NOTE 6 – BANK LOANS, NET

Bank client receivables are comprised of loans originated or purchased by RJ Bank and include commercial and residential real estate loans, as well as commercial and consumer loans. These receivables are collateralized by first or second mortgages on residential or other real property, by other assets of the borrower, or are unsecured.

During the December 2010 quarter end, RJ Bank reclassified balances within the categories of its loan portfolio to more closely align these balances with its assignment of credit risk utilized within the allowance for loan losses evaluation. As a result, the September 30, 2010 period bank loan disclosures presented in this Form 10-Q differ from what was previously reported.

For a discussion of our accounting policies regarding bank loans, including the policies regarding the allowance for loan losses, nonaccrual and impaired loans, charge-offs and other real estate owned, see Note 1, pages 85 – 87, in our 2010 Form 10-K.

The FASB issued new accounting guidance, effective for us in prior quarters, requiring certain additional disclosures regarding the allowance for loan losses and credit quality of our financing receivables. The following information supplements the accounting policy information included in our 2010 Form 10-K referred to above. The allowance for loan losses provides for probable losses incurred in RJ Bank's loan portfolio. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. This allowance for loan loss is comprised of two components: allowances calculated based on formulas for homogenous classes of loans and allowances assigned to certain classified loans individually evaluated for impairment. The calculation of the allowance is an inherently subjective process impacted by many factors.

We segregate our loan portfolio into five loan portfolio segments: commercial, commercial real estate (“CRE”), CRE construction, residential mortgage and consumer. These portfolio segments also serve as the portfolio loan classes for purposes of credit analysis, except for residential mortgage loans which are further disaggregated into residential first mortgage and residential home equity classes. Each loan is assigned a grade and then an allowance percentage is assigned to each loan grade based upon the perceived risk associated with the class and grade. Commercial, CRE and CRE construction loans are assigned to one of several loan grades based upon the respective loan's credit characteristics.

Factors taken into consideration when assigning loan grades and allowance percentages to commercial, CRE and CRE construction loan classes include estimates of borrower default probabilities and collateral values; trends in delinquencies; volume and terms; changes in geographic distribution, updated LTV ratios, lending policies, local, regional, and national economic conditions; concentrations of credit risk; past loss history; Shared National Credit reviews and examination results from regulatory agencies. Loan grades for individual commercial, CRE, and CRE construction loans are derived from analyzing two aspects of the risk factors in a particular loan, the obligor rating and the facility (collateral) rating. The obligor rating relates to a borrower's probability of defaulting and the facility rating is utilized to estimate the anticipated loss in the event of default. These two ratings are considered in combination to derive the final commercial, CRE and CRE construction loan grades. For residential first mortgage, residential home equity and consumer loan classes, factors considered when assigning loan grades and allowance percentage include loan performance trends, loan product parameters and qualification requirements, credit scores, updated LTV ratios, occupancy (i.e., owner occupied, second home or investment property), documentation level, loan purpose, geographic concentrations, average loan size and loan policy exceptions.

The following table presents the balances for both the held for sale and held for investment loan portfolios as well as the associated percentage of each major loan category in RJ Bank's total loan portfolio:

	June 30, 2011						September 30, 2010
	Balance			%			Balance			%
	($ in thousands)

Loans held for sale, net (1)	$	70,121			1	%	$	6,114			-
Loans held for investment, net: (1)
Commercial loans		3,796,539			59	%		3,232,723			52	%
CRE construction loans		25,381			-			65,512			1	%
CRE loans		783,297			12	%		937,669			15	%
Residential mortgage loans		1,760,387			28	%		2,015,331			32	%
Consumer loans		5,897			-			23,940			-
Total loans held for investment		6,371,501						6,275,175
Net unearned income and deferred expenses		(43,728	)					(39,276	)
Total loans held for investment, net		6,327,773						6,235,899

Total loans held for sale and investment		6,397,894			100	%		6,242,013			100	%
Allowance for loan losses		(145,800	)					(147,084	)
Bank loans, net	$	6,252,094					$	6,094,929

(1)	Net of unearned income and deferred expenses, which includes purchase premiums, purchase discounts, and net deferred origination fees and costs.

RJ Bank's net gain from the sale of loans held for sale was $74,000 and $20,000, which was recorded in other revenues on our Condensed Consolidated Statements of Income, for the three month periods ended June 30, 2011 and 2010, respectively. The net gain from the sale of loans held for sale was $648,000 and $260,000 for the nine month periods ended June 30, 2011 and 2010, respectively.

The following table presents purchases and sales of any loans held for investment by portfolio segment:

	Three months ended June 30, 2011				Nine months ended June 30, 2011
	Purchases		Sales		Purchases		Sales
	(in thousands)
Commercial loans	$	16,500	$	38,545	$	23,430	$	54,424
CRE loans		4,650		-		4,650		-
Residential mortgage loans		145		-		40,568		-
Total	$	21,295	$	38,545	$	68,648	$	54,424

The following table shows the contractual maturities of RJ Bank's loan portfolio at June 30, 2011, including contractual principal repayments. This table does not, however, include any estimates of prepayments. These prepayments could shorten the average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the following table:

	Due in
	One Year or Less		> One Year - Five Years		> Five Years		Total (1)
	(in thousands)

Loans held for sale	$	-	$	-	$	63,622	$	63,622
Loans held for investment:
Commercial loans		84,276		2,448,746		1,263,517		3,796,539
CRE construction loans		21,792		3,589		-		25,381
CRE loans		311,786		447,682		23,829		783,297
Residential mortgage loans		1,147		12,104		1,747,136		1,760,387
Consumer loans		5,872		-		25		5,897
Total loans held for investment		424,873		2,912,121		3,034,507		6,371,501
Total loans	$	424,873	$	2,912,121	$	3,098,129	$	6,435,123

(1)	Excludes any net unearned income and deferred expenses.

The following table presents the comparative data for nonperforming loans held for investment and total nonperforming assets:

	June 30, 2011			September 30, 2010
	(in thousands)
Nonaccrual loans:
Commercial loans	$	26,192		$	-
CRE loans		25,805			67,071
Residential mortgage loans:
First mortgage loans (1)		83,590			80,754
Home equity loans/lines		82			71
Total nonaccrual loans		135,669			147,896

Accruing loans which are 90 days past due:
CRE loans		-			830
Residential mortgage loans:
First mortgage loans		4,306			5,098
Home equity loans/lines		86			159
Total accruing loans which are 90 days past due		4,392			6,087
Total nonperforming loans		140,061			153,983

Real estate owned and other repossessed assets, net:
CRE		10,256			19,486
Residential:
First mortgage		8,552			8,439
Home equity		13			-
Total		18,821			27,925
Total nonperforming assets, net	$	158,882		$	181,908
Total nonperforming assets as a % of total loans, net and other real estate owned, net		2.53	%		2.97	%

(1)	Of the total residential first mortgage nonaccrual loans, there are loans totaling $74.1 million and $68.7 million as of June 30, 2011 and September 30, 2010, respectively, for which a charge-off had previously been recorded.

The table of nonperforming assets above, as of June 30, 2011 and September 30, 2010, excludes $11.1 million and $8.2 million, respectively, of residential troubled debt restructurings, which were returned to accrual status in accordance with our policy.

As of June 30, 2011, RJ Bank had commitments to lend an additional $6.2 million on two nonperforming commercial loans, which were not classified as troubled debt restructurings. As of September 30, 2010, RJ Bank had a commitment to lend an additional $623,000 on one nonperforming CRE loan, which was classified as a troubled debt restructuring.

The gross interest income related to the nonperforming loans reflected in the previous table, which would have been recorded had these loans been current in accordance with their original terms, totaled $1.7 million and $4.3 million for the three and nine months ended June 30, 2011, respectively, and $2.4 million and $6.3 million for the three and nine months ended June 30, 2010, respectively. The interest income recognized on nonperforming loans was $279,000 and $691,000 for the three and nine months ended June 30, 2011, respectively, and $390,000 and $916,000 for the three and nine months ended June 30, 2010, respectively.

The following table presents an analysis of the payment status of loans held for investment as of June 30, 2011:

	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current		Total Loans Held for Investment (1)
	(in thousands)

Commercial loans	$	-	$	-	$	-	$	-	$	3,758,101	$	3,758,101
CRE construction loans		-		-		-		-		25,078		25,078
CRE loans		19,215		-		5,053		24,268		755,673		779,941
Residential mortgage loans:
First mortgage loans		9,630		7,383		62,317		79,330		1,647,963		1,727,293
Home equity loans/lines		110		-		168		278		31,184		31,462
Consumer loans		-		-		-		-		5,898		5,898
Total loans held for
investment, net	$	28,955	$	7,383	$	67,538	$	103,876	$	6,223,897	$	6,327,773

(1)	Net of unearned income and deferred expenses.

The following table provides a summary of RJ Bank's impaired loans:

	June 30, 2011						September 30, 2010
	Gross Recorded Investment		Unpaid Principal Balance		Allowance for Losses		Gross Recorded Investment		Unpaid Principal Balance		Allowance For Losses
	(in thousands)
Impaired loans with allowance for loan losses: (1)
Commercial loans	$	26,192	$	26,535	$	5,464	$	-	$	-	$	-
CRE loans		20,771		34,014		7,744		60,598		85,652		8,469
Residential mortgage loans:
First mortgage loans		14,031		15,712		2,678		12,434		13,659		2,782
Home equity loans/lines		143		143		26		144		144		30
Total		61,137		76,404		15,912		73,176		99,455		11,281

Impaired loans without allowance for loan losses: (2)
CRE loans		5,034		7,925		-		6,473		17,309		-
Residential - first mortgage loans		6,288		9,631		-		3,552		5,355		-
Total		11,322		17,556		-		10,025		22,664		-
Total impaired loans	$	72,459	$	93,960	$	15,912	$	83,201	$	122,119	$	11,281

(1)	Impaired loan balances have had reserves established based upon management's analysis.

(2)	When the discounted cash flow, collateral value or market value equals or exceeds the carrying value of the loan, then the loan does not require an allowance. These are generally loans in process of foreclosure that have already been adjusted to fair value.

The table above includes $26.6 million and $27.8 million in troubled debt restructurings at June 30, 2011 and September 30, 2010, respectively.

The average balance of the impaired loans and the related interest income recognized in the Condensed Consolidated Statements of Income are as follows:

	Three months ended June 30,				Nine months ended June 30,
	2011		2010		2011		2010
	(in thousands)
Average impaired loan balance:
Commercial loans	$	8,731	$	-	$	2,910	$	-
CRE loans		37,862		61,558		43,954		56,815
Residential mortgage loans:
First mortgage loans		19,980		6,333		19,065		5,335
Home equity loans/lines		143		128		143		128
Total	$	66,716	$	68,019	$	66,072	$	62,278

Interest income recognized:
Residential mortgage loans:
First mortgage loans	$	80	$	27	$	216	$	79
Home equity loans/lines		1		1		3		2
Total	$	81	$	28	$	219	$	81

The credit quality of RJ Bank's loan portfolio is summarized monthly using the standard asset classification system utilized by federal banking agencies. These classifications are divided into three groups: Not Classified (Pass), Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss) and are defined as follows:

Pass – Loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell, of any underlying collateral in a timely manner.

Special Mention – Loans which have potential weaknesses that deserve management's close attention. These loans are not adversely classified and do not expose RJ Bank to sufficient risk to warrant an adverse classification.

Substandard – Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that RJ Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans which have all the weaknesses inherent in loans classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions and values.

Loss – Loans which are considered by management to be uncollectible and of such little value that their continuance on RJ Bank's books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. RJ Bank does not have any loan balances within this classification as in accordance with its accounting policy, loans, or a portion thereof considered to be uncollectible, are charged-off prior to the assignment of this classification.

RJ Bank's credit quality of its held for investment loan portfolio as of June 30, 2011 is presented in the following table:

							Residential Mortgage
	Commercial		CRE Construction		CRE		First Mortgage		Home Equity		Consumer		Total
	Commercial		CRE Construction		CRE		First Mortgage		Home Equity		Consumer		Total
	(in thousands)

Pass	$	3,600,202	$	25,381	$	642,033	$	1,608,758	$	30,718	$	5,897	$	5,912,989
Special mention		89,144		-		58,326		28,662		176		-		176,308
Substandard		94,743		-		76,790		91,789		284		-		263,606
Doubtful		12,450		-		6,148		-		-		-		18,598
Total	$	3,796,539	$	25,381	$	783,297	$	1,729,209	$	31,178	$	5,897	$	6,371,501

The assignment of RJ Bank's loan portfolio to the loan classification above was made using the most recently available information described in our allowance for loan losses accounting policy presented on pages 86 - 87 of our 2010 Form 10-K.

Changes in the allowance for loan losses of RJ Bank by portfolio segment were as follows:

				Loans Held for Investment
	Loans Held for Sale			Commercial			CRE Construction			CRE			Residential Mortgage			Consumer			Total
	Loans Held for Sale			Commercial			CRE Construction			CRE			Residential Mortgage			Consumer			Total
	(in thousands)
Three months ended June 30, 2011:
Balance at beginning of period:	$	4		$	64,696		$	2,745		$	44,182		$	34,469		$	19		$	146,115
Provision for loan losses		1			9,283			(2,318	)		(5,137	)		6,321			213			8,363
Net charge-offs:
Charge-offs		-			(370	)		-			(4,082	)		(5,243	)		(215	)		(9,910	)
Recoveries		-			-			-			780			449			3			1,232
Net charge-offs		-			(370	)		-			(3,302	)		(4,794	)		(212	)		(8,678	)
Balance at end of period	$	5		$	73,609		$	427		$	35,743		$	35,996		$	20		$	145,800
Net charge-offs to average bank loans outstanding (annualized)		-			0.04	%		-			1.73	%		1.07	%		14.33	%		0.55	%

Nine months ended June 30, 2011:
Balance at beginning of period:	$	23		$	60,464		$	4,473		$	47,771		$	34,297		$	56		$	147,084
Provision for loan losses		(18	)		13,597			(4,046	)		925			17,559			215			28,232
Net charge-offs:
Charge-offs		-			(452	)		-			(14,012	)		(17,348	)		(255	)		(32,067	)
Recoveries		-			-			-			1,059			1,488			4			2,551
Net charge-offs		-			(452	)		-			(12,953	)		(15,860	)		(251	)		(29,516	)
Balance at end of period	$	5		$	73,609		$	427		$	35,743		$	35,996		$	20		$	145,800
Net charge-offs to average bank loans outstanding (annualized)		-			0.02	%		-			2.21	%		1.12	%		4.82	%		0.63	%

The following tables allocate, by loan portfolio segment, RJ Bank's recorded investment and related allowance for loan losses:

				Loans Held for Investment
	Loans Held for Sale			Commercial			CRE Construction		CRE			Residential Mortgage			Consumer		Total
	Loans Held for Sale			Commercial			CRE Construction		CRE			Residential Mortgage			Consumer		Total
	(in thousands)
June 30, 2011:
Allowance for loan losses:
Individually evaluated for impairment	$	-		$	5,464		$	-	$	7,744		$	2,704		$	-	$	15,912
Collectively evaluated for impairment		5			68,145			427		27,999			33,292			20		129,888
Total allowance for loan losses	$	5		$	73,609		$	427	$	35,743		$	35,996		$	20	$	145,800
Loan category as a % of total recorded investment		1	%		59	%		-		12	%		28	%		-		100	%

Recorded investment: (1)
Individually evaluated for impairment	$	-		$	26,192		$	-	$	25,805		$	20,462		$	-	$	72,459
Collectively evaluated for impairment		63,622			3,770,347			25,381		757,492			1,739,925			5,897		6,362,664
Total recorded investment	$	63,622		$	3,796,539		$	25,381	$	783,297		$	1,760,387		$	5,897	$	6,435,123

(1)	Excludes any net unearned income and deferred expenses.

			Loans Held for Investment
	Loans Held for Sale		Commercial			CRE Construction			CRE			Residential Mortgage			Consumer		Total
	(in thousands)
September 30, 2010:
Allowance for loan losses:
Individually evaluated for impairment	$	-	$	-		$	-		$	8,469		$	2,812		$	-	$	11,281
Collectively evaluated for impairment		23		60,464			4,473			39,302			31,485			56		135,803
Total allowance for loan losses	$	23	$	60,464		$	4,473		$	47,771		$	34,297		$	56	$	147,084
Loan category as a % of total recorded investment		-		52	%		1	%		15	%		32	%		-		100	%

Recorded investment: (1)
Individually evaluated for impairment	$	-	$	-		$	-		$	67,071		$	16,130		$	-	$	83,201
Collectively evaluated for impairment		5,847		3,232,723			65,512			870,598			1,999,201			23,940		6,197,821
Total recorded investment	$	5,847	$	3,232,723		$	65,512		$	937,669		$	2,015,331		$	23,940	$	6,281,022

(1)	Excludes any net unearned income and deferred expenses.

RJ Bank had no recorded investment in loans acquired with deteriorated credit quality as of June 30, 2011 and September 30, 2010.

The reserve for unfunded lending commitments, included in trade and other payables on our Condensed Consolidated Statements of Financial Condition, was $10.7 million and $11.9 million at June 30, 2011 and September 30, 2010, respectively.