $ 105,793 $ 13,697 $ 64,659 $ 78,356 $ 21,488 December 31, 2017 Commercial and industrial $ 60,781 $ 28,038 $ 15,722 $ 43,760 $ 7,553 Energy 99,606 33,080 61,162 94,242 13,267 Commercial real estate: Buildings, land and other 10,795 6,394 — 6,394 — Construction — — — — — Consumer real estate 1,214 1,214 — 1,214 — Consumer and other — — — — — Total $ 172,396 $ 68,726 $ 76,884 $ 145,610 $ 20,820 The average recorded investment in impaired loans was as follows: Three Months Ended Nine Months Ended 2018 2017 2018 2017 Commercial and industrial $ 13,447 $ 26,910 $ 21,025 $ 26,651 Energy 78,772 76,008 82,640 72,055 Commercial real estate: Buildings, land and other 14,306 5,553 12,328 6,106 Construction — — — — Consumer real estate 671 1,209 807 1,155 Consumer and other 1,073 — 805 13 Total $ 108,269 $ 109,680 $ 117,605 $ 105,980 Troubled Debt Restructurings . Troubled debt restructurings during the nine months ended September 30, 2018 and September 30, 2017 are set forth in the following table. Nine Months Ended Nine Months Ended Balance at Restructure Balance at Period-End Balance at Restructure Balance at Period-End Commercial and industrial $ 2,203 $ — $ 4,026 $ 3,875 Energy 13,708 — 56,097 55,023 $ 15,911 $ — $ 60,123 $ 58,898 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. Additional information related to restructured loans as of or for the nine months ended September 30, 2018 and September 30, 2017 is set forth in the following table. September 30, 2018 September 30, 2017 Restructured loans past due in excess of 90 days at period-end: Number of loans — 1 Dollar amount of loans $ — $ 43,137 Restructured loans on non-accrual status at period end — 54,082 Charge-offs of restructured loans: Recognized in connection with restructuring — — Recognized on previously restructured loans 4,650 9,951 Proceeds from sale of restructured loans 15,750 — 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 set forth in our 2017 Form 10-K. 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 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 tables present weighted-average risk grades for all commercial loans by class. September 30, 2018 December 31, 2017 Weighted Loans Weighted Loans Commercial and industrial: Risk grades 1-8 6.10 $ 4,755,739 6.06 $ 4,378,839 Risk grade 9 9.00 123,199 9.00 170,285 Risk grade 10 10.00 67,645 10.00 99,260 Risk grade 11 11.00 70,893 11.00 97,818 Risk grade 12 12.00 7,656 12.00 38,633 Risk grade 13 13.00 4,622 13.00 7,553 Total 6.31 $ 5,029,754 6.41 $ 4,792,388 Energy Risk grades 1-8 5.81 $ 1,367,235 6.01 $ 1,199,207 Risk grade 9 9.00 13,352 9.00 50,427 Risk grade 10 10.00 42,862 10.00 64,282 Risk grade 11 11.00 44,116 11.00 90,875 Risk grade 12 12.00 39,131 12.00 81,035 Risk grade 13 13.00 12,672 13.00 13,267 Total 6.32 $ 1,519,368 6.97 $ 1,499,093 Commercial real estate: Buildings, land and other Risk grades 1-8 6.77 $ 4,091,571 6.75 $ 3,868,659 Risk grade 9 9.00 135,521 9.00 151,487 Risk grade 10 10.00 60,169 10.00 129,391 Risk grade 11 11.00 90,997 11.00 62,602 Risk grade 12 12.00 13,314 12.00 7,589 Risk grade 13 13.00 2,599 13.00 — Total 6.99 $ 4,394,171 7.00 $ 4,219,728 Construction Risk grades 1-8 7.10 $ 1,129,492 7.11 $ 1,019,635 Risk grade 9 9.00 51,058 9.00 18,042 Risk grade 10 10.00 26,035 10.00 23,393 Risk grade 11 11.00 2,285 11.00 5,626 Risk grade 12 12.00 — 12.00 — Risk grade 13 13.00 — 13.00 — Total 7.25 $ 1,208,870 7.23 $ 1,066,696 Net (charge-offs)/recoveries, segregated by class of loans, were as follows: Three Months Ended Nine Months Ended 2018 2017 2018 2017 Commercial and industrial $ (7,807 ) $ (4,565 ) $ (19,030 ) $ (12,155 ) Energy (5,347 ) 451 (10,272 ) (10,010 ) Commercial real estate: Buildings, land and other 33 266 (288 ) 768 Construction 3 2 11 8 Consumer real estate (388 ) (629 ) (1,078 ) (422 ) Consumer and other (1,792 ) (1,760 ) (4,975 ) (4,289 ) Total $ (15,298 ) $ (6,235 ) $ (35,632 ) $ (26,100 ) 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 2017 Form 10-K, totaled 129.4 at September 30, 2018 and 129.3 at December 31, 2017 . 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, which is more fully described in our 2017 Form 10-K, 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. 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. The following table presents details of the allowance for loan losses allocated to each portfolio segment as of September 30, 2018 and December 31, 2017 and detailed on the basis of the impairment evaluation methodology we used: Commercial and Industrial Energy Commercial Real Estate Consumer Real Estate Consumer and Other Total September 30, 2018 Historical valuation allowances $ 25,582 $ 9,654 $ 20,441 $ 2,641 $ 6,815 $ 65,133 Specific valuation allowances 4,622 12,672 2,599 — 1,595 21,488 General valuation allowances 9,361 5,849 4,187 1,620 (114 ) 20,903 Macroeconomic valuation allowances 11,426 3,270 11,977 1,933 1,448 30,054 Total $ 50,991 $ 31,445 $ 39,204 $ 6,194 $ 9,744 $ 137,578 Allocated to loans: Individually evaluated $ 4,622 $ 12,672 $ 2,599 $ — $ 1,595 $ 21,488 Collectively evaluated 46,369 18,773 36,605 6,194 8,149 116,090 Total $ 50,991 $ 31,445 $ 39,204 $ 6,194 $ 9,744 $ 137,578 December 31, 2017 Historical valuation allowances $ 26,401 $ 22,073 $ 18,931 $ 2,473 $ 5,603 $ 75,481 Specific valuation allowances 7,553 13,267 — — — 20,820 General valuation allowances 9,112 7,964 4,165 2,133 (91 ) 23,283 Macroeconomic valuation allowances 16,548 8,224 7,852 1,051 2,105 35,780 Total $ 59,614 $ 51,528 $ 30,948 $ 5,657 $ 7,617 $ 155,364 Allocated to loans: Individually evaluated $ 7,553 $ 13,267 $ — $ — $ — $ 20,820 Collectively evaluated 52,061 38,261 30,948 5,657 7,617 134,544 Total $ 59,614 $ 51,528 $ 30,948 $ 5,657 $ 7,617 $ 155,364 Our recorded investment in loans as of September 30, 2018 and December 31, 2017 related to each balance in the allowance for loan losses by portfolio segment and detailed on the basis of the impairment methodology we used was as follows: Commercial and Industrial Energy Commercial Consumer Consumer Total September 30, 2018 Individually evaluated $ 9,727 $ 51,556 $ 15,185 $ 293 $ 1,595 $ 78,356 Collectively evaluated 5,020,027 1,467,812 5,587,856 1,098,840 561,947 13,736,482 Total $ 5,029,754 $ 1,519,368 $ 5,603,041 $ 1,099,133 $ 563,542 $ 13,814,838 December 31, 2017 Individually evaluated $ 43,760 $ 94,242 $ 6,394 $ 1,214 $ — $ 145,610 Collectively evaluated 4,748,628 1,404,851 5,280,030 1,022,080 544,466 13,000,055 Total $ 4,792,388 $ 1,499,093 $ 5,286,424 $ 1,023,294 $ 544,466 $ 13,145,665 The following table details activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2018 and 2017 . 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, 2018 Beginning balance $ 57,713 $ 37,313 $ 38,918 $ 6,336 $ 9,946 $ 150,226 Provision for loan losses 1,085 (521 ) 250 246 1,590 2,650 Charge-offs (8,491 ) (5,400 ) — (431 ) (4,274 ) (18,596 ) Recoveries 684 53 36 43 2,482 3,298 Net charge-offs (7,807 ) (5,347 ) 36 (388 ) (1,792 ) (15,298 ) Ending balance $ 50,991 $ 31,445 $ 39,204 $ 6,194 $ 9,744 $ 137,578 September 30, 2017 Beginning balance $ 48,906 $ 54,277 $ 33,002 $ 5,535 $ 7,838 $ 149,558 Provision for loan losses 4,096 (2,815 ) 4,805 1,969 2,925 10,980 Charge-offs (5,468 ) — — (766 ) (4,120 ) (10,354 ) Recoveries 903 451 268 137 2,360 4,119 Net charge-offs (4,565 ) 451 268 (629 ) (1,760 ) (6,235 ) Ending balance $ 48,437 $ 51,913 $ 38,075 $ 6,875 $ 9,003 $ 154,303 Nine months ended: September 30, 2018 Beginning balance $ 59,614 $ 51,528 $ 30,948 $ 5,657 $ 7,617 $ 155,364 Provision for loan losses 10,407 (9,811 ) 8,533 1,615 7,102 17,846 Charge-offs (21,896 ) (10,939 ) (619 ) (1,632 ) (12,240 ) (47,326 ) Recoveries 2,866 667 342 554 7,265 11,694 Net charge-offs (19,030 ) (10,272 ) (277 ) (1,078 ) (4,975 ) (35,632 ) Ending balance $ 50,991 $ 31,445 $ 39,204 $ 6,194 $ 9,744 $ 137,578 September 30, 2017 Beginning balance $ 52,915 $ 60,653 $ 30,213 $ 4,238 $ 5,026 $ 153,045 Provision for loan losses 7,677 1,270 7,086 3,059 8,266 27,358 Charge-offs (14,574 ) (10,595 ) (14 ) (779 ) (11,291 ) (37,253 ) Recoveries 2,419 585 790 357 7,002 11,153 Net charge-offs (12,155 ) (10,010 ) 776 (422 ) (4,289 ) (26,100 ) Ending balance $ 48,437 $ 51,913 $ 38,075 $ 6,875 $ 9,003 $ 154,303 |