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BANK LOANS, NET
 6 Months Ended
Mar. 31, 2021
Receivables [Abstract]  
BANK LOANS, NET BANK LOANS, NET
Bank client receivables are comprised of loans originated or purchased by RJ Bank, N.A. and include C&I loans, REIT loans, tax-exempt loans, commercial and residential real estate loans, and SBL and other loans. These receivables are collateralized by first and, to a lesser extent, second mortgages on residential or other real property, other assets of the borrower, a pledge of revenue, securities or are unsecured. See Note 2 of our 2020 Form 10-K for a discussion of accounting policies related to bank loans.

As of October 1, 2020, we adopted new accounting guidance related to the measurement of credit losses on financial instruments. See Note 2 for further information about this guidance and a discussion of our accounting policies related to our allowance for credit losses. We segregate our loan portfolio into six loan portfolio segments: C&I, CRE, REIT, tax-exempt, residential mortgage, and SBL and other. Upon adoption, we redefined certain of our portfolio segments to align with the new methodology applied in determining the allowance for credit losses. Prior-period loan portfolio segment balances have been revised to conform to the current presentation. Loan balances in the following tables are presented at amortized cost (outstanding principal balance net of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs), except for certain held for sale loans recorded at fair value. Bank loans are presented on our Condensed Consolidated Statements of Financial Condition at amortized cost (or fair value where applicable) less the allowance for credit losses.

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.
 March 31, 2021September 30, 2020
$ in millionsBalance%Balance%
C&I loans$7,816 34 %$7,421 34 %
CRE loans2,710 12 %2,489 12 %
REIT loans1,380 6 %1,210 5 %
Tax-exempt loans1,223 5 %1,259 6 %
Residential mortgage loans5,001 21 %4,973 23 %
SBL and other4,891 21 %4,087 19 %
Total loans held for investment23,021 99 %21,439 99 %
Held for sale loans203 1 %110 1 %
Total loans held for sale and investment23,224 100 %21,549 100 %
Allowance for credit losses(345) (354) 
Bank loans, net$22,879  $21,195  
Accrued interest receivable on bank loans$46 $45 

The allowance for credit losses as of March 31, 2021 was determined using the new methodology under CECL, which was adopted on October 1, 2020. Prior periods have not been restated and were calculated under the incurred loss methodology.

Accrued interest receivables presented in the preceding table are reported in “Other receivables, net” on our Condensed Consolidated Statements of Financial Condition.

At March 31, 2021, the FHLB had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for the repayment of certain borrowings. See Note 14 of our 2020 Form 10-K for more information regarding borrowings from the FHLB.

Held for sale loans

RJ Bank originated or purchased $528 million and $1.11 billion of loans held for sale during the three and six months ended March 31, 2021, respectively, and $443 million and $1.15 billion during the three and six months ended March 31, 2020, respectively. Proceeds from the sale of these held for sale loans amounted to $207 million and $395 million during the three and six months ended March 31, 2021, respectively, and $220 million and $434 million during the three and six months ended March 31, 2020, respectively. Net gains resulting from such sales were insignificant in all periods during the three and six months ended March 31, 2021 and 2020.
Purchases and sales of loans held for investment

The following table presents purchases and sales of any loans held for investment by portfolio segment.
$ in millionsC&I loansCRE loansResidential mortgage loansTotal
Three months ended March 31, 2021
Purchases$538 $— $114 $652 
Sales$95 $— $— $95 
Six months ended March 31, 2021
Purchases$660 $— $160 $820 
Sales$100 $— $— $100 
Three months ended March 31, 2020
Purchases$296 $5 $100 $401 
Sales$— $— $— $— 
Six months ended March 31, 2020
Purchases$396 $5 $258 $659 
Sales$20 $— $— $20 

Sales in the preceding table represent the recorded investment (i.e., net of charge-offs and discounts or premiums) of loans held for investment that were transferred to loans held for sale and subsequently sold to a third party during the respective period. As more fully described in Note 2 of our 2020 Form 10-K, corporate loan sales generally occur as part of our credit management activities.

Aging analysis of loans held for investment

The following table presents information on delinquency status of our loans held for investment.
$ in millions30-89 days and accruing90 days or more and accruing Total past due and accruingNonaccrual with allowanceNonaccrual with no allowanceCurrent and accruingTotal loans held for investment
March 31, 2021      
C&I loans$— $— $— $— $— $7,816 $7,816 
CRE loans— — — — 13 2,697 2,710 
REIT loans— — — — — 1,380 1,380 
Tax-exempt loans— — — — — 1,223 1,223 
Residential mortgage loans1 — 1 14 4 4,982 5,001 
SBL and other— — — — — 4,891 4,891 
Total loans held for investment$1 $— $1 $14 $17 $22,989 $23,021 
September 30, 2020      
C&I loans$— $— $— $2 $— $7,419 $7,421 
CRE loans— — — — 14 2,475 2,489 
REIT loans— — — — — 1,210 1,210 
Tax-exempt loans— — — — — 1,259 1,259 
Residential mortgage loans— — — 3 11 4,959 4,973 
SBL and other— — — — — 4,087 4,087 
Total loans held for investment$— $— $— $5 $25 $21,409 $21,439 

The preceding table includes $15 million at both March 31, 2021 and September 30, 2020 of nonaccrual loans which were current pursuant to their contractual terms. The table also includes CRE and residential first mortgage loan TDRs of $13 million and $14 million, respectively, at March 31, 2021 and $6 million and $15 million, respectively, at September 30, 2020.

Other real estate owned, included in “Other assets” on our Condensed Consolidated Statements of Financial Condition, was insignificant at both March 31, 2021 and September 30, 2020.
Collateral-dependent loans

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the underlying collateral. At March 31, 2021, we had $13 million of collateral-dependent CRE loans, which were fully collateralized by retail and industrial real estate, and $6 million of collateral-dependent residential loans, which were fully collateralized by single family homes. Collateral-dependent loans do not include loans to borrowers who have been granted forbearance as result of the COVID-19 pandemic or loans for which the borrower had requested a loan modification, where the request had been initiated but had not been approved or completed as of the end of the quarter. Such loans may be considered collateral-dependent after the forbearance period expires. The recorded investment in mortgage loans secured by one-to-four family residential properties for which formal foreclosure proceedings were in process was $6 million at both March 31, 2021 and September 30, 2020.

Credit quality indicators

The credit quality of RJ Bank’s loan portfolio is summarized monthly by management using internal risk ratings, which align with the standard asset classification system utilized by bank regulators.  These classifications are divided into three groups: Not Classified (Pass), Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss). These terms 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 because, in accordance with our accounting policy, loans, or a portion thereof considered to be uncollectible are charged-off prior to the assignment of this classification.
The following tables present RJ Bank’s held for investment loan portfolio by year of origination and credit quality indicator as of March 31, 2021.
$ in millions20212020201920182017PriorRevolving loansTotal
C&I loans
Risk rating:
Pass$312$1,259$1,206$1,404$1,043$1,590$649$7,463
Special mention——43103—542202
Substandard——3984—28—151
Doubtful————————
Total C&I loans$312$1,259$1,288$1,591$1,043$1,672$651$7,816
CRE loans
Risk rating:
Pass$194$435$572$645$226$209$61$2,342
Special mention—458649———180
Substandard——3286862—188
Doubtful————————
Total CRE loans$194$480$690$780$234$271$61$2,710
REIT loans
Risk rating:
Pass$171$123$115$87$50$220$364$1,130
Special mention——28113912421223
Substandard——21—4—227
Doubtful————————
Total REIT loans$171$123$164$98$93$344$387$1,380
Tax-exempt loans
Risk rating:
Pass$9$59$123$209$276$547$—$1,223
Special mention————————
Substandard————————
Doubtful————————
Total tax-exempt loans$9$59$123$209$276$547$—$1,223
Residential mortgage loans
Risk rating:
Pass$836$1,459$788$499$556$815$18$4,971
Special mention—————5—5
Substandard———1222—25
Doubtful————————
Total residential mortgage loans$836$1,459$788$500$558$842$18$5,001
SBL and other
Risk rating:
Pass$6$45$12$—$—$—$4,828$4,891
Special mention————————
Substandard————————
Doubtful————————
Total SBL and other$6$45$12$—$—$—$4,828$4,891

Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.
RJ Bank also monitors the credit quality of the residential mortgage loan portfolio utilizing FICO scores and LTV ratios. A FICO score measures a borrower’s creditworthiness by considering factors such as payment and credit history. LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan.

The following table presents the held for investment residential mortgage loan portfolio by FICO score and by LTV ratio at origination.
$ in millionsMarch 31, 2021September 30, 2020
FICO score:
Below 600$67 $67 
600 - 699398 363 
700 - 7993,496 3,463 
800 +1,035 1,076 
FICO score not available5 4 
Total$5,001 $4,973 
LTV ratio:
Below 80%$3,901 $3,852 
80%+1,100 1,121 
Total$5,001 $4,973 
Allowance for credit losses

The following table presents changes in the allowance for credit losses on held for investment bank loans by portfolio segment.
$ in millionsC&I loansCRE loansREIT loansTax-exempt loansResidential mortgage loansSBL and otherTotal
Three months ended March 31, 2021     
Balance at beginning of period
$198 $112 $30 $2 $33 $3 $378 
Provision/(benefit) for credit losses7 (39)6 — (7)1 (32)
Net (charge-offs)/recoveries:
      
Charge-offs(2)— — — — — (2)
Recoveries— — — — — — — 
Net (charge-offs)/recoveries
(2)— — — — — (2)
Foreign exchange translation adjustment
— 1 — — — — 1 
Balance at end of period
$203 $74 $36 $2 $26 $4 $345 
Six months ended March 31, 2021
Balance at beginning of period
$200 $81 $36 $14 $18 $5 $354 
Impact of CECL adoption19 (11)(9)(12)24 (2)9 
Provision/(benefit) for credit losses(15)3 9 — (16)1 (18)
Net (charge-offs)/recoveries:
     
Charge-offs(2)— — — — — (2)
Recoveries— — — — — — — 
Net (charge-offs)/recoveries
(2)— — — — — (2)
Foreign exchange translation adjustment
1 1 — — — — 2 
Balance at end of period
$203 $74 $36 $2 $26 $4 $345 
Three months ended March 31, 2020
Balance at beginning of period
$139 $36 $12 $8 $17 $4 $216 
Provision/(benefit) for credit losses58 18 26 3 1 3 109 
Net (charge-offs)/recoveries:
     
Charge-offs— — — — — — — 
Recoveries— — — — — — — 
Net (charge-offs)/recoveries— — — — — — — 
Foreign exchange translation adjustment
(1)— — — — — (1)
Balance at end of period
$196 $54 $38 $11 $18 $7 $324 
Six months ended March 31, 2020
Balance at beginning of period
$139 $34 $15 $9 $16 $5 $218 
Provision/(benefit) for credit losses58 20 23 2 2 2 $107 
Net (charge-offs)/recoveries:
    
Charge-offs— — — — — — $— 
Recoveries— — — — — — $— 
Net (charge-offs)/recoveries
— — — — — — — 
Foreign exchange translation adjustment
(1)— — — — — (1)
Balance at end of period
$196 $54 $38 $11 $18 $7 $324 

The allowance for credit losses on held for investment bank loans decreased $33 million to $345 million during the three months ended March 31, 2021, primarily due to changes in macroeconomic inputs to our CECL model during the quarter, including an improved outlook for the commercial real estate and residential mortgage bank loan portfolios, partially offset by the impact of weakened equity market forecasts on the C&I and REIT loan portfolios and an increase in criticized loans. The allowance for credit losses decreased $18 million to $345 million since the adoption of CECL on October 1, 2020, largely attributable to changes in inputs to our CECL model since our October 1, 2020 adoption date, reflecting improvements in certain forecasted macroeconomic inputs, including unemployment and gross domestic product, partially offset by forecasted declines in commercial real estate values since our CECL adoption date, as well as an increase in criticized loans.

The allowance for credit losses on unfunded lending commitments, which is included in “Other payables” on our Condensed Consolidated Statements of Financial Condition, was $17 million, $20 million and $12 million at March 31, 2021, December 31, 2020 and September 30, 2020, respectively. The decrease in the allowance for credit losses on unfunded lending
commitments during the three months ended March 31, 2021 was primarily due to an improved outlook for commercial real estate compared with December 31, 2020. The increase in the allowance for credit losses on unfunded lending commitments as of March 31, 2021 compared with September 30, 2020 was predominantly due to the adoption impact of CECL.

See Note 2 for further information about the adoption of CECL and the impact to the allowance for credit losses.
LOANS TO FINANCIAL ADVISORS, NET
Loans to financial advisors are primarily comprised of loans originated as a part of our recruiting activities. See Note 2 for a discussion of our accounting policies related to loans to financial advisors and the related allowance for credit losses. The following table presents the balances for our loans to financial advisors and the related accrued interest receivable.
$ in millionsMarch 31, 2021September 30, 2020
Currently affiliated with the firm (1)
$1,006 $1,001 
No longer affiliated with the firm (2)
10 15 
Total loans to financial advisors1,016 1,016 
Allowance for credit losses(28)(4)
Loans to financial advisors, net$988 $1,012 
Accrued interest receivable on loans to financial advisors$4 $4 

(1) These loans were predominately current.

(2) These loans were predominately past due for a period of 180 days or more and on nonaccrual status.

The allowance for credit losses as of March 31, 2021 was determined using the CECL methodology, which we adopted on October 1, 2020. Prior periods calculated under the incurred loss methodology have not been restated. The increase in the allowance from September 30, 2020 to March 31, 2021 was primarily due to the October 1, 2020 CECL adoption, which resulted in an increase in our allowance for credit losses of $25 million. See Note 2 for further information on the CECL adoption.

Accrued interest receivables presented in the preceding table are reported in “Other receivables, net” on the Condensed Consolidated Statements of Financial Condition.