Bank Loans

12 Months Ended

Dec. 31, 2020

NOTE 8 – Bank Loans

The following table presents the balance and associated percentage of each major loan category in our bank loan portfolio at December 31, 2020 and 2019 (in thousands, except percentages):

	December 31, 2020						December 31, 2019
	Balance			Percent			Balance			Percent
Commercial and industrial	$	4,296,089			38.5	%	$	3,438,953			35.3	%
Residential real estate		3,956,670			35.4			3,309,548			33.9
Securities-based loans		1,933,974			17.3			2,098,211			21.5
Construction and land		501,681			4.5			398,839			4.1
Commercial real estate		366,485			3.3			428,549			4.4
Home equity lines of credit		75,507			0.7			51,205			0.5
Other		40,407			0.3			27,311			0.3
Gross bank loans		11,170,813			100.0	%		9,752,616			100.0	%
Unamortized loan discount, net		(1,822	)					(6,588	)
Loans in process		(48,222	)					(27,717	)
Unamortized loan fees, net		(1,980	)					1,310
Allowance for loan losses		(112,029	)					(95,579	)
Loans held for investment, net	$	11,006,760					$	9,624,042

At December 31, 2020 and 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 $23.6 million and $24.5 million, respectively.

At December 31, 2020 and 2019, we had loans held for sale of $551.2 million and $389.7 million, respectively. For the years ended December 31, 2020, 2019, and 2018, we recognized gains, included in other income in the consolidated statements of operations, of $41.2 million, $13.1 million, and $8.2 million, respectively, from the sale of originated loans, net of fees and costs.

At December 31, 2020 and 2019, loans, primarily consisting of residential and commercial real estate loans of $3.8 billion and $3.1 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 December 31, 2020, was $20.8 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 years ended December 31, 2020 and 2019 (in thousands).

	Year Ended December 31, 2020
	Beginning Balance		CECL Adoption			Provision			Charge- offs			Recoveries		Ending Balance
Commercial and industrial	$	69,949	$	(19,940	)	$	17,341		$	(153	)	$	25	$	67,222
Construction and land		4,613		2,674			9,988			—			—		17,275
Residential real estate		14,253		3,499			(1,452	)		—			—		16,300
Commercial real estate		3,564		791			4,225			—			—		8,580
Securities-based loans		2,361		1,346			(1,692	)		—			—		2,015
Home equity lines of credit		442		39			(195	)		—			88		374
Other		397		(145	)		49			(40	)		2		263
	$	95,579	$	(11,736	)	$	28,264		$	(193	)	$	115	$	112,029

	Year Ended December 31, 2019
	Beginning Balance		Provision			Charge- offs			Recoveries		Ending Balance
Commercial and industrial	$	68,367	$	1,821		$	(239	)	$	—	$	69,949
Residential real estate		11,228		2,974			(41	)		92		14,253
Construction and land		1,241		3,372			—			—		4,613
Commercial real estate		1,778		1,786			—			—		3,564
Securities-based loans		1,978		383			—			—		2,361
Home equity lines of credit		310		129			—			3		442
Other		931		(488	)		(106	)		60		397
	$	85,833	$	9,977		$	(386	)	$	155	$	95,579

On January 1, 2020, we adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime expected credit losses inherent in our company’s relevant financial assets. Upon adoption of the new accounting standard, we recorded a $10.4 million increase in the allowance for credit losses on January 1, 2020, which was comprised of a net increase to the allowance for loan losses and an adjustment to the reserve for unfunded lending commitments. During the year ended December 31, 2020, we recorded $28.3 million of net credit loss reserves reflecting the impact of change in our company’s outlook on estimated lifetime expected credit losses under the CECL standard due to the COVID-19 pandemic. For more information on our company’s credit loss accounting policies, including the allowance for credit losses, see Note 2 - Summary of Significant Accounting Policies.

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at December 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	$	59,064	$	67,222	$	12,251	$	4,283,838	$	4,296,089
Residential real estate		24		16,276		16,300		1,407		3,955,263		3,956,670
Securities-based loans		—		2,015		2,015		—		1,933,974		1,933,974
Construction and land		—		17,275		17,275		—		501,681		501,681
Commercial real estate		—		8,580		8,580		144		366,341		366,485
Home equity lines of credit		—		374		374		—		75,507		75,507
Other		—		263		263		—		40,407		40,407
	$	8,182	$	103,847	$	112,029	$	13,802	$	11,157,011	$	11,170,813

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		—		397		397		—		27,311		27,311
	$	8,182	$	87,397	$	95,579	$	14,587	$	9,738,029	$	9,752,616

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. 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 year ended December 31, 2020 and 2019, were insignificant to the consolidated financial statements.

In March 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provided optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings (TDRs). Under the CARES Act, TDR relief is available to banks for loan modifications related to the adverse effects of the coronavirus (COVID-19) pandemic granted to borrowers that were current as of December 31, 2019. TDR relief applies to COVID-related modifications made from March 1, 2020 through December 31, 2020.

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. We elected to apply the TDR relief provided by the CARES Act in the second quarter of 2020.

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

	December 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	$	12,251	$	14	$	12,237	$	12,251	$	8,158	$	12,954
Residential real estate		1,407		1,249		158		1,407		24		1,410
Commercial real estate		144		144		—		144		—		145
Other		150		—		—		—		—		—
Total	$	13,952	$	1,407	$	12,395	$	13,802	$	8,182	$	14,509

	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 December 31, 2020 and 2019, by portfolio segment (in thousands):

	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

	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.

	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

	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 December 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/or 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 portfolios. 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 December 31, 2020 and 2019, 98.8% 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. Our 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 we 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.

Portfolio 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 includes consumer and credit card lending.

Based on the most recent analysis performed, the risk category of our loan portfolio was as follows: (in thousands):

	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

	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 – December 31, 2020
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial:
Pass	$	828,098	$	519,723	$	743,440	$	332,986	$	204,369	$	297,288	$	1,069,447	$	3,995,351
Special Mention		500		239		35,602		57,708		—		4,200		7,510		105,759
Substandard		19,395		34,772		65,801		48,647		7,777		—		6,336		182,728
Doubtful		—		—		—		12,237		—		14		—		12,251
	$	847,993	$	554,734	$	844,843	$	451,578	$	212,146	$	301,502	$	1,083,293	$	4,296,089
Residential real estate:
Pass	$	1,600,107	$	896,190	$	375,252	$	302,524	$	272,101	$	509,247	$	—	$	3,955,421
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		149		—		1,100		—		1,249
	$	1,600,107	$	896,190	$	375,252	$	302,673	$	272,101	$	510,347	$	—	$	3,956,670
Securities-based loans:
Pass	$	25,563	$	104,011	$	294	$	140	$	300	$	16,716	$	1,786,950	$	1,933,974
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	25,563	$	104,011	$	294	$	140	$	300	$	16,716	$	1,786,950	$	1,933,974
Construction and land:
Pass	$	68,392	$	206,085	$	119,416	$	61,289	$	6,450	$	1,355	$	4,454	$	467,441
Special Mention		—		—		14,240		—		—		—		—		14,240
Substandard		—		—		20,000		—		—		—		—		20,000
Doubtful		—		—		—		—		—		—		—		—
	$	68,392	$	206,085	$	153,656	$	61,289	$	6,450	$	1,355	$	4,454	$	501,681
Commercial real estate:
Pass	$	77,792	$	151,805	$	38,744	$	45,275	$	4,007	$	37,903	$	482	$	356,008
Special Mention		—		—		—		—		10,333		—		—		10,333
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		144		—		—		—		—		144
	$	77,792	$	151,805	$	38,888	$	45,275	$	14,340	$	37,903	$	482	$	366,485
Home equity lines of credit:
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	75,507	$	75,507
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—	$	75,507	$	75,507
Other:
Pass	$	—	$	—	$	5	$	—	$	503	$	197	$	39,702	$	40,407
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	—	$	5	$	—	$	503	$	197	$	39,702	$	40,407