Bank Loans

3 Months Ended

Mar. 31, 2024

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

	March 31, 2024						December 31, 2023
	Balance			Percent			Balance			Percent
Residential real estate	$	8,096,975			42.4	%	$	8,047,647			41.4	%
Commercial and industrial		3,541,770			18.6			3,566,987			18.3
Fund banking		3,129,642			16.4			3,633,126			18.7
Securities-based loans		2,302,250			12.1			2,306,455			11.9
Construction and land		1,167,300			6.1			1,034,370			5.3
Commercial real estate		655,355			3.4			660,631			3.4
Home equity lines of credit		150,452			0.8			136,270			0.7
Other		48,116			0.2			55,981			0.3
Gross bank loans		19,091,860			100.0	%		19,441,467			100.0	%
Loans in process		(3,659	)					1,108
Unamortized loan fees, net		(8,192	)					(8,478	)
Allowance for loan losses		(130,213	)					(128,292	)
Loans held for investment, net	$	18,949,796					$	19,305,805

At March 31, 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 $42.3 million and $46.0 million, respectively.

At March 31, 2024 and December 31, 2023, we had loans held for sale of $534.6 million and $424.0 million, respectively. For the three months ended March 31, 2024 and 2023, we recognized losses, included in other income in the accompanying consolidated statements of operations, of $1.4 million and $0.6 million, respectively, from the sale of originated loans, net of fees and costs.

At March 31, 2024 and December 31, 2023, loans, primarily consisting of residential and commercial real estate loans of $7.5 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 March 31, 2024 and December 21, 2023 was $96.8 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 months ended March 31, 2024 and 2023 (in thousands).

	Three Months Ended March 31, 2024
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	67,077	$	1,447		$	(3,570	)	$	933	$	65,887
Commercial real estate		21,386		(697	)		—			—		20,689
Construction and land		11,817		6,772			—			—		18,589
Residential real estate		13,855		(1,348	)		—			—		12,507
Fund banking		10,173		(1,410	)		—			—		8,763
Securities-based loans		3,035		33			—			—		3,068
Home equity lines of credit		371		(125	)		—			—		246
Other		578		(114	)		—			—		464
	$	128,292	$	4,558		$	(3,570	)	$	933	$	130,213

	Three Months Ended March 31, 2023
	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	54,143	$	1,458		$	(20	)	$	153	$	55,734
Residential real estate		20,441		2,255			—			—		22,696
Fund banking		11,711		1,232			—			—		12,943
Commercial real estate		12,897		(1,331	)		—			—		11,566
Construction and land		8,568		1,749			—			—		10,317
Securities-based loans		3,157		(40	)		—			—		3,117
Home equity lines of credit		364		48			—			—		412
Other		372		5			—			—		377
	$	111,653	$	5,376		$	(20	)	$	153	$	117,162

During the three months ended March, 31, 2024, we recorded $5.3 million of net credit loss reserves, including $4.6 million of the reserve for credit losses for funded loans, $0.4 million of the reserve for unfunded lending commitments, and $0.3 million related to employee retention awards. During the three months ended March 31, 2023, we recorded $4.9 million of net credit loss reserves, including $5.4 million of the reserve for credit losses for funded loans, partially offset by a release of $0.5 million of the allowance 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.

At March 31, 2024, we had $59.4 million of impaired loans, net of discounts, which included $0.1 million in modified loans. The specific allowance on impaired loans at March 31, 2024 was $6.7 million. At December 31, 2023, we had $45.5 million of impaired loans, net of discounts, which included $0.1 million in modified loans. The specific allowance on impaired loans at December 31, 2023 was $5.0 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, 2024 and 2023, were insignificant to the consolidated financial statements.

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

	As of March 31, 2024
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Residential real estate	$	20,382	$	4,447	$	24,829	$	8,072,146	$	8,096,975
Commercial and industrial		—		—		—		3,541,770		3,541,770
Fund banking		—		—		—		3,129,642		3,129,642
Securities-based loans		—		—		—		2,302,250		2,302,250
Construction and land		—		—		—		1,167,300		1,167,300
Commercial real estate		—		—		—		655,355		655,355
Home equity lines of credit		242		102		344		150,108		150,452
Other		11		49		60		48,056		48,116
Total	$	20,635	$	4,598	$	25,233	$	19,066,627	$	19,091,860

	As of March 31, 2024*
	Nonaccrual		Restructured		Nonperforming loans with no allowance		Total
Commercial real estate	$	38,171	$	—	$	—	$	38,171
Commercial and industrial		2,329		—		14,187		16,516
Residential real estate		2,009		144		2,438		4,591
Home equity lines of credit		102		—		—		102
Other		49		—		—		49
Total	$	42,660	$	144	$	16,625	$	59,429

* There were no loans past due 90 days and still accruing interest at March 31, 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		Restructured		Nonperforming loans with no allowance		Total
Commercial real estate	$	39,195	$	—	$	—	$	39,195
Residential real estate		2,945		145		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	$	42,221	$	145	$	3,090	$	45,456

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

Credit quality indicators

As of March 31, 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 March 31, 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 March 31, 2024
	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	8,091,109	$	1,419	$	4,447	$	—	$	8,096,975
Commercial and industrial		3,216,078		166,177		157,186		2,329		3,541,770
Fund banking		3,129,642		—		—		—		3,129,642
Securities-based loans		2,302,250		—		—		—		2,302,250
Construction and land		1,096,074		23,219		48,007		—		1,167,300
Commercial real estate		529,857		30,827		94,671		—		655,355
Home equity lines of credit		150,251		99		102		—		150,452
Other		48,057		10		—		49		48,116
Total	$	18,563,318	$	221,751	$	304,413	$	2,378	$	19,091,860

	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 – March 31, 2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total
Residential real estate:
Pass	$	186,767	$	1,181,680	$	2,608,181	$	2,288,169	$	899,772	$	926,540	$	—	$	8,091,109
Special Mention		—		—		1,037		382		—		—		—		1,419
Substandard		—		—		1,533		—		1,514		1,400		—		4,447
Doubtful		—		—		—		—		—		—		—		—
	$	186,767	$	1,181,680	$	2,610,751	$	2,288,551	$	901,286	$	927,940	$	—	$	8,096,975
Commercial and industrial:
Pass	$	151,428	$	604,465	$	907,874	$	726,994	$	86,751	$	148,042	$	590,524	$	3,216,078
Special Mention		853		6,475		37,329		28,575		876		—		92,069		166,177
Substandard		6,807		—		38,955		61,794		—		3,544		46,086		157,186
Doubtful		—		—		—		—		—		—		2,329		2,329
	$	159,088	$	610,940	$	984,158	$	817,363	$	87,627	$	151,586	$	731,008	$	3,541,770
Fund banking:
Pass	$	—	$	10,790	$	55,338	$	—	$	491	$	—	$	3,063,023	$	3,129,642
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	10,790	$	55,338	$	—	$	491	$	—	$	3,063,023	$	3,129,642
Securities-based loans:
Pass	$	2,000	$	15,085	$	3,346	$	2,123	$	47,794	$	36,572	$	2,195,330	$	2,302,250
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	2,000	$	15,085	$	3,346	$	2,123	$	47,794	$	36,572	$	2,195,330	$	2,302,250
Construction and land:
Pass	$	—	$	132,721	$	557,511	$	208,426	$	184,276	$	13,140	$	—	$	1,096,074
Special Mention		—		—		—		—		—		23,219		—		23,219
Substandard		—		—		—		—		—		48,007		—		48,007
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	132,721	$	557,511	$	208,426	$	184,276	$	84,366	$	—	$	1,167,300
Commercial real estate:
Pass	$	—	$	32,252	$	315,905	$	64,429	$	30,648	$	86,623	$	—	$	529,857
Special Mention		—		—		30,827		—		—		—		—		30,827
Substandard		—		—		56,500		38,171		—		—		—		94,671
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	32,252	$	403,232	$	102,600	$	30,648	$	86,623	$	—	$	655,355
Home equity lines of credit:
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	150,251	$	150,251
Special Mention		—		—		—		—		—		—		99		99
Substandard		—		—		—		—		—		—		102		102
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—	$	150,452	$	150,452
Other:
Pass	$	3,100	$	6,050	$	3,991	$	—	$	10,000	$	18,053	$	6,863	$	48,057
Special Mention		—		—		—		—		—		—		10		10
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		49		49
	$	3,100	$	6,050	$	3,991	$	—	$	10,000	$	18,053	$	6,922	$	48,116