NOTE 7 – BANK LOANS, NET

Bank client receivables are comprised of loans originated or purchased by RJ Bank and include C&I loans, commercial and residential real estate loans, as well as consumer loans. These receivables are collateralized by first or second mortgages on residential or other real property, 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, certain bank loan categories and amounts presented in this Form 10-K differ from those previously reported.

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 portfolio segment in RJ Bank's total loan portfolio as of September 30 of each respective year presented:

	2011						2010						2009
	Balance			%			Balance			%			Balance			%
	($ in thousands)

Loans held for sale, net(1)	$	102,236			2	%	$	6,114			-		$	40,484			1	%
Loans held for investment:
C&I loans		4,100,939			61	%		3,232,723			52	%		3,079,916			46	%
CRE construction loans		29,087			-			65,512			1	%		163,951			2	%
CRE loans		742,889			11	%		937,669			15	%		1,080,160			16	%
Residential mortgage loans		1,756,486			26	%		2,015,331			32	%		2,396,995			35	%
Consumer loans		7,438			-			23,940			-			22,816			-
Total loans held for investment		6,636,839						6,275,175						6,743,838
Net unearned income and deferred expenses		(45,417	)					(39,276	)					(40,077	)
Total loans held for investment, net(1)		6,591,422						6,235,899						6,703,761

Total loans held for sale and investment		6,693,658			100	%		6,242,013			100	%		6,744,245			100	%
Allowance for loan losses		(145,744	)					(147,084	)					(150,272	)
Bank loans, net	$	6,547,914					$	6,094,929					$	6,593,973

	2008						2007
	Balance			%			Balance			%
	($ in thousands)

Loans held for sale, net(1)	$	524			-		$	1,571			-
Loans held for investment:
C&I loans		3,411,963			47	%		1,820,471			38	%
CRE construction loans		346,691			5	%		123,664			3	%
CRE loans		842,766			12	%		841,152			18	%
Residential mortgage loans		2,599,042			36	%		1,933,061			41	%
Consumer loans		23,778			-			4,541			-
Total loans held for investment		7,224,240						4,722,889
Net unearned income and deferred expenses		(41,382	)					(13,229	)
Total loans held for investment, net(1)		7,182,858						4,709,660

Total loans held for sale and investment		7,183,382			100	%		4,711,231			100	%
Allowance for loan losses		(88,155	)					(47,022	)
Bank loans, net	$	7,095,227					$	4,664,209

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

RJ Bank purchased or originated $354.9 million, $251.8 million and $208.9 million of loans held for sale for the years ended September 30, 2011, 2010 and 2009, respectively. For the years ended September 30, 2011, 2010 and 2009 there were proceeds of $93.2 million, $121.4 million and $77 million for the sale of loans resulting in net gains of $830,000, $356,000 and $676,000, respectively, which were recorded in other revenues on our Consolidated Statements of Income and Comprehensive Income.

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

	Year ended September 30, 2011
	Purchases		Sales
	(in thousands)

C&I loans	$	156,475	$	57,209
CRE loans		2,630		-
Residential mortgage loans		91,745		-
Total	$	250,850	$	57,209

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

	As of September 30,
	2011			2010			2009			2008			2007
	($ in thousands)
Nonaccrual loans:
C&I loans	$	25,685		$	-		$	-		$	-		$	-
CRE loans		15,842			67,071			73,961			37,462			-
Residential mortgage loans:
First mortgage loans		90,992			80,754			54,986			14,571			1,391
Home equity loans/lines		67			71			111			-			-
Total nonaccrual loans		132,586			147,896			129,058			52,033			1,391

Accruing loans which are 90 days past due:
CRE loans		-			830			12,461			-			682
Residential mortgage loans:
First mortgage loans		690			5,098			16,863			6,113			1,992
Home equity loans/lines		47			159			-			18			-
Total accruing loans which are 90 days past due		737			6,087			29,324			6,131			2,674
Total nonperforming loans		133,323			153,983			158,382			58,164			4,065

Real estate owned and other repossessed assets, net:
CRE		7,707			19,486			4,646			1,928			-
Residential:
First mortgage		6,852			8,439			4,045			2,216			1,653
Home equity		13			-			-			-			-
Total		14,572			27,925			8,691			4,144			1,653
Total nonperforming assets, net	$	147,895		$	181,908		$	167,073		$	62,308		$	5,718
Total nonperforming assets as a % of total loans, net and other real estate owned, net		2.25	%		2.97	%		2.53	%		0.88	%		0.12	%

As of September 30, 2011, the recorded investment for residential first mortgage nonaccrual loans presented above includes $78.1 million for which a charge-off had been recorded. As previously reported, the recorded investment for residential first mortgage nonaccrual loans includes $68.7 million and $43.8 million as of September 30, 2010 and 2009 respectively, for which a charge-off had been recorded. These nonaccrual loans for which a charge-off had been recorded are now included in the impaired loan tables below.

The table of nonperforming assets above excludes $10.3 million, $8.2 million and $1.3 million as of September 30, 2011, 2010 and 2009, respectively, of residential TDRs which were returned to accrual status in accordance with our policy. There were no TDRs excluded from the table above for the years ended September 30, 2008 and 2007.

As of September 30, 2011, RJ Bank had no outstanding commitments on nonperforming loans. 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 TDR.

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 $5.1 million, $7.9 million, and $7.8 million for the years ended September 30, 2011, 2010 and 2009, respectively. The interest income recognized on nonperforming loans was $1.2 million, $1.3 million and $607,000 for the years ended September 30, 2011, 2010 and 2009, respectively.

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

	30-59 days		60-89 days		90 days or more		Total past due		Current		Total loans held for investment (1)
	(in thousands)

C&I loans	$	-	$	-	$	-	$	-	$	4,100,939	$	4,100,939
CRE construction loans		-		-		-		-		29,087		29,087
CRE loans		-		-		5,053		5,053		737,836		742,889
Residential mortgage loans:
First mortgage loans		6,400		6,318		61,870		74,588		1,651,181		1,725,769
Home equity loans/lines		88		-		114		202		30,515		30,717
Consumer loans		-		-		-		-		7,438		7,438
Total loans held for investment, net	$	6,488	$	6,318	$	67,037	$	79,843	$	6,556,996	$	6,636,839

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

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

	September 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)
C&I loans	$	25,685	$	26,535	$	8,478	$	-	$	-	$	-
CRE loans		6,122		6,131		1,014		60,598		85,652		8,469
Residential mortgage loans:
First mortgage loans		83,471		123,202		10,226		74,640		110,521		9,873
Home equity loans/lines		128		128		20		144		144		30
Total		115,406		155,996		19,738		135,382		196,317		18,372

Impaired loans without allowance for loan losses:(2)
CRE loans		9,720		20,648		-		6,473		17,309		-
Residential - first mortgage loans		6,553		10,158		-		3,552		5,355		-
Total		16,273		30,806		-		10,025		22,664		-
Total impaired loans	$	131,679	$	186,802	$	19,738	$	145,407	$	218,981	$	18,372

(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 $12 million C&I, $4.7 million CRE, $23.3 million residential first mortgage and $128,000 residential home equity TDRs at September 30, 2011. The table above includes $12.3 million CRE, $15.4 million residential first mortgage and $144,000 residential home equity TDRs at September 30, 2010.

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

	Year ended September 30,
	2011		2010		2009
	(in thousands)
Average impaired loan balance:
C&I loans	$	8,673	$	-	$	-
CRE loans		38,542		58,266		62,285
Residential mortgage loans:
First mortgage loans		85,863		64,540		25,976
Home equity loans/lines		142		129		127
Total	$	133,220	$	122,935	$	88,388

Interest income recognized:
Residential mortgage loans:
First mortgage loans	$	295	$	121	$	39
Home equity loans/lines		5		3		4
Total	$	300	$	124	$	43

During the year ended September 30, 2011, RJ Bank granted concessions to borrowers having financial difficulties, for which the resulting modification was deemed a TDR. The concessions granted for the C&I and CRE loans were generally interest rate reductions and the release of guarantor liabilities. The concessions granted for first mortgage residential loans were generally interest rate reductions and interest capitalization. The table below presents the impact TDRs which occurred during the year ended September 30, 2011 had on our consolidated financial statements:

	Number of contracts		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
	(in thousands)
Troubled debt restructurings:
C&I loans		1	$	12,450	$	12,034
CRE loans		1		9,226		9,226
Residential mortgage – first mortgage loans		25		10,025		10,528
Total		27	$	31,701	$	31,788

During the year ended September 30, 2011, there were five residential first mortgage TDRs with a recorded investment of $1.4 million for which there was a payment default and for which the respective loan was modified as a TDR within the 12 months prior to the default.

The credit quality of RJ Bank's loan portfolio is summarized monthly by management using the standard asset classification system utilized by bank regulators for the residential and consumer loan portfolios and internal risk ratings, which correspond to the same standard asset classifications for the corporate loan portfolio. 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 September 30, 2011 is as follows:

							Residential mortgage
	C&I		CRE construction		CRE		First mortgage		Home equity		Consumer		Total
	C&I		CRE construction		CRE		First mortgage		Home equity		Consumer		Total
	(in thousands)

Pass	$	3,906,358	$	29,087	$	572,124	$	1,607,327	$	30,319	$	7,438	$	6,152,653
Special mention		88,889		-		76,021		23,684		170		-		188,764
Substandard		93,658		-		90,058		94,758		228		-		278,702
Doubtful		12,034		-		4,686		-		-		-		16,720
Total	$	4,100,939	$	29,087	$	742,889	$	1,725,769	$	30,717	$	7,438	$	6,636,839

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

				Loans held for investment
	Loans held for sale			C&I			CRE construction			CRE			Residential mortgage			Consumer			Total
	Loans held for sale			C&I			CRE construction			CRE			Residential mortgage			Consumer			Total
	(in thousands)
Year ended September 30, 2011:
Balance at beginning of year:	$	23		$	60,464		$	4,473		$	47,771		$	34,297		$	56		$	147,084
Provision for loan losses		(18	)		21,261			(3,983	)		(3,485	)		19,670			210			33,655
Net charge-offs:
Charge-offs		-			(458	)		-			(15,204	)		(22,501	)		(255	)		(38,418	)
Recoveries		-			-			-			1,670			1,744			9			3,423
Net charge-offs		-			(458	)		-			(13,534	)		(20,757	)		(246	)		(34,995	)
Balance at September 30, 2011	$	5		$	81,267		$	490		$	30,752		$	33,210		$	20		$	145,744


Year ended September 30, 2010:
Balance at beginning of year:	$	7		$	84,841		$	3,237		$	34,018		$	28,081		$	88		$	150,272
Provision for loan losses		16			(24,377	)		1,236			67,806			35,764			(32	)		80,413
Net charge-offs:
Charge-offs		-			-			-			(56,402	)		(30,837	)		-			(87,239	)
Recoveries		-			-			-			2,349			1,289			-			3,638
Net charge-offs		-			-			-			(54,053	)		(29,548	)		-			(83,601	)
Balance at September 30, 2010	$	23		$	60,464		$	4,473		$	47,771		$	34,297		$	56		$	147,084


Year ended September 30, 2009:
Balance at beginning of year:	$	1		$	55,106		$	7,061		$	17,238		$	8,588		$	162		$	88,155
Provision for loan losses		6			29,735			(602	)		94,096			46,179			(74	)		169,341
Net charge-offs:
Charge-offs		-			-			(3,222	)		(77,317	)		(27,314	)		-			(107,853	)
Recoveries		-			-			-			1			628			-			629
Net charge-offs		-			-			(3,222	)		(77,316	)		(26,686	)		-			(107,224	)
Balance at September 30, 2009	$	7		$	84,841		$	3,237		$	34,018		$	28,081		$	88		$	150,272

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

				Loans held for investment
	Loans held for sale			C&I			CRE construction			CRE			Residential mortgage			Consumer		Total
	Loans held for sale			C&I			CRE construction			CRE			Residential mortgage			Consumer		Total
	(in thousands)
September 30, 2011:
Allowance for loan losses:
Individually evaluated for impairment	$	-		$	8,478		$	-		$	1,014		$	2,642		$	-	$	12,134
Collectively evaluated for impairment		5			72,789			490			29,738			30,568			20		133,610
Total allowance for loan losses	$	5		$	81,267		$	490		$	30,752		$	33,210		$	20	$	145,744
Loan category as a % of total recorded investment		2	%		61	%		-			11	%		26	%		-		100	%

Recorded investment:(1)
Individually evaluated for impairment	$	-		$	25,685		$	-		$	15,842		$	23,453		$	-	$	64,980
Collectively evaluated for impairment		92,748			4,075,254			29,087			727,047			1,733,033			7,438		6,664,607
Total recorded investment	$	92,748		$	4,100,939		$	29,087		$	742,889		$	1,756,486		$	7,438	$	6,729,587



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 September 30, 2011 and 2010.

The reserve for unfunded lending commitments, included in trade and other payables on our Consolidated Statements of Financial Condition, was $10.4 million and $11.9 million at September 30, 2011 and 2010, respectively.