Bank Loans

6 Months Ended

Jun. 30, 2022

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 June 30, 2022 and December 31, 2021 (in thousands, except percentages):

	June 30, 2022						December 31, 2021
	Balance			Percent			Balance			Percent
Commercial and industrial	$	8,347,410			43.6	%	$	7,345,753			43.9	%
Residential real estate		6,607,825			34.5			5,482,026			32.7
Securities-based loans		2,993,552			15.6			2,880,158			17.2
Commercial real estate		629,459			3.3			409,847			2.4
Construction and land		432,039			2.3			511,084			3.1
Home equity lines of credit		103,096			0.5			82,508			0.5
Other		45,239			0.2			32,111			0.2
Gross bank loans		19,158,620			100.0	%		16,743,487			100.0	%
Unamortized loan discount, net		—						(150	)
Loans in process		(53,332	)					(10,134	)
Unamortized loan fees, net		(14,620	)					(6,012	)
Allowance for loan losses		(107,482	)					(99,344	)
Loans held for investment, net	$	18,983,186					$	16,627,847

At June 30, 2022 and December 31, 2021, Stifel Bancorp had loans outstanding to its executive officers and directors and executive officers and directors of certain affiliated entities in the amount of $26.8 million and $27.2 million, respectively.

At June 30, 2022 and December 31, 2021, we had loans held for sale of $288.7 million and $207.7 million, respectively. For the three months ended June 30, 2022 and 2021, we recognized a loss of $0.1 million and gain of $7.5 million, respectively, from the sale of

originated loans, net of fees and costs. For the six months ended June 30, 2022 and 2021, we recognized gains of $0.6 million and $21.4 million, respectively, from the sale of originated loans, net of fees and costs.

At June 30, 2022 and December 31, 2021, loans, primarily consisting of residential and commercial real estate loans of $6.0 billion and $4.9 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, 2022 and December 21, 2021 was $39.1 million and $27.4 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, 2022 (in thousands).

	Three Months Ended June 30, 2022
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	54,580	$	12,770		$	—		$	2	$	67,352
Residential real estate		32,927		(10,312	)		—			—		22,615
Commercial real estate		3,680		2,803			—			—		6,483
Construction and land		8,121		(2,267	)		—			—		5,854
Securities-based loans		3,976		36			(36	)		—		3,976
Home equity lines of credit		683		239			—			—		922
Other		231		49			—			—		280
	$	104,198	$	3,318		$	(36	)	$	2	$	107,482

	Six Months Ended June 30, 2022
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	53,529	$	13,821		$	—		$	2	$	67,352
Residential real estate		28,560		(5,945	)		—			—		22,615
Commercial real estate		3,934		2,549			—			—		6,483
Construction and land		8,536		(2,682	)		—			—		5,854
Securities-based loans		4,006		6			(36	)		—		3,976
Home equity lines of credit		511		411			—			—		922
Other		268		12			—			—		280
	$	99,344	$	8,172		$	(36	)	$	2	$	107,482

The provision for unfunded lending commitments was $9.5 million and $12.9 million for the three and six months ended June 30, 2022, respectively. During the three and six months ended June 30, 2021, we released $5.5 million and $7.3 million, respectively, of the provision for unfunded lending commitments. 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 six months ended June 30, 2021 (in thousands).

	Three Months Ended June 30, 2021
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	56,316	$	(5,105	)	$	(4,268	)	$	—	$	46,943
Residential real estate		16,665		4,602			—			—		21,267
Construction and land		18,873		(2,920	)		—			—		15,953
Commercial real estate		13,060		(1,157	)		—			—		11,903
Securities-based loans		2,169		350			—			—		2,519
Home equity lines of credit		341		85			—			—		426
Other		244		(59	)		—			—		185
	$	107,668	$	(4,204	)	$	(4,268	)	$	—	$	99,196

	Six Months Ended June 30, 2021
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	67,222	$	(15,077	)	$	(5,202	)	$	—	$	46,943
Residential real estate		16,300		4,967			—			—		21,267
Construction and land		17,275		(1,322	)		—			—		15,953
Commercial real estate		8,580		3,323			—			—		11,903
Securities-based loans		2,015		504			—			—		2,519
Home equity lines of credit		374		52			—			—		426
Other		263		(78	)		—			—		185
	$	112,029	$	(7,631	)	$	(5,202	)	$	—	$	99,196

At June 30, 2022, we had $29.3 million of impaired loans, net of discounts, which included $0.2 million in troubled debt restructurings. The specific allowance on impaired loans at June 30, 2022 was $7.7 million. At December 31, 2021, we had $17.3 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, 2021 was $6.2 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 and six months ended June 30, 2022 and 2021, were insignificant to the consolidated financial statements.

The following tables present the aging of the recorded investment in past due loans at June 30, 2022 and December 31, 2021 by portfolio segment (in thousands):

	As of June 30, 2022
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Commercial and industrial	$	—	$	15,368	$	15,368	$	8,332,042	$	8,347,410
Residential real estate		1,447		1,790		3,237		6,604,588		6,607,825
Securities-based loans		—		—		—		2,993,552		2,993,552
Commercial real estate		—		—		—		629,459		629,459
Construction and land		—		—		—		432,039		432,039
Home equity lines of credit		699		—		699		102,397		103,096
Other		13		14		27		45,212		45,239
Total	$	2,159	$	17,172	$	19,331	$	19,139,289	$	19,158,620

	As of June 30, 2022*
	Nonaccrual		Restructured		Nonperforming loans with no allowance		Total
Commercial and industrial	$	27,352	$	—	$	—	$	27,352
Residential real estate		1,790		153		—		1,943
Other		14		—		—		14
Total	$	29,156	$	153	$	—	$	29,309

* There were no loans past due 90 days and still accruing interest at June 30, 2022.

	As of December 31, 2021
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Commercial and industrial	$	9,290	$	6,571	$	15,861	$	7,329,892	$	7,345,753
Residential real estate		6,194		1,332		7,526		5,474,500		5,482,026
Securities-based loans		—		—		—		2,880,158		2,880,158
Construction and land		—		—		—		511,084		511,084
Commercial real estate		—		1		1		409,846		409,847
Home equity lines of credit		—		—		—		82,508		82,508
Other		44		—		44		32,067		32,111
Total	$	15,528	$	7,904	$	23,432	$	16,720,055	$	16,743,487

	As of December 31, 2021*
	Nonaccrual		Restructured		Nonperforming loans with no allowance		Total
Commercial and industrial	$	15,861	$	—	$	—	$	15,861
Residential real estate		1,332		154		—		1,486
Commercial real estate		—		—		1		1
Total	$	17,193	$	154	$	1	$	17,348

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

Credit quality indicators

As of June 30, 2022, 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, 2022 and December 31, 2021, 97.4% and 98.5% 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 June 30, 2022
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial	$	8,200,462	$	30,000	$	89,596	$	27,352	$	8,347,410
Residential real estate		6,606,035		—		74		1,716		6,607,825
Securities-based loans		2,993,549		—		—		3		2,993,552
Commercial real estate		609,459		—		20,000		—		629,459
Construction and land		432,039		—		—		—		432,039
Home equity lines of credit		103,096		—		—		—		103,096
Other		45,225		—		—		14		45,239
Total	$	18,989,865	$	30,000	$	109,670	$	29,085	$	19,158,620

	As of December 31, 2021
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial	$	7,193,435	$	38,000	$	107,747	$	6,571	$	7,345,753
Residential real estate		5,480,693		—		84		1,249		5,482,026
Securities-based loans		2,880,158		—		—		—		2,880,158
Construction and land		476,844		14,240		20,000		—		511,084
Commercial real estate		407,298		2,548		—		1		409,847
Home equity lines of credit		82,479		29		—		—		82,508
Other		32,111		—		—		—		32,111
Total	$	16,553,018	$	54,817	$	127,831	$	7,821	$	16,743,487

	Term Loans Amortized Cost Basis by Origination Year – June 30, 2022
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial:
Pass	$	966,755	$	1,645,898	$	359,765	$	291,693	$	422,874	$	538,748	$	3,974,729	$	8,200,462
Special Mention		—		—		—		30,000		—		—		—		30,000
Substandard		—		—		—		28,224		45,355		11,828		4,189		89,596
Doubtful		—		11,984		468		—		8,775		6,125		—		27,352
	$	966,755	$	1,657,882	$	360,233	$	349,917	$	477,004	$	556,701	$	3,978,918	$	8,347,410
Residential real estate:
Pass	$	1,764,281	$	2,573,959	$	1,050,178	$	470,393	$	194,258	$	552,966	$	—	$	6,606,035
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		74		—		74
Doubtful		—		—		—		—		—		1,716		—		1,716
	$	1,764,281	$	2,573,959	$	1,050,178	$	470,393	$	194,258	$	554,756	$	—	$	6,607,825
Securities-based loans:
Pass	$	1,049	$	48,119	$	33,218	$	89,378	$	—	$	10,312	$	2,811,473	$	2,993,549
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		3		3
	$	1,049	$	48,119	$	33,218	$	89,378	$	—	$	10,312	$	2,811,476	$	2,993,552
Commercial real estate:
Pass	$	162,591	$	125,644	$	72,644	$	141,162	$	58,384	$	49,034	$	—	$	609,459
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		20,000		—		—		20,000
Doubtful		—		—		—		—		—		—		—		—
	$	162,591	$	125,644	$	72,644	$	141,162	$	78,384	$	49,034	$	—	$	629,459
Construction and land:
Pass	$	26,193	$	56,293	$	183,362	$	104,565	$	45,116	$	16,510	$	—	$	432,039
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	26,193	$	56,293	$	183,362	$	104,565	$	45,116	$	16,510	$	—	$	432,039
Home equity lines of credit:
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	103,096	$	103,096
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—	$	103,096	$	103,096
Other:
Pass	$	7,263	$	782	$	10,000	$	—	$	1,581	$	24,105	$	1,494	$	45,225
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		14		14
	$	7,263	$	782	$	10,000	$	—	$	1,581	$	24,105	$	1,508	$	45,239