Bank Loans

6 Months Ended

Jun. 30, 2024

NOTE 7 – Bank Loans

Our loan portfolio consists primarily of the following segments:

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.

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.

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

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 June 30, 2024 and December 31, 2023 (in thousands, except percentages):


	June 30, 2024						December 31, 2023
	Balance			Percent			Balance			Percent
Residential real estate	$	8,253,851			42.2	%	$	8,047,647			41.4	%
Commercial and industrial		3,689,379			18.9			3,566,987			18.3
Fund banking		3,346,785			17.1			3,633,126			18.7
Securities-based loans		2,253,045			11.5			2,306,455			11.9
Construction and land		1,198,395			6.1			1,034,370			5.3
Commercial real estate		608,911			3.1			660,631			3.4
Home equity lines of credit		158,472			0.8			136,270			0.7
Other		45,920			0.3			55,981			0.3
Gross bank loans		19,554,758			100.0	%		19,441,467			100.0	%
Loans in process/(unapplied loan payments), net		(67,194	)					1,108
Unamortized loan fees, net		(5,483	)					(8,478	)
Allowance for loan losses		(135,114	)					(128,292	)
Loans held for investment, net	$	19,346,967					$	19,305,805

At June 30, 2024 and December 31, 2023, Stifel Bancorp had loans outstanding to its executive officers and directors and executive officers and directors of certain affiliated entities in the amount of $38.0 million and $46.0 million, respectively.

At June 30, 2024 and December 31, 2023, we had loans held for sale of $472.8 million and $424.0 million, respectively. For the three months ended June 30, 2024 and 2023, we recognized losses, included in other income in the accompanying consolidated statements of operations, of $1.5 million and $2.0 million, respectively, from the sale of originated loans, net of fees and costs. For the six months ended June 30, 2024 and 2023, we recognized losses, included in other income in the accompanying consolidated statements of operations, of $2.9 million and $2.6 million, respectively, from the sale of originated loans, net of fees and costs.

At June 30, 2024 and December 31, 2023, loans, primarily consisting of residential and commercial real estate loans of $7.6 billion and $7.4 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 June 30, 2024 and December 21, 2023 was $97.8 million and $94.0 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 six months ended June 30, 2024 (in thousands).


	Three Months Ended June 30, 2024
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	65,887	$	10,708		$	(241	)	$	—	$	76,354
Construction and land		18,589		(2,210	)		—			—		16,379
Commercial real estate		20,689		(3,687	)		(1,690	)		—		15,312
Fund banking		8,763		3,416			—			—		12,179
Residential real estate		12,507		(1,265	)		—			—		11,242
Securities-based loans		3,068		(255	)		—			—		2,813
Home equity lines of credit		246		116			—			—		362
Other		464		9			—			—		473
	$	130,213	$	6,832		$	(1,931	)	$	—	$	135,114


	Six Months Ended June 30, 2024
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	67,077	$	12,155		$	(3,811	)	$	933	$	76,354
Construction and land		11,817		4,562			—			—		16,379
Commercial real estate		21,386		(4,384	)		(1,690	)		—		15,312
Fund banking		10,173		2,006			—			—		12,179
Residential real estate		13,855		(2,613	)		—			—		11,242
Securities-based loans		3,035		(222	)		—			—		2,813
Home equity lines of credit		371		(9	)		—			—		362
Other		578		(105	)		—			—		473
	$	128,292	$	11,390		$	(5,501	)	$	933	$	135,114

During the three months ended June 30, 2024, we recorded $3.0 million of net credit loss reserves, including $6.8 million of the reserve for credit losses for funded loans, partially offset by a release of $3.9 million of the allowance for unfunded lending commitments. During the six months ended June 30, 2024, we recorded $8.2 million of net credit loss reserves, including $11.4 million of the reserve for credit losses for funded loans and $0.3 million related to employee retention awards, partially offset by a release of $3.5 million of the allowance for unfunded lending commitments. During the three months ended June 30, 2023, we recorded $7.8 million of net credit loss reserves, including $6.1 million of the reserve for credit losses for funded loans and $1.7 million of the reserve for unfunded lending commitments. During the six months ended June 30, 2023, we recorded $12.7 million of net credit loss reserves, including $11.5 million of the reserve for credit losses for funded loans and $1.3 million of the reserve for unfunded lending commitments. The provision for unfunded lending agreements 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 six months ended June 30, 2023 (in thousands).


	Three Months Ended June 30, 2023
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	55,734	$	11,241		$	(598	)	$	—	$	66,377
Residential real estate		22,696		(8,283	)		—			—		14,413
Commercial real estate		11,566		1,863			—			—		13,429
Construction and land		10,317		2,328			—			—		12,645
Fund banking		12,943		(765	)		—			—		12,178
Securities-based loans		3,117		(31	)		—			—		3,086
Home equity lines of credit		412		(244	)		—			—		168
Other		377		8			—			—		385
	$	117,162	$	6,117		$	(598	)	$	—	$	122,681


	Six Months Ended June 30, 2023
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	54,143	$	12,699		$	(618	)	$	153	$	66,377
Residential real estate		20,441		(6,028	)		—			—		14,413
Commercial real estate		12,897		532			—			—		13,429
Construction and land		8,568		4,077			—			—		12,645
Fund banking		11,711		467			—			—		12,178
Securities-based loans		3,157		(71	)		—			—		3,086
Home equity lines of credit		364		(196	)		—			—		168
Other		372		13			—			—		385
	$	111,653	$	11,493		$	(618	)	$	153	$	122,681

The following tables present the aging of the recorded investment in past due loans at June 30, 2024 and December 31, 2023 by portfolio segment (in thousands):


	As of June 30, 2024
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Residential real estate	$	16,109	$	2,359	$	18,468	$	8,235,383	$	8,253,851
Commercial and industrial		27,475		2,329		29,804		3,659,575		3,689,379
Fund banking		—		—		—		3,346,785		3,346,785
Securities-based loans		—		—		—		2,253,045		2,253,045
Construction and land		—		—		—		1,198,395		1,198,395
Commercial real estate		—		—		—		608,911		608,911
Home equity lines of credit		681		378		1,059		157,413		158,472
Other		41		63		104		45,816		45,920
Total	$	44,306	$	5,129	$	49,435	$	19,505,323	$	19,554,758


	As of June 30, 2024*
	Nonaccrual		Nonperforming loans with no allowance		Total
Commercial and industrial	$	33,266	$	13,388	$	46,654
Commercial real estate		35,649		—		35,649
Residential real estate		1,435		924		2,359
Home equity lines of credit		378		—		378
Other		63		—		63
Total	$	70,791	$	14,312	$	85,103

* There were no loans past due 90 days and still accruing interest at June 30, 2024.


	As of December 31, 2023
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Residential real estate	$	15,312	$	3,945	$	19,257	$	8,028,390	$	8,047,647
Fund banking		—		—		—		3,633,126		3,633,126
Commercial and industrial		—		2,022		2,022		3,564,965		3,566,987
Securities-based loans		—		3		3		2,306,452		2,306,455
Construction and land		—		—		—		1,034,370		1,034,370
Commercial real estate		—		—		—		660,631		660,631
Home equity lines of credit		570		87		657		135,613		136,270
Other		45		59		104		55,877		55,981
Total	$	15,927	$	6,116	$	22,043	$	19,419,424	$	19,441,467


	As of December 31, 2023*
	Nonaccrual		Nonperforming loans with no allowance		Total
Commercial real estate	$	39,195	$	—	$	39,195
Residential real estate		3,090		1,000		4,090
Commercial and industrial		—		2,022		2,022
Securities-based loans		—		3		3
Home equity lines of credit		22		65		87
Other		59		—		59
Total	$	42,366	$	3,090	$	45,456

* There were no loans past due 90 days and still accruing interest at December 31, 2023.

In the normal course of business, we may modify the original terms of a loan agreement. In certain circumstances, we may agree to modify the original terms of a loan agreement to a borrower experiencing financial difficulty, which may include a borrower in default, financial distress, bankruptcy or other circumstances. Modifications of loans to borrowers experiencing financial difficulty are designed to reduce our loss exposure while providing borrowers with an opportunity to work through financial difficulties, often to avoid foreclosure or bankruptcy. Loan modifications to borrowers experiencing financial difficulty typically involve principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay (i.e., payment or maturity forbearance greater than six months), or a

term extension, or any combination thereof. Modified loans to borrowers experiencing financial difficulty are subject to our nonaccrual policies. Loans to borrowers experiencing financial difficulty which were modified during the three and six months ended June 30, 2024 and 2023 were not significant.

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 six months ended June 30, 2024 and 2023, were insignificant to the consolidated financial statements.

Credit quality indicators

As of June 30, 2024, 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 June 30, 2024 and December 31, 2023, 96.9% and 97.0% 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 June 30, 2024
	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	8,248,043	$	3,449	$	2,359	$	—	$	8,253,851
Commercial and industrial		3,344,761		166,429		148,385		29,804		3,689,379
Fund banking		3,346,785		—		—		—		3,346,785
Securities-based loans		2,253,045		—		—		—		2,253,045
Construction and land		1,149,751		—		48,644		—		1,198,395
Commercial real estate		485,955		30,827		92,129		—		608,911
Home equity lines of credit		158,094		—		378		—		158,472
Other		45,833		36		—		51		45,920
Total	$	19,032,267	$	200,741	$	291,895	$	29,855	$	19,554,758


	As of December 31, 2023
	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	8,042,246	$	1,456	$	3,945	$	—	$	8,047,647
Fund banking		3,633,126		—		—		—		3,633,126
Commercial and industrial		3,294,891		89,302		180,772		2,022		3,566,987
Securities-based loans		2,306,452		—		—		3		2,306,455
Construction and land		963,083		71,287		—		—		1,034,370
Commercial real estate		512,171		49,264		99,196		—		660,631
Home equity lines of credit		135,806		377		87		—		136,270
Other		55,922		—		—		59		55,981
Total	$	18,943,697	$	211,686	$	284,000	$	2,084	$	19,441,467


	Term Loans Amortized Cost Basis by Origination Year – June 30, 2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total
Residential real estate:
Pass	$	557,765	$	1,143,019	$	2,547,526	$	2,229,118	$	880,955	$	889,660	$	—	$	8,248,043
Special Mention		—		1,100		576		—		—		1,773		—		3,449
Substandard		—		—		1,576		—		—		783		—		2,359
Doubtful		—		—		—		—		—		—		—		—
	$	557,765	$	1,144,119	$	2,549,678	$	2,229,118	$	880,955	$	892,216	$	—	$	8,253,851
Commercial and industrial:
Pass	$	420,529	$	606,248	$	805,524	$	668,401	$	79,867	$	121,206	$	642,986	$	3,344,761
Special Mention		421		10,289		46,704		28,125		877		—		80,013		166,429
Substandard		6,790		—		53,197		34,522		—		3,462		50,414		148,385
Doubtful		—		—		—		27,475		—		—		2,329		29,804
	$	427,740	$	616,537	$	905,425	$	758,523	$	80,744	$	124,668	$	775,742	$	3,689,379
Fund banking:
Pass	$	—	$	790	$	41,588	$	—	$	447	$	—	$	3,303,960	$	3,346,785
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	790	$	41,588	$	—	$	447	$	—	$	3,303,960	$	3,346,785
Securities-based loans:
Pass	$	2,187	$	14,728	$	2,421	$	2,123	$	48,039	$	36,572	$	2,146,975	$	2,253,045
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	2,187	$	14,728	$	2,421	$	2,123	$	48,039	$	36,572	$	2,146,975	$	2,253,045
Construction and land:
Pass	$	—	$	175,662	$	557,241	$	212,681	$	191,027	$	13,140	$	—	$	1,149,751
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		48,644		—		48,644
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	175,662	$	557,241	$	212,681	$	191,027	$	61,784	$	—	$	1,198,395
Commercial real estate:
Pass	$	—	$	32,985	$	283,639	$	64,660	$	30,371	$	74,300	$	—	$	485,955
Special Mention		—		—		30,827		—		—		—		—		30,827
Substandard		—		—		56,480		35,649		—		—		—		92,129
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	32,985	$	370,946	$	100,309	$	30,371	$	74,300	$	—	$	608,911
Home equity lines of credit:
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	158,094	$	158,094
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		378		378
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—	$	158,472	$	158,472
Other:
Pass	$	2,855	$	—	$	3,991	$	—	$	10,000	$	22,053	$	6,934	$	45,833
Special Mention		—		—		—		—		—		—		36		36
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		51		51
	$	2,855	$	—	$	3,991	$	—	$	10,000	$	22,053	$	7,021	$	45,920