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LOANS TO FINANCIAL ADVISORS, NET
 9 Months Ended
Jun. 30, 2022
Receivables [Abstract]  
LOANS TO FINANCIAL ADVISORS, NET BANK LOANS, NET
Bank client receivables are comprised of loans originated or purchased by our Bank segment and include commercial and industrial (“C&I”) loans, real estate investment trust (“REIT”) loans, tax-exempt loans, commercial and residential real estate loans, and securities-based loans (“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. We segregate our loan portfolio into six loan portfolio segments: C&I, commercial real estate (“CRE”), REIT, tax-exempt, residential mortgage, and SBL and other. Substantially all of the SBL and other segment portfolio is comprised of securities-based loans. See Note 2 of our 2021 Form 10-K for a discussion of our October 1, 2020 adoption of new accounting guidance related to the measurement of credit losses on financial instruments and our accounting policies related to bank loans and the allowance for credit losses.

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. As it pertains to TriState Capital Bank’s loans acquired as of June 1, 2022, the amortized cost of such purchased loans reflects the fair value of the loans on the origination date, and as described further in Note 3, the purchase discount on such loans is accreted to interest income over the contractual life of the loan.

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 our bank loan portfolio.
 June 30, 2022September 30, 2021
$ in millionsBalance%Balance%
C&I loans$10,897 26 %$8,440 33 %
CRE loans6,354 15 %2,872 11 %
REIT loans1,416 3 %1,112 5 %
Tax-exempt loans1,347 3 %1,321 5 %
Residential mortgage loans6,728 16 %5,318 21 %
SBL and other15,312 36 %6,106 24 %
Total loans held for investment42,054 99 %25,169 99 %
Held for sale loans166 1 %145 1 %
Total loans held for sale and investment42,220 100 %25,314 100 %
Allowance for credit losses(377) (320) 
Bank loans, net (1)
$41,843  $24,994  
Accrued interest receivable on bank loans$99 $48 

(1) Bank loans as of June 30, 2022 are presented net of $131 million of net unamortized discounts, unearned income, and deferred loan fees and costs. This amount primarily arose from the purchase discounts on bank loans acquired in the TriState Capital acquisition. See Note 3 for further information. Bank loans as of September 30, 2021 are presented net of $1 million of unearned income and deferred loan fees and costs.

The allowance for credit losses was 0.90% and 1.27% of the held for investment loan portfolio as of June 30, 2022 and September 30, 2021, respectively. Accrued interest receivables presented in the preceding table are reported in “Other receivables, net” on our Condensed Consolidated Statements of Financial Condition.

At June 30, 2022, we had pledged $5.8 billion of residential mortgage loans and $1.5 billion of CRE loans with the FHLB as security for the repayment of certain borrowings. Additionally, as of June 30, 2022, we had pledged $797 million of C&I loans with the FRB to be eligible to participate in the Federal Reserve’s discount window program. See Notes 7 and 15 for more information regarding borrowings from the FHLB and bank loans pledged with the FHLB and FRB.
Held for sale loans

Exclusive of the loans acquired on June 1, 2022 in our acquisition of TriState Capital Bank, we originated or purchased $683 million and $2.65 billion of loans held for sale during the three and nine months ended June 30, 2022, respectively, and $385 million and $1.50 billion during the three and nine months ended June 30, 2021, respectively. The majority of these loans were purchases of the guaranteed portions of Small Business Administration (“SBA”) loans intended for resale in the secondary market as individual SBA loans or as securitized pools of SBA loans. Proceeds from the sales of these held for sale loans amounted to $345 million and $1.02 billion during the three and nine months ended June 30, 2022, respectively, and $230 million and $625 million during the three and nine months ended June 30, 2021, respectively. Net gains resulting from such sales were insignificant in all periods during the three and nine months ended June 30, 2022 and 2021.

Purchases and sales of loans held for investment

The following table presents purchases and sales of loans held for investment by portfolio segment. Purchases do not include loans obtained from the acquisition of TriState Capital Bank.
$ in millionsC&I loansResidential mortgage loansTotal
Three months ended June 30, 2022
Purchases$439 $383 $822 
Sales$33 $— $33 
Nine months ended June 30, 2022
Purchases$1,219 $790 $2,009 
Sales$145 $— $145 
Three months ended June 30, 2021
Purchases$381 $190 $571 
Sales$116 $— $116 
Nine months ended June 30, 2021
Purchases$1,041 $350 $1,391 
Sales$216 $— $216 

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 2021 Form 10-K, corporate loan sales generally occur as part of our credit management activities. Corporate loans include C&I, CRE, and REIT loans.

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
June 30, 2022      
C&I loans$16 $— $16 $46 $— $10,835 $10,897 
CRE loans— — — 12 17 6,325 6,354 
REIT loans— — — — — 1,416 1,416 
Tax-exempt loans— — — — — 1,347 1,347 
Residential mortgage loans1 — 1 1 14 6,712 6,728 
SBL and other1 — 1 — — 15,311 15,312 
Total loans held for investment$18 $— $18 $59 $31 $41,946 $42,054 
September 30, 2021      
C&I loans$— $— $— $39 $— $8,401 $8,440 
CRE loans— — — — 20 2,852 2,872 
REIT loans— — — — — 1,112 1,112 
Tax-exempt loans— — — — — 1,321 1,321 
Residential mortgage loans2 — 2 2 13 5,301 5,318 
SBL and other— — — — — 6,106 6,106 
Total loans held for investment$2 $— $2 $41 $33 $25,093 $25,169 
The preceding table includes $78 million and $61 million at June 30, 2022 and September 30, 2021, respectively, of nonaccrual loans which were current pursuant to their contractual terms. The table also includes troubled debt restructurings (“TDRs”) of $13 million, $9 million, and $11 million for C&I loans, CRE loans, and residential first mortgage loans, respectively, at June 30, 2022, and $12 million and $13 million for CRE loans and residential first mortgage loans, respectively, at September 30, 2021.

Other real estate owned, included in “Other assets” on our Condensed Consolidated Statements of Financial Condition, was insignificant at both June 30, 2022 and September 30, 2021.

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. Collateral-dependent loans are recorded based upon the fair value of the collateral less the estimated selling costs. At June 30, 2022, we had $13 million of collateral-dependent C&I loans which were fully collateralized by commercial real estate and other business assets and $28 million of collateral-dependent CRE loans which were fully collateralized by retail, industrial, and health care real estate. As September 30, 2021, we had $20 million of collateral-dependent CRE loans which were fully collateralized by retail and industrial real estate. We had $7 million and $5 million of collateral-dependent residential loans at June 30, 2022 and September 30, 2021, respectively, which were fully collateralized by single family homes. The recorded investment in mortgage loans secured by one-to-four family residential properties for which formal foreclosure proceedings were in process was $5 million and $4 million at June 30, 2022 and September 30, 2021, respectively.

Credit quality indicators

The credit quality of our bank 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 currently performing in accordance with the contractual terms and 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 us 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 we 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 our books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted.  We do 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 our held for investment bank loan portfolio by credit quality indicator. Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.
June 30, 2022
Loans by origination fiscal year
$ in millions20222021202020192018PriorRevolving loansTotal
C&I loans
Risk rating:
Pass$693$1,514$1,341$1,244$1,370$2,217$2,231$10,610
Special mention——6238—824186
Substandard1—32540—1988
Doubtful———49——13
Total C&I loans$694$1,514$1,406$1,311$1,419$2,299$2,254$10,897
CRE loans
Risk rating:
Pass$1,420$1,329$878$749$855$687$189$6,107
Special mention—2302736——95
Substandard——15208037—152
Doubtful————————
Total CRE loans$1,420$1,331$923$796$971$724$189$6,354
REIT loans
Risk rating:
Pass$87$234$99$57$40$185$591$1,293
Special mention———131164896
Substandard———21—4227
Doubtful————————
Total REIT loans$87$234$99$91$51$253$601$1,416
Tax-exempt loans
Risk rating:
Pass$71$170$58$115$197$736$—$1,347
Special mention————————
Substandard————————
Doubtful————————
Total tax-exempt loans$71$170$58$115$197$736$—$1,347
Residential mortgage loans
Risk rating:
Pass$2,195$1,727$1,059$493$300$887$37$6,698
Special mention11—2—4—8
Substandard————121—22
Doubtful————————
Total residential mortgage loans$2,196$1,728$1,059$495$301$912$37$6,728
SBL and other
Risk rating:
Pass$10$41$75$44$36$43$15,063$15,312
Special mention————————
Substandard————————
Doubtful————————
Total SBL and other$10$41$75$44$36$43$15,063$15,312
September 30, 2021
Loans by origination fiscal year
$ in millions20212020201920182017PriorRevolving loansTotal
C&I loans
Risk rating:
Pass$999$1,273$1,180$1,408$935$1,633$739$8,167
Special mention——41—26541122
Substandard——2484—28—136
Doubtful——15————15
Total C&I loans$999$1,273$1,260$1,492$961$1,715$740$8,440
CRE loans
Risk rating:
Pass$533$459$442$652$223$174$62$2,545
Special mention—455836———139
Substandard——3298850—188
Doubtful————————
Total CRE loans$533$504$532$786$231$224$62$2,872
REIT loans
Risk rating:
Pass$235$95$75$60$46$167$237$915
Special mention——1311331066169
Substandard——21—4—328
Doubtful————————
Total REIT loans$235$95$109$71$83$273$246$1,112
Tax-exempt loans
Risk rating:
Pass$158$57$124$204$272$506$—$1,321
Special mention————————
Substandard————————
Doubtful————————
Total tax-exempt loans$158$57$124$204$272$506$—$1,321
Residential mortgage loans
Risk rating:
Pass$1,861$1,266$640$386$451$666$20$5,290
Special mention—————5—5
Substandard———1220—23
Doubtful————————
Total residential mortgage loans$1,861$1,266$640$387$453$691$20$5,318
SBL and other
Risk rating:
Pass$3$45$12$—$—$—$6,046$6,106
Special mention————————
Substandard————————
Doubtful————————
Total SBL and other$3$45$12$—$—$—$6,046$6,106
We also monitor the credit quality of the residential mortgage loan portfolio utilizing Fair Isaac Corporation (“FICO”) scores and loan-to-value (“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 millionsJune 30, 2022September 30, 2021
FICO score:
Below 600$65 $67 
600 - 699463 416 
700 - 7994,943 3,772 
800 +1,231 1,058 
FICO score not available26 5 
Total$6,728 $5,318 
LTV ratio:
Below 80%$5,258 $4,123 
80%+1,470 1,195 
Total$6,728 $5,318 
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 June 30, 2022     
Balance at beginning of period
$195 $71 $25 $2 $32 $3 $328 
Initial allowance on acquired PCD loans1 2 — — — — 3 
Provision/(benefit) for credit losses:
Initial provision for credit losses on non-PCD loans acquired with TriState Capital Bank5 19 — — — 2 26 
Provision/(benefit) for credit losses17 — (2)— 16 (1)30 
Total provision/(benefit) for credit losses22 19 (2)— 16 1 56 
Net (charge-offs)/recoveries:
      
Charge-offs(11)(4)— — — — (15)
Recoveries— 5 — — — — 5 
Net (charge-offs)/recoveries
(11)1 — — — — (10)
Foreign exchange translation adjustment
— — — — — — — 
Balance at end of period
$207 $93 $23 $2 $48 $4 $377 
Nine months ended June 30, 2022
Balance at beginning of period
$191 $66 $22 $2 $35 $4 $320 
Initial allowance on acquired PCD loans1 2 — — — — 3 
Provision/(benefit) for credit losses:
Initial provision for credit losses on non-PCD loans acquired with TriState Capital Bank5 19 — — — 2 26 
Provision/(benefit) for credit losses24 5 1 — 12 (2)40 
Total provision/(benefit) for credit losses29 24 1 — 12 — 66 
Net (charge-offs)/recoveries:
     
Charge-offs(14)(4)— — — — (18)
Recoveries— 5 — — 1 — 6 
Net (charge-offs)/recoveries
(14)1 — — 1 — (12)
Foreign exchange translation adjustment
— — — — — — — 
Balance at end of period
$207 $93 $23 $2 $48 $4 $377 
Three months ended June 30, 2021
Balance at beginning of period
$203 $74 $36 $2 $26 $4 $345 
Provision/(benefit) for credit losses(14)2 (10)— 3 — (19)
Net (charge-offs)/recoveries:
     
Charge-offs(1)(3)— — — — (4)
Recoveries— — — — — — — 
Net (charge-offs)/recoveries(1)(3)— — — — (4)
Foreign exchange translation adjustment
— — — — — — — 
Balance at end of period
$188 $73 $26 $2 $29 $4 $322 
Nine months ended June 30, 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(29)5 (1)— (13)1 (37)
Net (charge-offs)/recoveries:
    
Charge-offs(3)(3)— — — — (6)
Recoveries— — — — — — — 
Net (charge-offs)/recoveries
(3)(3)— — — — (6)
Foreign exchange translation adjustment
1 1 — — — — 2 
Balance at end of period
$188 $73 $26 $2 $29 $4 $322 
The allowance for credit losses on held for investment bank loans increased $49 million and $57 million during the three and nine months ended June 30, 2022, respectively, primarily due to the initial provision for credit losses of $26 million recorded on non-PCD loans acquired as part of the TriState Capital acquisition, as well as the impact of both loan growth at Raymond James Bank and a weaker macroeconomic outlook.

The allowance for credit losses on unfunded lending commitments, which is included in “Other payables” on our Condensed Consolidated Statements of Financial Condition, was $19 million, $12 million, and $13 million at June 30, 2022, March 31, 2022 and September 30, 2021, respectively. The increase in the allowance for credit losses on unfunded lending commitments for the three and nine months ended June 30, 2022 included $5 million related to the initial provision for credit losses on lending commitments assumed as a result of the acquisition of TriState Capital which was included “Other” expenses on our Condensed Consolidated Statements of Income and Comprehensive Income.

TriState Capital Bank allowance for credit losses policy

TriState Capital Bank’s accounting policies for its loan portfolio are substantially consistent with the accounting policies presented in Note 2 of our 2021 Form 10-K.

TriState Capital Bank estimates expected credit losses over the life of each loan in its portfolio utilizing lifetime or cumulative loss rate methodology, which identifies macroeconomic factors and asset-specific characteristics that are correlated with credit loss experience including loan age, loan type, and leverage. The lifetime loss rate is applied to the amortized cost of the loan. This methodology builds on default and recovery probabilities by utilizing pool-specific historical loss rates to calculate expected credit losses. These pool-specific historical loss rates may be adjusted for a forecast of certain macroeconomic variables, as further discussed below, and other factors such as differences in underwriting standards, portfolio mix, or when historical asset terms do not reflect the contractual terms of the financial assets being evaluated as of the measurement date. Each time expected credit losses are measured, the relevancy of historical loss information is assessed and management considers any necessary adjustments to address any differences in asset-specific characteristics. The lifetime loss rates are estimated by analyzing a combination of internal and external data related to historical performance of each loan pool over a complete economic cycle. Loss rates are based on historical averages for each loan pool, adjusted to reflect the impact of a single, forward-looking forecast of certain macroeconomic variables such as gross domestic product (“GDP”), unemployment rates, corporate bond credit spreads and commercial property values, which management considers to be both reasonable and supportable. The single, forward-looking forecast of these macroeconomic variables is applied over the remaining life of the loan pools. The development of the reasonable and supportable forecast incorporates an assumption that each macroeconomic variable will revert to a long-term expectation starting in years two to four of the forecast and largely completing within the first five years of the forecast.

TriState Capital Bank generally uses one of two methods to measure the allowance for credit losses on individually evaluated loans. A discounted cash flow approach is used to estimate the allowance for credit losses on certain nonaccrual corporate loans and all TDRs that are not collateral-dependent. For collateral-dependent loans and for instances where foreclosure is probable, management uses an approach that considers the fair value of the collateral less selling costs when measuring the allowance for credit losses. A loan is collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral.

The allowance represents management’s current estimate of expected credit losses in the loan portfolio. Expected credit losses are estimated over the contractual term of the loans, which includes extension or renewal options that are not unconditionally cancellable and are adjusted for expected prepayments when appropriate. Management’s judgment takes into consideration past events, current conditions and reasonable and supportable economic forecasts including general economic conditions, diversification and seasoning of the loan portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral.
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 of our 2021 Form 10-K 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 millionsJune 30, 2022September 30, 2021
Currently affiliated with the firm (1)
$1,147 $1,074 
No longer affiliated with the firm (2)
7 10 
Total loans to financial advisors1,154 1,084 
Allowance for credit losses(29)(27)
Loans to financial advisors, net$1,125 $1,057 
Accrued interest receivable on loans to financial advisors$5 $4 
Allowance for credit losses as a percent of the loan portfolio
2.51 %2.49 %

(1) These loans were predominantly current.
(2) These loans were predominantly past due for a period of 180 days or more.

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