Loans and Leases

3 Months Ended

Mar. 31, 2019

Loans and Leases Receivable Disclosure [Abstract]

Loans and Leases

Loans and Leases

We segregate our loans into two segments: commercial and financial loans and commercial real estate loans. 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 145 to 147 in Note 4 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2018 Form 10-K.

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

(In millions)	March 31, 2019			December 31, 2018
Domestic:
Commercial and financial:
Loans to investment funds	$	11,935		$	15,050
Senior secured bank loans	3,516			3,490
Loans to municipalities	966			902
Other	34			37
Commercial real estate	976			874
Total domestic	17,427			20,353
Non-U.S.:
Commercial and financial:
Loans to investment funds	4,989			4,505
Senior secured bank loans	965			931
Total non-U.S.	5,954			5,436
Total loans and leases	23,381			25,789
Allowance for loan and lease losses	(70		)	(67		)
Loans and leases, net of allowance	$	23,311		$	25,722

The commercial and financial segment is composed primarily of 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 March 31, 2019 and December 31, 2018, the loans pledged as collateral totaled $7.2 billion and $6.5 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:

March 31, 2019	Commercial and Financial		Commercial Real Estate		Total Loans and Leases
(In millions)
Investment grade(1)	$	17,128	$	976	$	18,104
Speculative(2)	5,277		—		5,277
Total	$	22,405	$	976	$	23,381

December 31, 2018	Commercial and Financial		Commercial Real Estate		Total Loans and Leases
(In millions)
Investment grade(1)	$	19,599	$	874	$	20,473
Speculative(2)	5,308		—		5,308
Substandard(3)	8		—		8
Total	$	24,915	$	874	$	25,789

⁽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 weaknesses that jeopardize repayment with the possibility we will sustain some loss.

As of March 31, 2019 and December 31, 2018, we had no loans or leases on non-accrual status and no loans or leases 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 as of both March 31, 2019 and December 31, 2018.

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 March 31, 2019, there were no indicators of impairment and no impaired loans. As of December 31, 2018, we had one impaired loan for $8 million in the commercial and financial segment that was individually evaluated for impairment and deemed to be impaired. This loan was subsequently paid in full in January 2019.

Allowance for Loan and Lease Losses

The following table presents activity in the ALLL for the periods indicated:

	Three Months Ended March 31,
(In millions)	2019			2018
Allowance for loan and lease losses:
Beginning balance	$	67		$	54
Provision for loan and lease losses(1)	4			—
Other(2)	(1		)	—
Ending balance	$	70		$	54

⁽¹⁾ The provisions and charge-offs for loans and leases were primarily attributable to exposure to purchased senior secured loans to non-investment grade loans.

⁽²⁾ Consists primarily of FX translation.

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 ALLL losses at a level considered appropriate to absorb estimated incurred losses in the loan and lease portfolio.