Loans and asset quality

9 Months Ended

Sep. 30, 2021

Loans

The table below provides the details of our loan portfolio.


Loans	Sept. 30, 2021		Dec. 31, 2020
(in millions)
Domestic:
Commercial	$	1,659	$	1,356
Commercial real estate	6,081		6,056
Financial institutions	4,049		4,495
Lease financings	297		431
Wealth management loans and mortgages	17,819		16,211
Other residential mortgages	317		389
Overdrafts	1,667		651
Other	2,308		1,823
Margin loans	17,915		13,141
Total domestic	52,112		44,553
Foreign:
Commercial	16		73
Commercial real estate	311		—
Financial institutions	5,399		6,750
Lease financings	476		559
Wealth management loans and mortgages	168		146
Other (primarily overdrafts)	2,940		2,113
Margin loans	2,906		2,275
Total foreign	12,216		11,916
Total loans (a)	$	64,328	$	56,469

(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.


Allowance for credit losses activity for the quarter ended Sept. 30, 2021									Wealth management loans and mortgages			Other residential mortgages
(in millions)	Commercial		Commercial real estate		Financial institutions		Lease financings				Other					Total
Beginning balance	$	8	$	289	$	7	$	2	$	5		$	8	$	—		$	319


Charge-offs	—		—		—		—		—			—		—			—
Recoveries	—		—		—		—		—			1		—			1
Net recoveries	—		—		—		—		—			1		—			1
Provision (a)	2		(63)		2		(1)		—			(3)		16			(47)
Ending balance (b)	$	10	$	226	$	9	$	1	$	5		$	6	$	16		$	273
Allowance for:
Loan losses	$	2	$	199	$	5	$	1	$	4		$	6	$	16		$	233
Lending-related commitments	8		27		4		—		1			—		—			40
Individually evaluated for impairment:
Loan balance (c)	$	—	$	25	$	—	$	—	$	18		$	1	$	16		$	60
Allowance for loan losses	—		3		—		—		—			—		16			19

(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.


Allowance for credit losses activity for the quarter ended June 30, 2021									Wealth management loans and mortgages		Other residential mortgages
(in millions)	Commercial		Commercial real estate		Financial institutions		Lease financings						Total


Beginning balance	$	11	$	365	$	7	$	2	$	6	$	9		$	400
Charge-offs	—		—		—		—		—		(1)			(1)
Recoveries	—		—		2		—		—		1			3
Net recoveries	—		—		2		—		—		—			2
Provision (a)	(3)		(76)		(2)		—		(1)		(1)			(83)
Ending balance (b)	$	8	$	289	$	7	$	2	$	5	$	8		$	319
Allowance for:
Loan losses	$	3	$	248	$	4	$	2	$	4	$	8		$	269
Lending-related commitments	5		41		3		—		1		—			50
Individually evaluated for impairment:
Loan balance (c)	$	—	$	26	$	—	$	—	$	17	$	1		$	44
Allowance for loan losses	—		3		—		—		—		—			3

(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.


Allowance for credit losses activity for the quarter ended Sept. 30, 2020									Wealth management loans and mortgages		Other residential mortgages		Total
(in millions)	Commercial		Commercial real estate		Financial institutions		Lease financings
Beginning balance	$	40	$	372	$	16	$	3	$	11	$	12	$	454


Charge-offs	—		—		—		—		—		—		—
Recoveries	—		—		—		—		—		1		1
Net recoveries	—		—		—		—		—		1		1
Provision (a)	(13)		14		(5)		—		4		5		5
Ending balance (b)	$	27	$	386	$	11	$	3	$	15	$	18	$	460
Allowance for:
Loan losses	$	14	$	270	$	7	$	3	$	13	$	18	$	325
Lending-related commitments	13		116		4		—		2		—		135
Individually evaluated for impairment:
Loan balance (c)	$	—	$	—	$	—	$	—	$	17	$	—	$	17
Allowance for loan losses	—		—		—		—		—		—		—

(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.


Allowance for credit losses activity for the nine months ended Sept. 30, 2021									Wealth management loans and mortgages		Other residential mortgages		Other		Total
(in millions)	Commercial		Commercial real estate		Financial institutions		Lease financings
Beginning balance	$	16	$	430	$	10	$	2	$	8	$	13	$	—	$	479


Charge-offs	—		—		—		—		(1)		(1)		—		(2)
Recoveries	—		—		2		—		—		4		—		6
Net recoveries (charge-offs)	—		—		2		—		(1)		3		—		4
Provision (a)	(6)		(204)		(3)		(1)		(2)		(10)		16		(210)
Ending balance	$	10	$	226	$	9	$	1	$	5	$	6	$	16	$	273

(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.


Allowance for credit losses activity for the nine months ended Sept. 30, 2020									Wealth management loans and mortgages		Other residential mortgages		Foreign		Total
(in millions)	Commercial		Commercial real estate		Financial institutions		Lease financings
Balance at Dec. 31, 2019	$	60	$	76	$	20	$	3	$	20	$	13	$	24	$	216
Impact of adopting ASU 2016-13	(43)		14		(6)		—		(12)		2		(24)		(69)
Balance at Jan. 1, 2020	17		90		14		3		8		15		—		147
Charge-offs	—		—		—		—		—		—		—		—
Recoveries	—		—		—		—		—		4		—		4
Net recoveries	—		—		—		—		—		4		—		4
Provision (a)	10		296		(3)		—		7		(1)		—		309
Ending balance	$	27	$	386	$	11	$	3	$	15	$	18	$	—	$	460

(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.


Nonperforming assets	Sept. 30, 2021						Dec. 31, 2020
	Recorded investment						Recorded investment
	With an allowance		Without an allowance				With an allowance		Without an allowance
(in millions)					Total						Total
Nonperforming loans:

Other residential mortgages	$	39	$	1	$	40	$	57	$	—	$	57
Wealth management loans and mortgages	8		18		26		10		20		30
Commercial real estate	25		—		25		1		—		1
Other	16		—		16		—		—		—
Total nonperforming loans	88		19		107		68		20		88
Other assets owned	—		1		1		—		1		1
Total nonperforming assets	$	88	$	20	$	108	$	68	$	21	$	89

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.


Past due loans and still accruing interest	Sept. 30, 2021								Dec. 31, 2020
	Days past due						Total past due		Days past due						Total past due
(in millions)	30-59		60-89		≥90				30-59		60-89		≥90
Wealth management loans and mortgages	$	73	$	11	$	—	$	84	$	54	$	1	$	—	$	55
Commercial real estate	27		—		—		27		19		16		—		35
Financial institutions	10		—		—		10		11		—		—		11
Other residential mortgages	3		—		—		3		3		1		—		4
Total past due loans	$	113	$	11	$	—	$	124	$	87	$	18	$	—	$	105

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.


Credit profile of the loan portfolio													Sept. 30, 2021
													Revolving loans
	Originated, at amortized cost												Amortized cost		Converted to term loans – Amortized cost				Accrued interest receivable
(in millions)	YTD21		2020		2019		2018		2017		Prior to 2017						Total (a)
Commercial:
Investment grade	$	401	$	20	$	—	$	—	$	195	$	57	$	818	$	—	$	1,491
Non-investment grade	90		23		—		—		—		—		71		—		184
Total commercial	491		43		—		—		195		57		889		—		1,675		$	—
Commercial real estate:
Investment grade	1,265		524		793		166		275		651		670		—		4,344
Non-investment grade	613		92		625		355		74		106		157		26		2,048
Total commercial real estate	1,878		616		1,418		521		349		757		827		26		6,392		8
Financial institutions:
Investment grade	759		—		—		—		—		72		6,949		—		7,780
Non-investment grade	45		—		6		—		—		—		1,617		—		1,668
Total financial institutions	804		—		6		—		—		72		8,566		—		9,448		10
Wealth management loans and mortgages:
Investment grade	67		15		74		4		153		125		9,500		—		9,938
Non-investment grade	2		—		—		—		—		—		28		—		30
Wealth management mortgages	1,468		1,036		899		561		944		3,084		27		—		8,019
Total wealth management loans and mortgages	1,537		1,051		973		565		1,097		3,209		9,555		—		17,987		28
Lease financings	23		81		15		11		4		639		—		—		773		—
Other residential mortgages	—		—		—		—		—		317		—		—		317		1
Other loans	—		—		—		—		—		—		2,362		—		2,362		1
Margin loans	6,254		800		—		—		—		—		13,767		—		20,821		8
Total loans	$	10,987	$	2,591	$	2,412	$	1,097	$	1,645	$	5,051	$	35,966	$	26	$	59,775	$	56

(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 two business days.


Credit profile of the loan portfolio													Dec. 31, 2020
													Revolving loans
	Originated, at amortized cost												Amortized cost		Converted to term loans – Amortized cost				Accrued interest receivable
(in millions)	2020		2019		2018		2017		2016		Prior to 2016						Total (a)
Commercial:
Investment grade	$	128	$	18	$	71	$	420	$	57	$	—	$	493	$	—	$	1,187
Non-investment grade	142		—		6		—		—		—		94		—		242
Total commercial	270		18		77		420		57		—		587		—		1,429		$	2
Commercial real estate:
Investment grade	778		1,010		458		543		312		346		127		—		3,574
Non-investment grade	285		619		643		159		376		144		229		27		2,482
Total commercial real estate	1,063		1,629		1,101		702		688		490		356		27		6,056		8
Financial institutions:
Investment grade	132		146		47		125		13		156		8,760		—		9,379
Non-investment grade	84		36		—		—		—		—		1,746		—		1,866
Total financial institutions	216		182		47		125		13		156		10,506		—		11,245		12
Wealth management loans and mortgages:
Investment grade	18		85		11		147		59		112		7,786		—		8,218
Non-investment grade	—		—		—		—		—		—		54		—		54
Wealth management mortgages	1,117		1,044		637		1,188		1,515		2,546		38		—		8,085
Total wealth management loans and mortgages	1,135		1,129		648		1,335		1,574		2,658		7,878		—		16,357		27
Lease financings	116		18		14		9		20		813		—		—		990		—
Other residential mortgages	—		—		—		—		—		389		—		—		389		1
Other loans	—		—		—		—		—		—		1,904		—		1,904		1
Margin loans	4,614		—		—		—		—		—		10,802		—		15,416		8
Total loans	$	7,414	$	2,976	$	1,887	$	2,591	$	2,352	$	4,506	$	32,033	$	27	$	53,786	$	59

(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 two 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 two 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.