Loans and Leases

We segregate our loans and leases into three segments: commercial and financial loans, commercial real estate loans, and lease financing. We further classify commercial and financial loans as loans to investment funds, senior secured bank loans, loans to municipalities, and other. These classifications reflect 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 pages 152 to 155 in Note 4 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

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



(In millions)	September 30, 2017			December 31, 2016
Domestic:
Commercial and financial:
Loans to investment funds	$	12,886		$	11,734
Senior secured bank loans	3,377			3,256
Loans to municipalities	1,955			1,352
Other	55			70
Commercial real estate	—			27
Lease financing	283			338
Total domestic	18,556			16,777
Non-U.S.:
Commercial and financial:
Loans to investment funds	4,138			2,224
Senior secured bank loans	514			252
Lease financing	430			504
Total non-U.S.	5,082			2,980
Total loans and leases	23,638			19,757
Allowance for loan and lease losses	(57		)	(53		)
Loans and leases, net of allowance	$	23,581		$	19,704

The commercial and financial segment is composed of primarily floating-rate loans to mutual fund clients, purchased senior secured bank loans, and loans to municipalities. Investment fund lending is composed of short-duration revolving credit lines providing liquidity to fund clients in support of their transaction flows associated with securities' settlement activities.

Certain loans are pledged as collateral for access to the Federal Reserve's discount window. As of September 30, 2017 and December 31, 2016, the loans pledged as collateral totaled $1.7 billion and $1.5 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:



September 30, 2017	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
(In millions)	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
Investment grade⁽¹⁾	$	18,270	$	—	$	713	$	18,983
Speculative⁽²⁾	4,655		—		—		4,655
Total	$	22,925	$	—	$	713	$	23,638



December 31, 2016	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
(In millions)	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
Investment grade⁽¹⁾	$	14,889	$	27	$	842	$	15,758
Speculative⁽²⁾	3,984		—		—		3,984
Substandard⁽³⁾	15		—		—		15
Total	$	18,888	$	27	$	842	$	19,757

⁽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⁾ 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, 2017								December 31, 2016
(In millions)	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases		Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
Loans and leases⁽¹⁾:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	15	$	—	$	—	$	15
Collectively evaluated for impairment	22,925		—		713		23,638		18,873		27		842		19,742
Total	$	22,925	$	—	$	713	$	23,638	$	18,888	$	27	$	842	$	19,757

⁽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, 2017, no loans were individually evaluated for impairment. As of December 31, 2016, $0.2 million of the allowance for loan and lease loss related to commercial and financial loans were individually evaluated for impairment.

As of September 30, 2017, we had no impaired loans and leases. As of December 31, 2016, we identified one commercial and financial loan as impaired, with both a recorded investment and unpaid principal balance of $15 million. The impaired loan had zero related interest income and an associated allowance for loan losses of $0.2 million.

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. There were no loans modified in troubled debt restructurings during the nine months ended September 30, 2017 and the year ended December 31, 2016.

As of September 30, 2017, there were no loans or leases on non-accrual status. As of December 31, 2016, there was one commercial and financial loan on non-accrual status and no CRE loans or leases were on non-accrual status. There were no loans and leases 90 days or more contractually past due as of September 30, 2017 and December 31, 2016.

Allowance for loan and lease losses

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



	Three Months Ended September 30,
	2017		2016
(In millions)	Total Loans and Leases		Total Loans and Leases
Allowance for loan and lease losses⁽¹⁾:
Beginning balance	$	54	$	51
Provision for loan and lease losses	3		—
Charge-offs	—		—
Ending balance	$	57	$	51

	Nine Months Ended September 30,
	2017		2016
(In millions)	Total Loans and Leases		Total Loans and Leases
Allowance for loan and lease losses⁽¹⁾:
Beginning balance	$	53	$	46
Provision for loan and lease losses	4		8
Charge-offs	—		(3		)
Ending balance	$	57	$	51

⁽¹⁾The provisions and charge-offs for loans and leases were attributable to 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 and lease 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.