Loans and Leases

9 Months Ended

Sep. 30, 2018

Loans and Leases Receivable Disclosure [Abstract]

Loans and Leases

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 147 to 149 in Note 4 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2017 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, 2018			December 31, 2017
Domestic:
Commercial and financial:
Loans to investment funds	$	12,863		$	13,618
Senior secured bank loans	3,150			2,923
Loans to municipalities	908			2,105
Other	40			50
Commercial real estate	602			98
Lease financing	39			267
Total domestic	17,602			19,061
Non-U.S.:
Commercial and financial:
Loans to investment funds	4,819			3,213
Senior secured bank loans	740			624
Lease financing	211			396
Total non-U.S.	5,770			4,233
Total loans and leases	23,372			23,294
Allowance for loan and lease losses	(60		)	(54		)
Loans and leases, net of allowance	$	23,312		$	23,240

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, 2018 and December 31, 2017, the loans pledged as collateral totaled $4.6 billion and $1.9 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, 2018	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
(In millions)
Investment grade(1)	$	17,753	$	602	$	250	$	18,605
Speculative(2)	4,728		—		—		4,728
Special mention(3)	39		—		—		39
Total	$	22,520	$	602	$	250	$	23,372

December 31, 2017	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
(In millions)
Investment grade(1)	$	17,866	$	98	$	663	$	18,627
Speculative(2)	4,638		—		—		4,638
Special mention(3)	29		—		—		29
Total	$	22,533	$	98	$	663	$	23,294

⁽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 weakness that, if uncorrected, may result in deterioration of repayment prospects.

As of September 30, 2018 and December 31, 2017, we had no impaired loans and leases, no loans or leases on non-accrual status and no loans or leases 90 days or more contractually past due.

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, 2018 and the year ended December 31, 2017.

We review all loans individually for indicators of impairment. Loans where indicators exist are evaluated individually for impairment at least quarterly. For those loans where no such indicators are identified, the loans are collectively evaluated for impairment. As of September 30, 2018 and December 31, 2017, there were no indicators of impairment.

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,
(In millions)	2018			2017
Allowance for loan and lease losses:
Beginning balance	$	55		$	54
Provision for loan and lease losses	5			3
Ending balance	$	60		$	57
	Nine Months Ended September 30,
(In millions)	2018			2017
Allowance for loan and lease losses:
Beginning balance	$	54		$	53
Provision for loan and lease losses	7			4
Charge-offs	(1		)	—
Ending balance	$	60		$	57

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.