The allowance for credit losses may be determined using various methods, including discounted cash flow methods, loss-rate methods, probability-of-default methods, and other quantitative or qualitative methods as determined by us. The method used to estimate expected credit losses may vary depending on the type of financial asset, our ability to predict the timing of cash flows, and the information available to us.

The allowance for credit losses as reported in our consolidated statement of condition is adjusted by provision for credit losses, which is reported in earnings, and reduced by the charge-off of principal amounts, net of recoveries.

We measure expected credit losses of financial assets on a collective (pool) basis when similar risk characteristics exist. Each reporting period, we assess whether the assets in the pool continue to display similar risk characteristics.

For a financial asset that does not share risk characteristics with other assets, expected credit losses are measured separately using one or more of the methods noted above. As of March 31, 2023, we had 7 loans for $174 million in the commercial and financial segment that no longer met the similar risk characteristics of their collective pool. We recorded an allowance for credit losses of $23 million as of March 31, 2023 on these loans. Additionally, as of March 31, 2023, we had one interest-bearing deposit with banks for $1 billion that did not meet the similar risk characteristics of the collective pool. We recorded an allowance for credit losses of $29 million as of March 31, 2023 for this deposit.

When the asset is collateral dependent, which means when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are measured as the difference between the amortized cost basis of the asset and the fair value of the collateral, adjusted for the estimated costs to sell.

Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, factors and forecasts then prevailing may result in significant changes in the allowance for credit losses in those future periods.

We estimate credit losses over the contractual life of the financial asset, while factoring in prepayment activity, where supported by data, over a three year reasonable and supportable forecast period. We utilize a baseline, upside and downside scenario which are applied based on a probability weighting, in order to better reflect management’s expectation of expected credit losses given existing

market conditions and the changes in the economic environment. The multiple scenarios are based on a three year horizon (or less depending on contractual maturity) and then revert linearly over a two year period to a ten-year historical average thereafter. The contractual term excludes expected extensions, renewals and modifications, but includes prepayment assumptions where applicable.

As part of our allowance methodology, we establish qualitative reserves to address any risks inherent in our portfolio that are not addressed through our quantitative reserve assessment. These factors may relate to, among other things, legislation changes or new regulation, credit concentration, loan markets, scenario weighting and overall model limitations. The qualitative adjustments are applied to our portfolio of financial instruments under the existing governance structure and are inherently judgmental.

For additional information on the allowance for credit losses, refer to pages 145 to 150 in Note 4 to the consolidated financial statements included under item 8, Financial Statements and Supplementary Data, in our 2022 Form 10-K.

Credit Quality

Credit quality for financial assets held at amortized cost is continuously monitored by management and is reflected within the allowance for credit losses.

We use an internal risk-rating system to assess our risk of credit loss for each loan. This risk-rating process incorporates the use of risk-rating tools in conjunction with management judgment. Qualitative and quantitative inputs are captured in a systematic manner, and following a formal review and approval process, an internal credit rating based on our credit scale is assigned.

When computing allowance levels, credit loss assumptions are estimated using models that categorize asset pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall asset portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.

Credit quality is assessed and monitored by evaluating various attributes in order to enable timely detection of any concerns with the customer’s credit rating. The results of those evaluations are utilized in

underwriting new loans and transactions with counterparties and in our process for estimation of expected credit losses.

In assessing the risk rating assigned to each individual loan, among the factors considered are the borrower's debt capacity, collateral coverage, payment history and delinquency experience, financial flexibility and earnings strength, the expected amounts and source of repayment, the level and nature of contingencies, if any, and the industry and geography in which the borrower operates. These factors are based on an evaluation of historical and current information, and involve subjective assessment and interpretation. Credit counterparties are evaluated and risk-rated on an individual basis at least annually. Management considers the ratings to be current as of March 31, 2023.

Our internal risk rating methodology assigns risk ratings to counterparties ranging from Investment Grade, Speculative, Special Mention, Substandard, Doubtful and Loss.

•Investment Grade: Counterparties with strong credit quality and low expected credit risk and probability of default. Approximately 86% of our loans were rated as investment grade as of March 31, 2023 with external credit ratings, or equivalent, of "BBB-" or better.

•Speculative: Counterparties that have the ability to repay but face significant uncertainties, such as adverse business or financial circumstances that could affect credit risk or economic downturns. Loans to counterparties rated as speculative account for approximately 12% of our loans as of March 31, 2023, and are concentrated in leveraged loans. Approximately 95% of those leveraged loans have an external credit rating, or equivalent, of "BB" or "B" as of March 31, 2023.

•Special Mention: Counterparties with potential weaknesses that, if uncorrected, may result in deterioration of repayment prospects.

•Substandard: Counterparties with well-defined weakness that jeopardizes repayment with the possibility we will sustain some loss.

•Doubtful: Counterparties with well-defined weakness which make collection or liquidation in full highly questionable and improbable.

•Loss: Counterparties which are uncollectible or have little value.

The following tables present our recorded loans to counterparties by risk rating, as noted above, as of the dates indicated:


March 31, 2023	Commercial and Financial		Commercial Real Estate		Total Loans
(In millions)
Investment grade	$	27,003	$	2,226	$	29,229
Speculative	3,516		542		4,058
Special mention	355		88		443
Substandard	129		—		129
Doubtful	—		45		45

Total(1)(2)	$	31,003	$	2,901	$	33,904


December 31, 2022	Commercial and Financial		Commercial Real Estate		Total Loans
(In millions)
Investment grade	$	24,667	$	2,509	$	27,176
Speculative	4,103		388		4,491
Special mention	291		88		379
Substandard	99		—		99

Total(1)(2)	$	29,160	$	2,985	$	32,145

(1) Loans Include $3.81 billion and $2.80 billion of overdrafts as of March 31, 2023 and December 31, 2022, respectively. Overdrafts are short-term in nature and do not present a significant credit risk to us. As of March 31, 2023, $3.66 billion overdrafts were investment grade and $0.15 billion overdrafts were speculative.

(2) Total does not include $12 million and $5 million of loans classified as held-for-sale as of March 31, 2023 and December 31, 2022, respectively.

For additional information about credit quality, refer to pages 146 to 150 in Note 4 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2022 Form 10-K.

The following table presents the amortized cost basis, by year of origination and credit quality indicator, as of March 31, 2023. For origination years before the fifth annual period, we present the aggregate amortized cost basis of loans. For purchased loans, the date of issuance is used to determine the year of origination, not the date of acquisition. For modified, extended or renewed lending arrangements, we evaluate whether a credit event has occurred which would consider the loan to be a new arrangement.


(In millions)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total(1)
Domestic loans:
Commercial and financial:
Risk Rating:
Investment grade	$	2,341	$	161	$	185	$	66	$	300	$	7	$	13,088	$	16,148
Speculative	117		218		710		133		436		327		469		2,410
Special mention	5		4		160		—		129		—		—		298
Substandard	—		—		30		5		42		38		—		115


Total commercial and financing	$	2,463	$	383	$	1,085	$	204	$	907	$	372	$	13,557	$	18,971

Commercial real estate:
Risk Rating:
Investment grade	$	—	$	520	$	528	100		$	330	$	748	$	—	$	2,226
Speculative	—		—		—		50		163		329		—		542
Special mention	—		—		—		—		48		40		—		88

Doubtful	—		—		—		—		—		45		—		45

Total commercial real estate	$	—	$	520	$	528	$	150	$	541	$	1,162	$	—	$	2,901

Non-U.S. loans:
Commercial and financial:
Risk Rating:
Investment grade	$	1,534	$	1,993	$	2,815	$	—	$	—	$	—	$	4,513	$	10,855
Speculative	74		143		516		76		189		108		—		1,106
Special mention	—		—		—		29		5		23		—		57
Substandard	—		—		—		—		—		14		—		14


Total commercial and financing	$	1,608	$	2,136	$	3,331	$	105	$	194	$	145	$	4,513	$	12,032











Total loans(2)	$	4,071	$	3,039	$	4,944	$	459	$	1,642	$	1,679	$	18,070	$	33,904

(1) Any reserve associated with accrued interest is not material. As of March 31, 2023, accrued interest receivable of $268 million included in the amortized cost basis of loans has been excluded from the amortized cost basis within this table.

(2) Total does not include $12 million of loans classified as held-for-sale as of March 31, 2023.

The following table presents the amortized cost basis, by year of origination and credit quality indicator as of December 31, 2022:


(In millions)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total(1)
Domestic loans:
Commercial and financial:
Risk Rating:
Investment grade	$	1,577	$	185	$	72	$	300	$	—	$	9	$	12,843	$	14,986
Speculative	523		859		168		461		236		151		545		2,943
Special mention	—		120		—		105		19		—		—		244
Substandard	—		—		5		42		31		7		—		85


Total commercial and financing	$	2,100	$	1,164	$	245	$	908	$	286	$	167	$	13,388	$	18,258
Commercial real estate:
Risk Rating:
Investment grade	$	519	$	612	$	100	$	330	$	511	$	436	$	—	$	2,508
Speculative	—		—		49		163		111		65		—		388
Special mention	—		—		—		49		40		—		—		89



Total commercial real estate	$	519	$	612	$	149	$	542	$	662	$	501	$	—	$	2,985
Non-U.S. loans:
Commercial and financial:
Risk Rating:
Investment grade	$	2,986	$	2,799	$	—	$	—	$	—	$	—	$	3,897	$	9,682
Speculative	234		529		100		181		107		—		9		1,160

Special mention	—		—		18		5		23		—		—		46
Substandard	—		—		—		—		14		—		—		14

Total commercial and financing	$	3,220	$	3,328	$	118	$	186	$	144	$	—	$	3,906	$	10,902











Total loans(2)	$	5,839	$	5,104	$	512	$	1,636	$	1,092	$	668	$	17,294	$	32,145

(1) Any reserve associated with accrued interest is not material. As of December 31, 2022, accrued interest receivable of $200 million included in the amortized cost basis of loans has been excluded from the amortized cost basis within this table.

(2) Total does not include $5 million of loans classified as held-for-sale as of December 31, 2022.

The following tables present the activity in the allowance for credit losses by portfolio and class for the periods indicated:


	Three Months Ended March 31, 2023
	Commercial and Financial
(In millions)	Leveraged Loans		Other Loans(1)		Commercial Real Estate		Available-for-sale Securities		Off-Balance Sheet Commitments		All Other		Total
Allowance for credit losses:
Beginning balance	$	73	$	5	$	19	$	2	$	23	$	(1)	$	121
Charge-offs	(3)		—		—		—		—		—		(3)
Provision	12		(1)		10		—		(7)		30		44



Ending balance	$	82	$	4	$	29	$	2	$	16	$	29	$	162

(1) Includes $3 million allowance for credit losses on Fund Finance loans and $1 million on other loans.


	Three Months Ended March 31, 2022
	Commercial and Financial
(In millions)	Leveraged Loans		Other Loans(1)		Commercial Real Estate		Held-to-Maturity Securities		Off-Balance Sheet Commitments		All Other		Total
Allowance for credit losses:
Beginning balance	$	61	$	12	$	14	$	2	$	19	$	—	$	108
Charge-offs	(1)		—		—		—		—		—		(1)
Provision	1		(1)		—		—		—		—		—



Ending balance	$	61	$	11	$	14	$	2	$	19	$	—	$	107

(1) Includes $10 million allowance for credit losses on Fund Finance loans and $1 million on other loans.

Loans are reviewed on a regular basis, and any provisions for credit losses that are recorded reflect management's estimate of the amount necessary to maintain the allowance for loan losses at a level considered appropriate to absorb expected credit losses in the loan portfolio. In the first quarter of 2023, we recorded $44 million provision for credit losses, driven by an episodic provision of $29 million associated with industry support for a U.S. financial institution, as well as an increase in loan loss reserves driven by credit portfolio rating changes. In the first quarter of 2022, we recorded no provision for credit losses. Allowance estimates remain subject to continued model and economic uncertainty and management may use qualitative adjustments in the allowance estimates. If future data and forecasts deviate relative to the forecasts utilized to determine our allowance for credit losses as of March 31, 2023, or if credit risk migration is higher or lower than forecasted for reasons independent of the economic forecast, our allowance for credit losses will also change.