Bank Loans

3 Months Ended

Mar. 31, 2020

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 loans 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, 2020 and December 31, 2019 (in thousands, except percentages):

	March 31, 2020						December 31, 2019
	Balance			Percent			Balance			Percent
Commercial and industrial	$	3,813,862			37.6	%	$	3,438,953			35.3	%
Residential real estate		3,495,136			34.4			3,309,548			33.9
Securities-based loans		1,945,371			19.2			2,098,211			21.5
Commercial real estate		399,732			3.9			428,549			4.4
Construction and land		412,410			4.1			398,839			4.1
Home equity lines of credit		57,402			0.6			51,205			0.5
Other		32,762			0.2			27,311			0.3
Gross bank loans		10,156,675			100.0	%		9,752,616			100.0	%
Unamortized loan discount, net		(6,148	)					(6,588	)
Loans in process		(53,953	)					(27,717	)
Unamortized loan fees, net		728						1,310
Allowance for loan losses		(102,802	)					(95,579	)
Loans held for investment, net	$	9,994,500					$	9,624,042

At March 31, 2020 and December 31, 2019, Stifel Bancorp had loans outstanding to its executive officers and directors and executive officers and directors of certain affiliated entities in the amount of $19.0 million and $24.5 million, respectively.

At March 31, 2020 and December 31, 2019, we had loans held for sale of $570.8 million and $389.7 million, respectively. For the three months ended March 31, 2020 and 2019, we recognized gains of $2.5 million and $0.9 million, respectively, from the sale of originated loans, net of fees and costs.

Effective January 1, 2020, we adopted the new accounting standard for credit losses that requires evaluation of our loan portfolio for any expected losses with recognition of an allowance for credit losses, when applicable. For more information, see Note 1 – Nature of Operations, Basis of Presentation, and Summary of Significant Accounting Policies.

Accrued interest receivable for loans and loans held for sale at March 31, 2020 was $21.6 million 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, 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		194		58			49			(18	)		—		283
Unallocated		203		(203	)		—			—			—		—
	$	95,579	$	(11,736	)	$	18,978		$	(20	)	$	1	$	102,802

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at March 31, 2020 (in thousands):

	Allowance for Loan Losses						Recorded Investment in Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial and industrial	$	8,158	$	51,804	$	59,962	$	12,940	$	3,800,922	$	3,813,862
Residential real estate		24		19,961		19,985		1,411		3,493,725		3,495,136
Securities-based loans		—		2,915		2,915		—		1,945,371		1,945,371
Commercial real estate		—		8,165		8,165		—		399,732		399,732
Construction and land		—		10,953		10,953		—		412,410		412,410
Home equity lines of credit		—		539		539		—		57,402		57,402
Other		—		283		283		—		32,762		32,762
	$	8,182	$	94,620	$	102,802	$	14,351	$	10,142,324	$	10,156,675

The following table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2019 (in thousands).

	Three Months Ended March 31, 2019
	Beginning Balance		Provision		Charge-offs			Recoveries		Ending Balance
Commercial and industrial	$	68,367	$	211	$	(12	)	$	—	$	68,566
Residential real estate		11,228		270		—			87		11,585
Securities-based loans		1,978		249		—			—		2,227
Commercial real estate		1,778		643		—			—		2,421
Construction and land		1,241		483		—			—		1,724
Home equity lines of credit		310		61		—			1		372
Other		88		78		(44	)		24		146
Unallocated		843		288		—			—		1,131
	$	85,833	$	2,283	$	(56	)	$	112	$	88,172

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at December 31, 2019 (in thousands):

	Allowance for Loan Losses						Recorded Investment in Loans
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial and industrial	$	8,158	$	61,791	$	69,949	$	12,991	$	3,425,962	$	3,438,953
Residential real estate		24		14,229		14,253		1,412		3,308,136		3,309,548
Securities-based loans		—		2,361		2,361		—		2,098,211		2,098,211
Commercial real estate		—		3,564		3,564		—		428,549		428,549
Construction and land		—		4,613		4,613		—		398,839		398,839
Home equity lines of credit		—		442		442		184		51,021		51,205
Other		—		194		194		—		27,311		27,311
Unallocated		—		203		203		—		—		—
	$	8,182	$	87,397	$	95,579	$	14,587	$	9,738,029	$	9,752,616

At March 31, 2020, we had $14.4 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, 2020 was $8.2 million. At December 31, 2019, we had $14.6 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, 2019 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, 2020 and 2019, were insignificant to the consolidated financial statements.

The tables below present loans that were individually evaluated for impairment by portfolio segment at March 31, 2020 and December 31, 2019, including the average recorded investment balance for the year to date period presented (in thousands):

	March 31, 2020
	Unpaid Contractual Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and industrial	$	12,940	$	—	$	12,940	$	12,940	$	8,158	$	12,940
Residential real estate		1,411		1,249		162		1,411		24		1,411
Home equity lines of credit		—		—		—		—		—		123
Other		150		—		—		—		—		—
Total	$	14,501	$	1,249	$	13,102	$	14,351	$	8,182	$	14,474

	December 31, 2019
	Unpaid Contractual Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and industrial	$	12,991	$	51	$	12,940	$	12,991	$	8,158	$	14,172
Residential real estate		1,412		1,412		—		1,412		24		1,231
Home equity lines of credit		184		184		—		184		—		184
Other		150		—		—		—		—		—
Total	$	14,737	$	1,647	$	12,940	$	14,587	$	8,182	$	15,587

The following tables present the aging of the recorded investment in past due loans at March 31, 2020 and December 31, 2019 by portfolio segment (in thousands):

	As of March 31, 2020
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Commercial and industrial	$	—	$	12,940	$	12,940	$	3,800,922	$	3,813,862
Residential real estate		18,801		1,249		20,050		3,475,086		3,495,136
Securities-based loans		—		—		—		1,945,371		1,945,371
Commercial real estate		146		—		146		399,586		399,732
Construction and land		—		—		—		412,410		412,410
Home equity lines of credit		—		—		—		57,402		57,402
Other		24		20		44		32,718		32,762
Total	$	18,971	$	14,209	$	33,180	$	10,123,495	$	10,156,675

	As of March 31, 2020*
	Non-Accrual		Restructured		Nonperforming loans with no allowance		Total
Commercial and industrial	$	12,940	$	—	$	—	$	12,940
Residential real estate		—		162		1,249		1,411
Total	$	12,940	$	162	$	1,249	$	14,351

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

	As of December 31, 2019
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Commercial and industrial	$	—	$	12,940	$	12,940	$	3,426,013	$	3,438,953
Residential real estate		10,476		1,249		11,725		3,297,823		3,309,548
Securities-based loans		—		—		—		2,098,211		2,098,211
Commercial real estate		—		—		—		428,549		428,549
Construction and land		—		—		—		398,839		398,839
Home equity lines of credit		83		184		267		50,938		51,205
Other		5		—		5		27,306		27,311
Total	$	10,564	$	14,373	$	24,937	$	9,727,679	$	9,752,616

	As of December 31, 2019*
	Non-Accrual		Restructured		Total
Commercial and industrial	$	12,940	$	—	$	12,940
Residential real estate		1,249		163		1,412
Home equity lines of credit		184		—		184
Total	$	14,373	$	163	$	14,536

* There were no loans past due 90 days and still accruing interest at December 31, 2019.

Credit quality indicators

As of March 31, 2020, 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, 2020 and December 31, 2019, 97.7% and 98.3% 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, 2020
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial	$	3,684,127	$	70,798	$	45,997	$	12,940	$	3,813,862
Residential real estate		3,493,375		512		—		1,249		3,495,136
Securities-based loans		1,945,371		—		—		—		1,945,371
Commercial real estate		398,395		1,191		146		—		399,732
Construction and land		412,410		—		—		—		412,410
Home equity lines of credit		56,558		844		—		—		57,402
Other		32,762		—		—		—		32,762
Total	$	10,022,998	$	73,345	$	46,143	$	14,189	$	10,156,675

	As of December 31, 2019
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and industrial	$	3,365,800	$	48,241	$	11,972	$	12,940	$	3,438,953
Residential real estate		3,307,719		417		1,412		—		3,309,548
Securities-based loans		2,098,211		—		—		—		2,098,211
Commercial real estate		427,963		586		—		—		428,549
Construction and land		398,839		—		—		—		398,839
Home equity lines of credit		51,021		—		184		—		51,205
Other		27,311		—		—		—		27,311
Total	$	9,676,864	$	49,244	$	13,568	$	12,940	$	9,752,616

	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial:
Pass	$	13,415	$	78,130	$	2,558,504	$	11,957	$	21,687	$	38,622	$	961,812	$	3,684,127
Special Mention		—		—		61,136		—		—		—		9,662		70,798
Substandard		—		—		42,236		—		—		30		3,731		45,997
Doubtful		—		—		—		12,940		—		—		—		12,940
	$	13,415	$	78,130	$	2,661,876	$	24,897	$	21,687	$	38,652	$	975,205	$	3,813,862
Residential real estate:
Pass	$	383,891	$	1,088,915	$	494,050	$	381,708	$	354,811	$	790,000	$	—	$	3,493,375
Special Mention		—		—		—		—		—		512		—		512
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		148		—		1,101		—		1,249
	$	383,891	$	1,088,915	$	494,050	$	381,856	$	354,811	$	791,613	$	—	$	3,495,136
Securities-based loans:
Pass	$	14,447	$	103,364	$	3,364	$	140	$	143,576	$	23,567	$	1,656,913	$	1,945,371
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	14,447	$	103,364	$	3,364	$	140	$	143,576	$	23,567	$	1,656,913	$	1,945,371
Commercial real estate:
Pass	$	65,127	$	150,919	$	39,637	$	57,328	$	21,106	$	58,032	$	6,246	$	398,395
Special Mention		—		—		—		—		1,191		—		—		1,191
Substandard		—		—		146		—		—		—		—		146
Doubtful		—		—		—		—		—		—		—		—
	$	65,127	$	150,919	$	39,783	$	57,328	$	22,297	$	58,032	$	6,246	$	399,732
Construction and land:
Pass	$	15,601	$	164,191	$	155,330	$	59,888	$	7,801	$	1,722	$	7,877	$	412,410
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	15,601	$	164,191	$	155,330	$	59,888	$	7,801	$	1,722	$	7,877	$	412,410
Home equity lines of credit:
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	56,558	$	56,558
Special Mention		—		—		—		—		—		—		844		844
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—	$	57,402	$	57,402
Other:
Pass	$	—	$	—	$	7	$	—	$	1,258	$	53	$	31,444	$	32,762
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	7	$	—	$	1,258	$	53	$	31,444	$	32,762