Loans and asset quality |
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Loans and asset quality | Loans and asset quality Loans The table below provides the details of our loan portfolio.
(a) Net of unearned income of $247 million at Sept. 30, 2021 and $274 million at Dec. 31, 2020 primarily related to domestic and foreign lease financings. Our loan portfolio consists of three portfolio segments: commercial, lease financings and mortgages. We manage our portfolio at the class level, which consists of six classes of financing receivables: commercial, commercial real estate, financial institutions, lease financings, wealth management loans and mortgages and other residential mortgages. The following tables are presented for each class of financing receivables and provide additional information about our credit risks. Allowance for credit losses Activity in the allowance for credit losses on loans and lending-related commitments is presented below. This does not include activity in the allowance for credit losses related to other financial instruments, including cash and due from banks, interest-bearing deposits with banks, federal funds sold and securities purchased under resale agreements, held-to-maturity securities, available-for-sale securities and accounts receivable.
(a) Does not include the provision for credit losses related to other financial instruments of $2 million for the third quarter 2021. (b) Includes $4 million of allowance for credit losses related to foreign loans, primarily financial institutions. (c) Includes collateral-dependent loans of $60 million with $52 million of collateral at fair value.
(a) Does not include the provision for credit losses benefit related to other financial instruments of $3 million for the second quarter 2021. (b) Includes $4 million of allowance for credit losses related to foreign loans, primarily financial institutions. (c) Includes collateral-dependent loans of $44 million with $50 million of collateral at fair value.
(a) Does not include the provision for credit losses related to other financial instruments of $4 million for the third quarter 2020. (b) Includes $8 million of allowance for credit losses related to foreign loans, primarily financial institutions. (c) Includes collateral-dependent loans of $17 million with $25 million of collateral at fair value.
(a) Does not include provision for credit losses benefit related to other financial instruments of $4 million for the nine months ended Sept. 30, 2021.
(a) Does not include provision for credit losses related to other financial instruments of $12 million for the nine months ended Sept. 30, 2020. Nonperforming assets The table below presents our nonperforming assets.
At Sept. 30, 2021 and Dec. 31, 2020, undrawn commitments to borrowers whose loans were classified as nonaccrual or reduced rate were not material. Past due loans The table below presents our past due loans.
Loan modifications Due to the coronavirus pandemic, there have been two forms of relief provided for classifying loans as TDRs: The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the relevant provisions of which were extended by the Consolidated Appropriations Act, 2021, and the Interagency Guidance. See Note 1 of the Notes to Consolidated Financial Statements in our 2020 Annual Report for additional details on the CARES Act, Consolidated Appropriations Act, 2021, and Interagency Guidance. Financial institutions may account for eligible loan modifications either under the CARES Act or the Interagency Guidance. The Company has elected to apply both the CARES Act and the Interagency Guidance, as applicable, in providing borrowers with loan modification relief in response to the coronavirus pandemic. We modified loans of $23 million in the third quarter of 2021, $106 million in the third quarter of 2020 and $3 million in the second quarter of 2021. Nearly all of the modifications were short-term loan payment forbearances or modified principal and/or interest payments. These loans were primarily residential mortgage and commercial real estate loans. We also modified loans of $56 million in the third quarter of 2020, a majority of which were commercial real estate loans, by providing long-term loan payment modifications and an extension of maturity. We did not identify any of the modifications as TDRs. There were no long-term loan modifications in the third quarter of 2021 and second quarter of 2021. At Sept. 30, 2021, the unpaid principal balance of the loans modified under the CARES Act or Interagency Guidance was $94 million. Credit quality indicators Our credit strategy is to focus on investment-grade clients that are active users of our non-credit services. Each customer is assigned an internal credit rating, which is mapped to an external rating agency grade equivalent, if possible, based upon a number of dimensions, which are continually evaluated and may change over time. The tables below provide information about the credit profile of the loan portfolio by the period of origination.
(a) Excludes overdrafts of $4,553 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within business days.
(a) Excludes overdrafts of $2,683 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within business days. Commercial The commercial loan portfolio is divided into investment grade and non-investment grade categories based on the assigned internal credit ratings, which are generally consistent with those of the public rating agencies. Customers with ratings consistent with BBB- (S&P)/Baa3 (Moody’s) or better are considered to be investment grade. Those clients with ratings lower than this threshold are considered to be non-investment grade. Commercial real estate Our income-producing commercial real estate facilities are focused on experienced owners and are structured with moderate leverage based on existing cash flows. Our commercial real estate lending activities also include construction and renovation facilities. Financial institutions Financial institution exposures are high quality, with 96% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at Sept. 30, 2021. In addition, 68% of the financial institutions exposure is secured. For example, securities industry clients and asset managers often borrow against marketable securities held in custody. The exposure to financial institutions is generally short-term, with 84% expiring within one year. Wealth management loans and mortgages Wealth management non-mortgage loans are not typically rated by external rating agencies. A majority of the wealth management loans are secured by the customers’ investment management accounts or custody accounts. Eligible assets pledged for these loans are typically investment grade fixed-income securities, equities and/or mutual funds. Internal ratings for this portion of the wealth management portfolio, therefore, would equate to investment grade external ratings. Wealth management loans are provided to select customers based on the pledge of other types of assets, including business assets, fixed assets or a modest amount of commercial real estate. For the loans collateralized by other assets, the credit quality of the obligor is carefully analyzed, but we do not consider this portfolio of loans to be investment grade. Credit quality indicators for wealth management mortgages are not correlated to external ratings. Wealth management mortgages are typically loans to high-net-worth individuals, which are secured primarily by residential property. These loans are primarily interest-only, adjustable rate mortgages with a weighted-average loan-to-value ratio of 62% at origination. Delinquency rate is a key indicator of credit quality in the wealth management portfolio. At Sept. 30, 2021, less than 1% of the mortgages were past due. At Sept. 30, 2021, the wealth management mortgage portfolio consisted of the following geographic concentrations: California – 22%; New York – 16%; Florida – 9%; Massachusetts – 9%; and other – 44%. Lease financings At Sept. 30, 2021, the lease financings portfolio consisted of exposures backed by well-diversified assets, primarily real estate and large-ticket transportation equipment. The largest components of our lease residual value exposure relate to aircraft and freight-related rail cars. Assets are both domestic and foreign-based, with primary concentrations in Germany and the U.S. Other residential mortgages The other residential mortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled $317 million at Sept. 30, 2021 and $389 million at Dec. 31, 2020. These loans are not typically correlated to external ratings. Included in this portfolio at Sept. 30, 2021 were $54 million of mortgage loans purchased in 2005, 2006 and the first quarter of 2007. Overdrafts Overdrafts primarily relate to custody and securities clearance clients and totaled $4.6 billion at Sept. 30, 2021 and $2.7 billion at Dec. 31, 2020. Overdrafts occur on a daily basis and are generally repaid within business days. Other loans Other loans primarily include loans to consumers that are fully collateralized with equities, mutual funds and fixed-income securities. Margin loans We had $20.8 billion of secured margin loans at Sept. 30, 2021, compared with $15.4 billion at Dec. 31, 2020. Margin loans are collateralized with marketable securities, and borrowers are required to maintain a daily collateral margin in excess of 100% of the value of the loan. We have rarely suffered a loss on these types of loans. Reverse repurchase agreements Reverse repurchase agreements at Sept. 30, 2021 were fully secured with high quality collateral. As a result, there was no allowance for credit losses related to these assets at Sept. 30, 2021.
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