Bank Loans

3 Months Ended

Mar. 31, 2023

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 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, 2023 and December 31, 2022 (in thousands, except percentages):


	March 31, 2023						December 31, 2022
	Balance			Percent			Balance			Percent
Residential real estate	$	7,494,788			35.9	%	$	7,371,671			35.8	%
Commercial and industrial		4,755,664			22.8			4,897,176			23.8
Fund banking		4,623,423			22.1			4,182,641			20.3
Securities-based loans		2,558,343			12.2			2,724,551			13.2
Commercial real estate		663,325			3.2			675,599			3.3
Construction and land		644,800			3.1			593,191			2.9
Home equity lines of credit		109,197			0.5			107,136			0.5
Other		49,904			0.2			50,593			0.2
Gross bank loans		20,899,444			100.0	%		20,602,558			100.0	%
Loans in process		(51,795	)					(3,526	)
Unamortized loan fees, net		(20,719	)					(22,287	)
Allowance for loan losses		(117,162	)					(111,653	)
Loans held for investment, net	$	20,709,768					$	20,465,092

At March 31, 2023 and December 31, 2022, Stifel Bancorp had loans outstanding to its executive officers and directors and executive officers and directors of certain affiliated entities in the amount of $85.5 million and $86.4 million, respectively.

At March 31, 2023 and December 31, 2022, we had loans held for sale of $225.4 million and $156.9 million, respectively. For the three months ended March 31, 2023 and 2022, we recognized a loss of $0.6 million and a gain of $0.7 million, respectively, from the sale of originated loans, net of fees and costs.

At March 31, 2023 and December 31, 2022, loans, primarily consisting of residential and commercial real estate loans of $7.4 billion and $7.0 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, 2023 and December 21, 2022 was $82.6 million and $65.7 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, 2023 (in thousands).


	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
Commercial real estate		12,897		(1,331	)		—			—		11,566
Fund banking		11,711		1,232			—			—		12,943
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, 2023 we released $0.5 million for the provision for unfunded lending commitments. The provision for unfunded lending commitments was $3.4 million for the three months ended March 31, 2022. 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.

The following table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2022 (in thousands).


	Three Months Ended March 31, 2022
	Beginning Balance		Provision			Charge-offs		Recoveries		Ending Balance
Commercial and industrial	$	44,661	$	1,527		$	—	$	—	$	46,188
Residential real estate		28,560		4,367			—		—		32,927
Fund banking		8,868		(476	)		—		—		8,392
Construction and land		8,536		(415	)		—		—		8,121
Securities-based loans		4,006		(30	)		—		—		3,976
Commercial real estate		3,934		(254	)		—		—		3,680
Home equity lines of credit		511		172			—		—		683
Other		268		(37	)		—		—		231
	$	99,344	$	4,854		$	—	$	—	$	104,198

At March 31, 2023, we had $10.7 million of impaired loans, net of discounts, which included $0.1 million in troubled debt restructurings. The specific allowance on impaired loans at March 31, 2023 was $6.6 million. At December 31, 2022, we had $10.3 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, 2022 was $6.5 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, 2023 and 2022, were insignificant to the consolidated financial statements.

The following tables present the aging of the recorded investment in past due loans at March 31, 2023 and December 31, 2022 by portfolio segment (in thousands):


	As of March 31, 2023
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Residential real estate	$	4,938	$	720	$	5,658	$	7,489,130	$	7,494,788
Commercial and industrial		—		9,550		9,550		4,746,114		4,755,664
Fund banking		—		—		—		4,623,423		4,623,423
Securities-based loans		—		—		—		2,558,343		2,558,343
Commercial real estate		—		—		—		663,325		663,325
Construction and land		—		—		—		644,800		644,800
Home equity lines of credit		22		310		332		108,865		109,197
Other		37		20		57		49,847		49,904
Total	$	4,997	$	10,600	$	15,597	$	20,883,847	$	20,899,444


	As of March 31, 2023*
	Nonaccrual		Restructured		Nonperforming loans with no allowance		Total
Commercial and industrial	$	9,550	$	—	$	—	$	9,550
Residential real estate		720		149		—		869
Home equity lines of credit		310		—		—		310
Other		20		—		—		20
Total	$	10,600	$	149	$	—	$	10,749

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


	As of December 31, 2022
	30 – 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Balance		Total
Residential real estate	$	2,445	$	688	$	3,133	$	7,368,538	$	7,371,671
Commercial and industrial		—		9,226		9,226		4,887,950		4,897,176
Fund banking		—		—		—		4,182,641		4,182,641
Securities-based loans		—		—		—		2,724,551		2,724,551
Commercial real estate		—		—		—		675,599		675,599
Construction and land		—		—		—		593,191		593,191
Home equity lines of credit		29		182		211		106,925		107,136
Other		36		6		42		50,551		50,593
Total	$	2,510	$	10,102	$	12,612	$	20,589,946	$	20,602,558


	As of December 31, 2022*
	Nonaccrual		Restructured		Nonperforming loans with no allowance		Total
Commercial and industrial	$	9,226	$	—	$	—	$	9,226
Residential real estate		870		150		—		1,020
Other		6		—		—		6
Total	$	10,102	$	150	$	—	$	10,252

* There were no loans past due 90 days and still accruing interest at December 31, 2022.

Credit quality indicators

As of March 31, 2023, 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, 2023 and December 31, 2022, 97.2% and 97.5% 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 March 31, 2023
	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	7,494,068	$	104	$	—	$	616	$	7,494,788
Commercial and industrial		4,583,114		85,336		77,664		9,550		4,755,664
Fund banking		4,623,423		—		—		—		4,623,423
Securities-based loans		2,558,340		—		—		3		2,558,343
Commercial real estate		603,816		59,509		—		—		663,325
Construction and land		644,800		—		—		—		644,800
Home equity lines of credit		108,886		311		—		—		109,197
Other		49,884		14		—		6		49,904
Total	$	20,666,331	$	145,274	$	77,664	$	10,175	$	20,899,444


	As of December 31, 2022
	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	7,370,717	$	266	$	—	$	688	$	7,371,671
Commercial and industrial		4,743,290		87,761		56,899		9,226		4,897,176
Fund banking		4,182,641		—		—		—		4,182,641
Securities-based loans		2,724,548		—		—		3		2,724,551
Commercial real estate		655,599		20,000		—		—		675,599
Construction and land		593,191		—		—		—		593,191
Home equity lines of credit		106,954		—		—		182		107,136
Other		50,587		—		—		6		50,593
Total	$	20,427,527	$	108,027	$	56,899	$	10,105	$	20,602,558


	Term Loans Amortized Cost Basis by Origination Year – March 31, 2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Residential real estate:
Pass	$	239,280	$	2,764,323	$	2,452,993	$	973,103	$	433,385	$	630,984	$	—	$	7,494,068
Special Mention		—		—		—		—		—		104		—		104
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		616		—		616
	$	239,280	$	2,764,323	$	2,452,993	$	973,103	$	433,385	$	631,704	$	—	$	7,494,788
Commercial and industrial:
Pass	$	31,642	$	95,642	$	110,714	$	25,121	$	854	$	3,693,808	$	625,333	$	4,583,114
Special Mention		—		—		—		—		—		72,442		12,894		85,336
Substandard		—		—		—		—		—		61,073		16,591		77,664
Doubtful		—		—		—		297		—		9,253		—		9,550
	$	31,642	$	95,642	$	110,714	$	25,418	$	854	$	3,836,576	$	654,818	$	4,755,664
Fund banking:
Pass	$	3,500	$	305	$	—	$	937	$	—	$	55,000	$	4,563,681	$	4,623,423
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	3,500	$	305	$	—	$	937	$	—	$	55,000	$	4,563,681	$	4,623,423
Securities-based loans:
Pass	$	5,889	$	39,098	$	3,250	$	43,079	$	27,278	$	9,294	$	2,430,452	$	2,558,340
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		3		3
	$	5,889	$	39,098	$	3,250	$	43,079	$	27,278	$	9,294	$	2,430,455	$	2,558,343
Commercial real estate:
Pass	$	—	$	406,579	$	69,582	$	32,059	$	20,814	$	74,782	$	—	$	603,816
Special Mention		—		20,000		39,509		—		—		—		—		59,509
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	426,579	$	109,091	$	32,059	$	20,814	$	74,782	$	—	$	663,325
Construction and land:
Pass	$	—	$	242,222	$	141,576	$	151,024	$	85,746	$	24,232	$	—	$	644,800
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	—	$	242,222	$	141,576	$	151,024	$	85,746	$	24,232	$	—	$	644,800
Home equity lines of credit:
Pass	$	9,291	$	38,104	$	20,427	$	23,254	$	12,092	$	5,718	$	—	$	108,886
Special Mention		—		—		282		29		—		—		—		311
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
	$	9,291	$	38,104	$	20,709	$	23,283	$	12,092	$	5,718	$	—	$	109,197
Other:
Pass	$	363	$	3,991	$	—	$	10,000	$	—	$	32,055	$	3,475	$	49,884
Special Mention		—		—		—		—		—		—		14		14
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		6		6
	$	363	$	3,991	$	—	$	10,000	$	—	$	32,055	$	3,495	$	49,904