Loans and Leases

9 Months Ended

Sep. 30, 2019

Loans and Leases Receivable Disclosure [Abstract]

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 (otherwise known as leveraged 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 48 to 50 in Note 4 to the consolidated financial statements included under Item 8, Financial Statements and

Supplementary Data, in the 2018 Annual Financial Statements.

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



(In millions)	September 30, 2019			December 31, 2018
Domestic⁽¹⁾:
Commercial and financial:
Loans to investment funds	$	13,747		$	15,050
Senior secured bank loans	3,145			3,490
Loans to municipalities	762			902
Other	28			37
Commercial real estate	1,346			874
Total domestic	19,028			20,353
Foreign⁽¹⁾:
Commercial and financial:
Loans to investment funds	6,868			4,505
Senior secured bank loans	1,113			931
Total foreign	7,981			5,436
Total loans and leases⁽²⁾	27,009			25,789
Allowance for loan and lease losses	(71		)	(67		)
Loans and leases, net of allowance	$	26,938		$	25,722

⁽¹⁾ Domestic and foreign categorization is based on the borrower’s country of domicile.

⁽²⁾ Loans to investment funds Include $6.14 billion and $5.44 billion of overdrafts as of September 30, 2019 and December 31, 2018, respectively.

The commercial and financial segment is composed primarily of floating-rate loans to mutual fund and private equity fund clients, purchased senior secured bank loans and loans to municipalities. Investment fund lending is composed of revolving credit lines providing liquidity and leverage to mutual fund and private equity fund clients.

Certain loans are pledged as collateral for access to the Federal Reserve's discount window. As of September 30, 2019 and December 31, 2018, the loans pledged as collateral totaled $7.49 billion and $6.51 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, 2019	Commercial and Financial		Commercial Real Estate		Total Loans and Leases
(In millions)	Commercial and Financial		Commercial Real Estate		Total Loans and Leases
Investment grade⁽¹⁾	$	20,607	$	1,346	$	21,953
Speculative⁽²⁾	5,017		—		5,017
Special mention⁽³⁾	25		—		25
Substandard⁽⁴⁾	14		—		14
Total	$	25,663	$	1,346	$	27,009



December 31, 2018	Commercial and Financial		Commercial Real Estate		Total Loans and Leases
(In millions)	Commercial and Financial		Commercial Real Estate		Total Loans and Leases
Investment grade⁽¹⁾	$	19,599	$	874	$	20,473
Speculative⁽²⁾	5,308		—		5,308
Substandard⁽⁴⁾	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⁾Special mention loans 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 weaknesses that jeopardize repayment with the possibility we will sustain some loss.

As of September 30, 2019 and December 31, 2018, we had no loans or leases on non-accrual status and no loans or leases 30 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 as of both September 30, 2019 and December 31, 2018.

We review loans 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, 2019, we had 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 did not record any reserve on this loan, which 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 September 30,
(In millions)	2019			2018
Allowance for loan and lease losses:
Beginning balance	$	72		$	55
Provision for loan and lease losses⁽¹⁾	2			5
Charge-offs⁽¹⁾	(2		)	—
Other⁽²⁾	(1		)	—
Ending balance	$	71		$	60

	Nine Months Ended September 30,
(In millions)	2019			2018
Allowance for loan and lease losses:
Beginning balance	$	67		$	54
Provision for loan and lease losses⁽¹⁾	7			7
Charge-offs⁽¹⁾	(2		)	(1		)
Other⁽²⁾	(1		)	—
Ending balance	$	71		$	60

⁽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.