Bank Loans

9 Months Ended

Sep. 30, 2023

Receivables [Abstract]

Bank Loans

NOTE 7 – Bank Loans

Our loan portfolio consists primarily of the following segments:

Commercial and industrial (C&I). C&I loans primarily include commercial and industrial lending used for general corporate purposes, working capital and liquidity, and “event-driven.” “Event-driven” loans support client merger, acquisition or recapitalization activities. C&I lending is structured as revolving lines of credit, letter of credit facilities, term loans and bridge loans. Risk factors considered in determining the allowance for corporate loans include the borrower’s financial strength, seniority of the loan, collateral type, leverage, volatility of collateral value, debt cushion, and covenants.

Fund banking. Fund banking loans primarily include capital call lines of credit, also known as subscription lines of credit. These credit facilities are used by closed-end private investment funds (“Fund”) that have raised capital commitments from limited partners to effectively manage the Fund’s cash and bridge timing between the Fund’s investments and capital calls. The lines of credit are collateralized by a pledge of the limited partner’s contractually callable capital and the general partner’s right to call such capital as permitted in the Fund’s partnership agreement.

Securities-based loans. Securities-based loans allow clients to borrow money against the value of qualifying securities for any suitable purpose other than purchasing, trading, or carrying securities or refinancing margin debt. The majority of consumer loans are structured as revolving lines of credit and letter of credit facilities and are primarily offered through Stifel’s Pledged Asset (“SPA”) program. The allowance methodology for securities-based lending considers the collateral type underlying the loan, including the liquidity and trading volume of the collateral, position concentration and other borrower specific factors such as personal guarantees.

Real Estate. Real estate loans include residential real estate non-conforming loans, residential real estate conforming loans, commercial real estate, and home equity lines of credit. The allowance methodology related to real estate loans considers several factors, including, but not limited to, loan-to-value ratio, FICO score, home price index, delinquency status, credit limits, and utilization rates.

Construction and land. Short-term loans used to finance the development of a real estate project.

Other. Other loans include consumer and credit card lending.

The following table presents the balance and associated percentage of each major loan category in our bank loan portfolio at September 30, 2023 and December 31, 2022 (in thousands, except percentages):

	September 30, 2023						December 31, 2022
	Balance			Percent			Balance			Percent
Residential real estate	$	7,957,027			38.9	%	$	7,371,671			35.8	%
Commercial and industrial		4,367,671			21.4			4,897,176			23.8
Fund banking		4,114,889			20.1			4,182,641			20.3
Securities-based loans		2,317,631			11.3			2,724,551			13.2
Construction and land		851,709			4.2			593,191			2.9
Commercial real estate		670,907			3.3			675,599			3.3
Home equity lines of credit		123,995			0.6			107,136			0.5
Other		48,560			0.2			50,593			0.2
Gross bank loans		20,452,389			100.0	%		20,602,558			100.0	%
Loans in process		(8,509	)					(3,526	)
Unamortized loan fees, net		(15,530	)					(22,287	)
Allowance for loan losses		(135,797	)					(111,653	)
Loans held for investment, net	$	20,292,553					$	20,465,092

At September 30, 2023 and December 31, 2022, Stifel Bancorp had loans outstanding to its executive officers and directors and executive officers and directors of certain affiliated entities in the amount of $70.7 million and $86.4 million, respectively.

At September 30, 2023 and December 31, 2022, we had loans held for sale of $142.6 million and $156.9 million, respectively. For the three months ended September 30, 2023 and 2022, we recognized a loss of $0.2 million and a gain of $0.4 million, respectively, from the sale of originated loans, net of fees and costs. For the nine months ended September 30, 2023 and 2022, we recognized a loss of $2.8 million and a gain of $1.0 million, respectively, from the sale of originated loans, net of fees and costs.

At September 30, 2023 and December 31, 2022, loans, primarily consisting of residential and commercial real estate loans of $7.2 billion and $7.0 billion, respectively, were pledged at the Federal Home Loan Bank as collateral for borrowings.

Accrued interest receivable for loans and loans held for sale at September 30, 2023 and December 21, 2022 was $78.2 million and $65.7 million, respectively, and is reported in other assets on the consolidated statement of financial condition.

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2023 (in thousands).

	Three Months Ended September 30, 2023
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	66,377	$	8,584		$	(302	)	$	—	$	74,659
Commercial real estate		13,429		6,437			—			—		19,866
Residential real estate		14,413		194			—			—		14,607
Fund banking		12,178		(660	)		—			—		11,518
Construction and land		12,645		(1,145	)		—			—		11,500
Securities-based loans		3,086		(68	)		—			—		3,018
Home equity lines of credit		168		27			—			—		195
Other		385		49			—			—		434
	$	122,681	$	13,418		$	(302	)	$	—	$	135,797

	Nine Months Ended September 30, 2023
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	54,143	$	21,283		$	(920	)	$	153	$	74,659
Commercial real estate		12,897		6,969			—			—		19,866
Residential real estate		20,441		(5,834	)		—			—		14,607
Fund banking		11,711		(193	)		—			—		11,518
Construction and land		8,568		2,932			—			—		11,500
Securities-based loans		3,157		(139	)		—			—		3,018
Home equity lines of credit		364		(169	)		—			—		195
Other		372		62			—			—		434
	$	111,653	$	24,911		$	(920	)	$	153	$	135,797

During the three and nine months ended September 30, 2023, we released $3.4 million and $2.2 million, respectively, of the provision for unfunded lending commitments. The provision for unfunded lending commitments was $4.9 million and $17.8 million for the three and nine months ended September 30, 2022, respectively. The provision for unfunded lending commitments is included in the provision for credit losses on the consolidated statement of operations. The expected credit losses for unfunded lending commitments, including standby letters of credit and binding unfunded loan commitments, are reported on the consolidated statement of financial condition in accounts payable and accrued expenses.

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2022 (in thousands).

	Three Months Ended September 30, 2022
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	57,594	$	(1,511	)	$	(4,008	)	$	—	$	52,075
Residential real estate		22,615		(5,150	)		—			—		17,465
Fund banking		9,758		2,414			—			—		12,172
Commercial real estate		6,483		5,480			—			—		11,963
Construction and land		5,854		1,675			—			—		7,529
Securities-based loans		3,976		(658	)		—			—		3,318
Home equity lines of credit		922		(724	)		—			—		198
Other		280		24			—			—		304
	$	107,482	$	1,550		$	(4,008	)	$	—	$	105,024

	Nine Months Ended September 30, 2022
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	44,661	$	11,420		$	(4,008	)	$	2	$	52,075
Residential real estate		28,560		(11,095	)		—			—		17,465
Fund banking		8,868		3,304			—			—		12,172
Commercial real estate		3,934		8,029			—			—		11,963
Construction and land		8,536		(1,007	)		—			—		7,529
Securities-based loans		4,006		(652	)		(36	)		—		3,318
Home equity lines of credit		511		(313	)		—			—		198
Other		268		36			—			—		304
	$	99,344	$	9,722		$	(4,044	)	$	2	$	105,024

At September 30, 2023, we had $50.7 million of impaired loans, net of discounts, which included $0.1 million in troubled debt restructurings. The specific allowance on impaired loans at September 30, 2023 was $13.1 million. At December 31, 2022, we had $10.3 million of impaired loans, net of discounts, which included $0.2 million in troubled debt restructurings. The specific allowance on impaired loans at December 31, 2022 was $6.5 million. The gross interest income related to impaired loans, which would have been recorded, had these loans been current in accordance with their original terms, and the interest income recognized on these loans during the three and nine months ended September 30, 2023 and 2022, were insignificant to the consolidated financial statements.

The following tables present the aging of the recorded investment in past due loans at September 30, 2023 and December 31, 2022 by portfolio segment (in thousands):

	As of September 30, 2023
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Residential real estate	$	5,072	$	1,540	$	6,612	$	7,950,415	$	7,957,027
Commercial and industrial		—		9,233		9,233		4,358,438		4,367,671
Fund banking		—		—		—		4,114,889		4,114,889
Securities-based loans		—		—		—		2,317,631		2,317,631
Construction and land		—		—		—		851,709		851,709
Commercial real estate		—		—		—		670,907		670,907
Home equity lines of credit		51		22		73		123,922		123,995
Other		53		31		84		48,476		48,560
Total	$	5,176	$	10,826	$	16,002	$	20,436,387	$	20,452,389

	As of September 30, 2023*
	Nonaccrual		Restructured		Nonperforming loans with no allowance		Total
Commercial real estate	$	39,747	$	—	$	—	$	39,747
Commercial and industrial		9,233		—		—		9,233
Residential real estate		616		146		924		1,686
Home equity lines of credit		22		—		—		22
Other		29		—		2		31
Total	$	49,647	$	146	$	926	$	50,719

* There were no loans past due 90 days and still accruing interest at September 30, 2023.

	As of December 31, 2022
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Residential real estate	$	2,445	$	688	$	3,133	$	7,368,538	$	7,371,671
Commercial and industrial		—		9,226		9,226		4,887,950		4,897,176
Fund banking		—		—		—		4,182,641		4,182,641
Securities-based loans		—		—		—		2,724,551		2,724,551
Commercial real estate		—		—		—		675,599		675,599
Construction and land		—		—		—		593,191		593,191
Home equity lines of credit		29		182		211		106,925		107,136
Other		36		6		42		50,551		50,593
Total	$	2,510	$	10,102	$	12,612	$	20,589,946	$	20,602,558

	As of December 31, 2022*
	Nonaccrual		Restructured		Nonperforming loans with no allowance		Total
Commercial and industrial	$	9,226	$	—	$	—	$	9,226
Residential real estate		870		150		—		1,020
Other		6		—		—		6
Total	$	10,102	$	150	$	—	$	10,252

* There were no loans past due 90 days and still accruing interest at December 31, 2022.

Credit quality indicators

As of September 30, 2023, bank loans were primarily extended to non-investment grade borrowers. Substantially all of these loans align with the U.S. Federal bank regulatory agencies’ definition of Pass. Loans meet the definition of Pass when they are performing and do not demonstrate adverse characteristics that are likely to result in a credit loss. A loan is determined to be impaired when principal or interest becomes 90 days past due or when collection becomes uncertain. At the time a loan is determined to be impaired, the accrual of interest and amortization of deferred loan origination fees is discontinued (“nonaccrual status”), and any accrued and unpaid interest income is reversed.

We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends in delinquency ratios are an indicator, among other considerations, of credit risk within our loan portfolio. The level of nonperforming assets represents another indicator of the potential for future credit losses. Accordingly, key metrics we track and use in evaluating the credit quality of our loan portfolio include delinquency and nonperforming asset rates, as well as charge-off rates and our internal risk ratings of the loan portfolio. In general, we are a secured lender. At September 30, 2023 and December 31, 2022, 97.0% and 97.5% of our loan portfolio was collateralized, respectively. Collateral is required in accordance with the normal credit evaluation process based upon the creditworthiness of the customer and the credit risk associated with the particular transaction. The Company uses the following definitions for risk ratings:

Pass. A credit exposure rated pass has a continued expectation of timely repayment, all obligations of the borrower are current, and the obligor complies with material terms and conditions of the lending agreement.

Special Mention. Extensions of credit that have potential weakness that deserve management’s close attention, and if left uncorrected may, at some future date, result in the deterioration of the repayment prospects or collateral position.

Substandard. Obligor has a well-defined weakness that jeopardizes the repayment of the debt and has a high probability of payment default with the distinct possibility that the Company will sustain some loss if noted deficiencies are not corrected.

Doubtful. Inherent weakness in the exposure makes the collection or repayment in full, based on existing facts, conditions and circumstances, highly improbable, and the amount of loss is uncertain.

Substandard loans are regularly reviewed for impairment. Doubtful loans are considered impaired. When a loan is impaired the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent.

Based on the most recent analysis performed, the risk category of our loan portfolio was as follows (in thousands):

	As of September 30, 2023
	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	7,955,487	$	—	$	—	$	1,540	$	7,957,027
Commercial and industrial		4,122,791		75,483		160,164		9,233		4,367,671
Fund banking		4,114,889		—		—		—		4,114,889
Securities-based loans		2,317,629		—		—		2		2,317,631
Construction and land		827,228		24,481		—		—		851,709
Commercial real estate		553,124		77,979		39,804		—		670,907
Home equity lines of credit		123,973		—		—		22		123,995
Other		48,531		—		14		15		48,560
Total	$	20,063,652	$	177,943	$	199,982	$	10,812	$	20,452,389

	As of December 31, 2022
	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	7,370,717	$	266	$	—	$	688	$	7,371,671
Commercial and industrial		4,743,290		87,761		56,899		9,226		4,897,176
Fund banking		4,182,641		—		—		—		4,182,641
Securities-based loans		2,724,548		—		—		3		2,724,551
Commercial real estate		655,599		20,000		—		—		675,599
Construction and land		593,191		—		—		—		593,191
Home equity lines of credit		106,954		—		—		182		107,136
Other		50,587		—		—		6		50,593
Total	$	20,427,527	$	108,027	$	56,899	$	10,105	$	20,602,558

	Term Loans Amortized Cost Basis by Origination Year – September 30, 2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Residential real estate:
Pass	$	1,009,765	$	2,677,509	$	2,349,447	$	934,506	$	418,909	$	565,351	$	—	$	7,955,487
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		924		—		—		—		616		—		1,540
	$	1,009,765	$	2,678,433	$	2,349,447	$	934,506	$	418,909	$	565,967	$	—	$	7,957,027
Commercial and industrial:
Pass	$	560,666	$	1,167,661	$	1,060,510	$	220,224	$	215,160	$	199,041	$	699,529	$	4,122,791
Special Mention		—		9,839		35,909		17,419		—		—		12,316		75,483
Substandard		—		26,967		74,411		—		3,913		—		54,873		160,164
Doubtful		—		—		—		433		—		8,800		—		9,233
	$	560,666	$	1,204,467	$	1,170,830	$	238,076	$	219,073	$	207,841	$	766,718	$	4,367,671
Fund banking:
Pass	$	—	$	55,267	$	—	$	578	$	—	$	—	$	4,059,044	$	4,114,889
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	55,267	$	—	$	578	$	—	$	—	$	4,059,044	$	4,114,889
Securities-based loans:
Pass	$	13,954	$	28,362	$	2,503	$	48,070	$	27,278	$	9,293	$	2,188,169	$	2,317,629
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		2		2
	$	13,954	$	28,362	$	2,503	$	48,070	$	27,278	$	9,293	$	2,188,171	$	2,317,631
Construction and land:
Pass	$	26,811	$	376,902	$	191,175	$	171,049	$	61,291	$	—	$	—	$	827,228
Special Mention		—		—		—		—		24,481		—		—		24,481
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	26,811	$	376,902	$	191,175	$	171,049	$	85,772	$	—	$	—	$	851,709
Commercial real estate:
Pass	$	30,849	$	356,640	$	64,064	$	31,201	$	2,785	$	67,585	$	—	$	553,124
Special Mention		—		60,000		—		—		17,979		—		—		77,979
Substandard		—		—		39,804		—		—		—		—		39,804
Doubtful		—		—		—		—		—		—		—		—
	$	30,849	$	416,640	$	103,868	$	31,201	$	20,764	$	67,585	$	—	$	670,907
Home equity lines of credit:
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	123,973	$	123,973
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		22		22
	$	—	$	—	$	—	$	—	$	—	$	—	$	123,995	$	123,995
Other:
Pass	$	4,000	$	3,991	$	—	$	10,000	$	—	$	22,555	$	7,985	$	48,531
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		14		14
Doubtful		—		—		—		—		—		—		15		15
	$	4,000	$	3,991	$	—	$	10,000	$	—	$	22,555	$	8,014	$	48,560