Bank Loans

3 Months Ended

Mar. 31, 2021

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.

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.

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 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 March 31, 2021 and December 31, 2020 (in thousands, except percentages):

	March 31, 2021						December 31, 2020
	Balance			Percent			Balance			Percent
Commercial and industrial	$	4,923,494			40.3	%	$	4,296,089			38.5	%
Residential real estate		4,158,033			34.0			3,956,670			35.4
Securities-based loans		2,089,747			17.1			1,933,974			17.3
Construction and land		560,191			4.6			501,681			4.5
Commercial real estate		374,736			3.1			366,485			3.3
Home equity lines of credit		71,172			0.6			75,507			0.7
Other		37,819			0.3			40,407			0.3
Gross bank loans		12,215,192			100.0	%		11,170,813			100.0	%
Unamortized loan discount, net		(1,695	)					(1,822	)
Loans in process		(13,012	)					(48,222	)
Unamortized loan fees, net		(1,104	)					(1,980	)
Allowance for loan losses		(107,668	)					(112,029	)
Loans held for investment, net	$	12,091,713					$	11,006,760

At March 31, 2021 and December 31, 2020, Stifel Bancorp had loans outstanding to its executive officers and directors and executive officers and directors of certain affiliated entities in the amount of $25.1 million and $23.6 million, respectively.

At March 31, 2021 and December 31, 2020, we had loans held for sale of $330.5 million and $551.2 million, respectively. For the three months ended March 31, 2021 and 2020, we recognized gains of $13.9 million and $2.5 million, respectively, from the sale of originated loans, net of fees and costs.

Accrued interest receivable for loans and loans held for sale at March 31, 2021 and December 31, 2020 was $21.3 million and $20.8 million, respectively, and is reported in other assets on the consolidated statement of financial condition.

The following table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2021 (in thousands).

	Three Months Ended March 31, 2021
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	67,222	$	(9,972	)	$	(934	)	$	—	$	56,316
Construction and land		17,275		1,598			—			—		18,873
Residential real estate		16,300		365			—			—		16,665
Commercial real estate		8,580		4,480			—			—		13,060
Securities-based loans		2,015		154			—			—		2,169
Home equity lines of credit		374		(33	)		—			—		341
Other		263		(19	)		—			—		244
	$	112,029	$	(3,427	)	$	(934	)	$	—	$	107,668

The provision for unfunded lending commitments was a credit of $1.8 million and $2.9 million for the three months ended March 31, 2021 and 2020, respectively, and 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 table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2020 (in thousands).

	Three Months Ended March 31, 2020
	Beginning Balance		CECL Adoption			Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	69,949	$	(19,940	)	$	9,955		$	(2	)	$	—	$	59,962
Residential real estate		14,253		3,499			2,233			—			—		19,985
Construction and land		4,613		2,674			3,666			—			—		10,953
Commercial real estate		3,564		791			3,810			—			—		8,165
Securities-based loans		2,361		1,346			(792	)		—			—		2,915
Home equity lines of credit		442		39			57			—			1		539
Other		397		(145	)		49			(18	)		—		283
	$	95,579	$	(11,736	)	$	18,978		$	(20	)	$	1	$	102,802

At March 31, 2021, we had $13.6 million of impaired loans, net of discounts, which included $0.2 million in troubled debt restructurings. The specific allowance on impaired loans at March 31, 2021 was $8.2 million. At December 31, 2020, we had $13.8 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, 2020 was $8.2 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 months ended March 31, 2021 and 2020, were insignificant to the consolidated financial statements.

In December 2020, the U.S. federal government enacted the Consolidated Appropriations Act of 2021, which provided additional COVID-19 relief to American families and business, including extending TDR relief under the CARES Act until the earlier of December 31, 2021, or 60 days following the termination of the national emergency.

The following tables present the aging of the recorded investment in past due loans at March 31, 2021 and December 31, 2020 by portfolio segment (in thousands):

	As of March 31, 2021
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Commercial and industrial	$	—	$	11,408	$	11,408	$	4,912,086	$	4,923,494
Residential real estate		3,941		1,925		5,866		4,152,167		4,158,033
Securities-based loans		—		—		—		2,089,747		2,089,747
Construction and land		—		—		—		560,191		560,191
Commercial real estate		—		144		144		374,592		374,736
Home equity lines of credit		233		—		233		70,939		71,172
Other		17		—		17		37,802		37,819
Total	$	4,191	$	13,477	$	17,668	$	12,197,524	$	12,215,192

	As of March 31, 2021*
	Non-Accrual		Restructured		Nonperforming loans with no allowance		Total
Commercial and industrial	$	11,408	$	—	$	—	$	11,408
Residential real estate		676		158		1,249		2,083
Commercial real estate		144		—		—		144
Total	$	12,228	$	158	$	1,249	$	13,635

* There were no loans past due 90 days and still accruing interest at March 31, 2021.

	As of December 31, 2020
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Commercial and industrial	$	14	$	12,237	$	12,251	$	4,283,838	$	4,296,089
Residential real estate		4,554		1,249		5,803		3,950,867		3,956,670
Securities-based loans		—		—		—		1,933,974		1,933,974
Construction and land		—		—		—		501,681		501,681
Commercial real estate		—		144		144		366,341		366,485
Home equity lines of credit		12		—		12		75,495		75,507
Other		31		—		31		40,376		40,407
Total	$	4,611	$	13,630	$	18,241	$	11,152,572	$	11,170,813

	As of December 31, 2020*
	Non-Accrual		Restructured		Nonperforming loans with no allowance		Total
Commercial and industrial	$	12,251	$	—	$	—	$	12,251
Residential real estate		—		158		1,249		1,407
Commercial real estate		144		—		—		144
Total	$	12,395	$	158	$	1,249	$	13,802

* There were no loans past due 90 days and still accruing interest at December 31, 2020.

Credit quality indicators

As of March 31, 2021, 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 (“non-accrual 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 March 31, 2021 and December 31, 2020, 98.9% and 98.8% 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 March 31, 2021
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial	$	4,607,280	$	164,839	$	139,967	$	11,408	$	4,923,494
Residential real estate		4,155,773		335		—		1,925		4,158,033
Securities-based loans		2,089,747		—		—		—		2,089,747
Construction and land		525,951		14,240		20,000		—		560,191
Commercial real estate		366,154		5,802		2,636		144		374,736
Home equity lines of credit		71,172		—		—		—		71,172
Other		37,819		—		—		—		37,819
Total	$	11,853,896	$	185,216	$	162,603	$	13,477	$	12,215,192

	As of December 31, 2020
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial	$	3,995,351	$	105,759	$	182,728	$	12,251	$	4,296,089
Residential real estate		3,955,421		—		—		1,249		3,956,670
Securities-based loans		1,933,974		—		—		—		1,933,974
Construction and land		467,441		14,240		20,000		—		501,681
Commercial real estate		356,008		10,333		—		144		366,485
Home equity lines of credit		75,507		—		—		—		75,507
Other		40,407		—		—		—		40,407
Total	$	10,824,109	$	130,332	$	202,728	$	13,644	$	11,170,813

	Term Loans Amortized Cost Basis by Origination Year – March 31, 2021
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial:
Pass	$	852,103	$	494,747	$	527,136	$	679,772	$	302,188	$	502,085	$	1,249,249	$	4,607,280
Special Mention		—		503		30,309		82,558		45,947		4,200		1,322		164,839
Substandard		—		—		23,921		43,195		63,558		7,762		1,531		139,967
Doubtful		—		—		—		—		11,394		14		—		11,408
	$	852,103	$	495,250	$	581,366	$	805,525	$	423,087	$	514,061	$	1,252,102	$	4,923,494
Residential real estate:
Pass	$	485,925	$	1,548,638	$	815,040	$	340,371	$	271,808	$	693,991	$	—	$	4,155,773
Special Mention		—		—		—		—		—		335		—		335
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		825		1,100		—		1,925
	$	485,925	$	1,548,638	$	815,040	$	340,371	$	272,633	$	695,426	$	—	$	4,158,033
Securities-based loans:
Pass	$	973	$	38,702	$	102,973	$	294	$	140	$	16,906	$	1,929,759	$	2,089,747
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	973	$	38,702	$	102,973	$	294	$	140	$	16,906	$	1,929,759	$	2,089,747
Construction and land:
Pass	$	13,842	$	87,316	$	218,904	$	128,179	$	62,248	$	6,401	$	9,061	$	525,951
Special Mention		—		—		—		14,240		—		—		—		14,240
Substandard		—		—		—		20,000		—		—		—		20,000
Doubtful		—		—		—		—		—		—		—		—
	$	13,842	$	87,316	$	218,904	$	162,419	$	62,248	$	6,401	$	9,061	$	560,191
Commercial real estate:
Pass	$	22,047	$	81,378	$	152,732	$	25,328	$	38,352	$	45,975	$	342	$	366,154
Special Mention		—		—		—		—		—		5,802		—		5,802
Substandard		—		—		—		—		—		2,636		—		2,636
Doubtful		—		—		—		144		—		—		—		144
	$	22,047	$	81,378	$	152,732	$	25,472	$	38,352	$	54,413	$	342	$	374,736
Home equity lines of credit:
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	71,172	$	71,172
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—	$	71,172	$	71,172
Other:
Pass	$	—	$	—	$	—	$	4	$	—	$	445	$	37,370	$	37,819
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	4	$	—	$	445	$	37,370	$	37,819