Loans and Leases

We segregate our loans and leases into two segments: institutional and CRE. Within the institutional and CRE segments, we further segregate the receivables into classes based on their risk characteristics, their initial measurement attributes and the methods we use to monitor and assess credit risk. For additional information on our loans and leases, including our internal risk-rating system used to assess our risk of credit loss for each loan or lease, refer to Note 4 to the consolidated financial statements on pages 152 to 156 in our 2015 Form 10-K.

The following table presents our recorded investment in loans and leases, by segment and class, as of the dates indicated:



(In millions)	September 30, 2016			December 31, 2015
Institutional:
Investment funds:
U.S.	$	13,647		$	11,136
Non-U.S.	3,092			1,678
Commercial and financial:
U.S.	3,540			4,671
Non-U.S.	275			278
Purchased receivables:
U.S.	74			93
Non-U.S.	—			—
Lease financing:
U.S.	337			337
Non-U.S.	510			578
Total institutional	21,475			18,771
Commercial real estate:
U.S.	27			28
Total loans and leases	21,502			18,799
Allowance for loan and lease losses	(51		)	(46		)
Loans and leases, net of allowance for loan and lease losses	$	21,451		$	18,753

Short-duration advances to our clients included in the institutional segment were $5.70 billion and $2.62 billion as of September 30, 2016 and December 31, 2015, respectively. These short-duration advances provide liquidity to fund clients in support of their transaction flows associated with securities settlement activities.

The commercial-and-financial class in the institutional segment presented in the preceding table included approximately $3.38 billion and $3.14 billion of senior secured loans as of September 30, 2016 and December 31, 2015, respectively. These senior secured loans are included in the “speculative”, "special mention" and "substandard" categories in the credit-quality-indicator tables presented below. As of September 30, 2016 and December 31, 2015, our allowance for loan and lease losses included approximately $43 million and $35 million, respectively, related to these loans.

Certain loans are pledged as collateral for access to the Federal Reserve's discount window. As of September 30, 2016 and December 31, 2015, these loans and leases pledged as collateral totaled $1.7 billion and $2.5 billion, respectively.

The following tables present our recorded investment in each class of loans and leases by credit quality indicator as of the dates indicated:



	Institutional
September 30, 2016	Investment Funds		Commercial and Financial		Purchased Receivables		Lease Financing		Commercial Real Estate		Total Loans and Leases
(In millions)	Investment Funds		Commercial and Financial		Purchased Receivables		Lease Financing		Commercial Real Estate		Total Loans and Leases
Investment grade⁽¹⁾	$	15,828	$	422	$	74	$	847	$	27	$	17,198
Speculative⁽²⁾	908		3,378		—		—		—		4,286
Special mention⁽³⁾	3		—		—		—		—		3
Substandard⁽⁴⁾	—		15		—		—		—		15
Total	$	16,739	$	3,815	$	74	$	847	$	27	$	21,502



	Institutional
December 31, 2015	Investment Funds		Commercial and Financial		Purchased Receivables		Lease Financing		Commercial Real Estate		Total Loans and Leases
(In millions)	Investment Funds		Commercial and Financial		Purchased Receivables		Lease Financing		Commercial Real Estate		Total Loans and Leases
Investment grade⁽¹⁾	$	12,415	$	1,780	$	93	$	888	$	28	$	15,204
Speculative⁽²⁾	399		3,138		—		27		—		3,564
Special mention⁽³⁾	—		31		—		—		—		31
Total	$	12,814	$	4,949	$	93	$	915	$	28	$	18,799

⁽¹⁾Investment-grade loans and leases consist of counterparties with strong credit quality and low expected credit risk and probability of default. Ratings apply to counterparties with a strong capacity to support the timely repayment of any financial commitment.

⁽²⁾Speculative loans and leases consist of counterparties that face ongoing uncertainties or exposure to business, financial, or economic downturns. However, these counterparties may have financial flexibility or access to financial alternatives, which allow for financial commitments to be met.

⁽³⁾Special mention loans and leases consist of counterparties with potential weaknesses that, if uncorrected, may result in deterioration of repayment prospects.

⁽⁴⁾ Substandard loans and leases consist of counterparties with well-defined weakness that jeopardizes repayment with the possibility we will sustain some loss.

The following table presents our recorded investment in loans and leases, disaggregated based on our impairment methodology, as of the dates indicated:



	September 30, 2016						December 31, 2015
(In millions)	Institutional		Commercial Real Estate		Total Loans and Leases		Institutional		Commercial Real Estate		Total Loans and Leases
Loans and leases⁽¹⁾:
Collectively evaluated for impairment	$	21,475	$	27	$	21,502	$	18,771	$	28	$	18,799
Total	$	21,475	$	27	$	21,502	$	18,771	$	28	$	18,799

⁽¹⁾For those portfolios where there are a small number of loans each with a large balance, we review each loan annually for indicators of impairment. For those loans where no such indicators are identified, the loans are collectively evaluated for impairment. As of September 30, 2016 and December 31, 2015, zero of the allowance for loan and lease loss related to institutional loans individually evaluated for impairment. As of September 30, 2016 and December 31, 2015, all of the allowance for loan and lease loss related to institutional loans collectively evaluated for impairment.

The following table presents information related to our recorded investment in impaired loans and leases for the dates or periods indicated:



	As of September 30, 2016				As of December 31, 2015
(In millions)	Recorded Investment		Unpaid Principal Balance⁽¹⁾		Recorded Investment		Unpaid Principal Balance
With no related allowance recorded:
CRE—property development—acquired credit-impaired	$	—	$	34	$	—	$	34
CRE—other—acquired credit-impaired	—		22		—		22
Total CRE	$	—	$	56	$	—	$	56

⁽¹⁾As of September 30, 2016 and December 31, 2015, all of the allowance for loan and lease losses of $51 million and $46 million, respectively, related to loans that were not impaired.

In certain circumstances, we restructure troubled loans by granting concessions to borrowers experiencing financial difficulty. Once restructured, the loans are generally considered impaired until their maturity, regardless of whether the borrowers perform under the modified terms of the loans. No loans were modified in troubled debt restructurings during the nine months ended September 30, 2016 and the year ended December 31, 2015.

As of September 30, 2016 and December 31, 2015, no institutional loans or leases and no CRE loans were on non-accrual status or 90 days or more contractually past due.

The following table presents activity in the allowance for loan and lease losses for the periods indicated:



	Three Months Ended September 30,
	2016			2015
(In millions)	Total Loans and Leases			Total Loans and Leases
Allowance for loan and lease losses⁽¹⁾:
Beginning balance	$	51		$	43
Provision for loan losses	—			5
Charge-offs	—			—
Ending balance	$	51		$	48

	Nine Months Ended September 30,
	2016			2015
(In millions)	Total Loans and Leases			Total Loans and Leases
Allowance for loan and lease losses⁽¹⁾:
Beginning balance	$	46		$	37
Provision for loan losses	8			11
Charge-offs	(3		)	—
Ending balance	$	51		$	48

⁽¹⁾As of September 30, 2016, approximately $43 million of our allowance for loan and lease losses was related to senior secured loans included in the institutional segment; the remaining $8 million was related to other institutional segment loans.

The provision of $8 million and $11 million recorded in the nine months ended September 30, 2016 and 2015, respectively, as well as the charge-offs of $3 million recorded in the nine months ended September 30, 2016 were a result of exposure to senior secured loans to non-investment grade borrowers, purchased in connection with our participation in syndicated loans.

Loans and leases are reviewed on a regular basis, and any provisions for loan losses that are recorded reflect management's estimate of the amount necessary to maintain the allowance for loan and lease losses at a level considered appropriate to absorb estimated incurred losses in the loan-and-lease portfolio.