Financial Instruments - Credit Losses

12 Months Ended

Dec. 31, 2021

Credit Loss [Abstract]

Financial Instruments - Credit Losses

Financial Instruments - Credit Losses

On January 1, 2020, the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which replaced the incurred loss methodology with a current expected credit loss ("CECL") methodology. The Company elected the modified retrospective method which did not result in a cumulative effect adjustment at the date of adoption.

The Company can elect to use an approach to measure the allowance for credit losses using the fair value of collateral where the borrower is required to, and reasonably expected to, continually adjust and replenish the amount of collateral securing the instrument to reflect changes in the fair value of such collateral. The Company has elected to use this approach for securities borrowed, margin loans and reverse repurchase agreements. No material historical losses have been reported on these assets. See note 8 for details.

As of December 31, 2021, the Company has $54.0 million of notes receivable. Notes receivable represents recruiting and retention payments generally in the form of upfront loans to financial advisors and key revenue producers as part of the Company's overall growth strategy. These notes generally amortize over a service period of 3 to 10 years from the initial date of the note or based on productivity levels of employees. All such notes are contingent on the employees' continued employment with the Company. The unforgiven portion of the notes becomes due on demand in the event the employee departs during the service period. At this point any uncollected portion of the notes gets reclassified into a defaulted notes category.

The allowance for uncollectibles is a valuation account that is deducted from the amortized cost basis of the defaulted notes balance to present the net amount expected to be collected. Balances are charged-off against the allowance when management deems the amount to be uncollectible.

The Company reserves 100% of the uncollected balance of defaulted notes which are five years and older and applies an expected loss rate to the remaining balance. The expected loss rate is based on historical collection rates of defaulted notes. The

expected loss rate is adjusted for changes in environmental and market conditions such as changes in unemployment rates, changes in interest rates and other relevant factors. For the year ended December 31, 2021 no adjustments were made to the expected loss rates. The Company will continuously monitor the effect of these factors on the expected loss rate and adjust it as necessary.

The allowance is measured on a pool basis as the Company has determined that the entire defaulted portion of notes receivable has similar risk characteristics.

As of December 31, 2021, the uncollected balance of defaulted notes was $7.1 million and the allowance for uncollectibles was $4.9 million. The allowance for uncollectibles consisted of $3.3 million related to defaulted notes balances (five years and older) and $1.6 million (under five years).

The following table presents the disaggregation of defaulted notes by year of origination as of December 31, 2021:

(Expressed in thousands)
	As of December 31,
	2021
2021	$	2,355
2020	616
2019	387
2018	144
2017	272
2016 and prior	3,313
Total	$	7,087

The following table presents activity in the allowance for uncollectibles of defaulted notes for the year ended December 31, 2021 and 2020:

(Expressed in thousands)
	For the Year Ended December 31,
	2021		2020
Beginning balance	$	4,234	$	3,673
Additions and other adjustments	689		561
Ending balance	$	4,923	$	4,234