Loans and asset quality

9 Months Ended

Sep. 30, 2022

Loans

The table below provides the details of our loan portfolio.


Loans	Sept. 30, 2022		Dec. 31, 2021
(in millions)
Commercial	$	2,135	$	2,128
Commercial real estate	6,299		6,033
Financial institutions	11,105		10,232
Lease financings	702		731
Wealth management loans	10,676		9,792
Wealth management mortgages	8,878		8,200
Other residential mortgages	356		299
Capital call financing	3,985		2,284
Other	2,884		2,541
Overdrafts	5,100		3,060
Margin loans	17,709		22,487
Total loans (a)	$	69,829	$	67,787

(a) Net of unearned income of $238 million at Sept. 30, 2022 and $240 million at Dec. 31, 2021 primarily related to lease financings.

We disclose information related to our loans and asset quality by the class of the financing receivable in the following tables.

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, available-for-sale securities, held-to-maturity securities and accounts receivable.


Allowance for credit losses activity for the quarter ended Sept. 30, 2022									Wealth management loans		Wealth management mortgages		Other residential mortgages		Capital call financing
(in millions)	Commercial		Commercial real estate		Financial institutions		Lease financings										Total
Beginning balance	$	16	$	184	$	21	$	1	$	1	$	7	$	7	$	6	$	243
Charge-offs	—		—		—		—		—		—		—		—		—
Recoveries	—		—		—		—		—		—		1		—		1
Net recoveries	—		—		—		—		—		—		1		—		1
Provision (a)	1		(8)		(1)		—		—		2		—		(2)		(8)
Ending balance	$	17	$	176	$	20	$	1	$	1	$	9	$	8	$	4	$	236
Allowance for:
Loan losses	$	4	$	130	$	9	$	1	$	1	$	8	$	8	$	3	$	164
Lending-related commitments	13		46		11		—		—		1		—		1		72
Individually evaluated for impairment:
Loan balance (b)	$	—	$	75	$	—	$	—	$	—	$	14	$	1	$	—	$	90
Allowance for loan losses	—		1		—		—		—		—		—		—		1

(a) Does not include the provision for credit losses benefit related to other financial instruments of $22 million for the quarter ended Sept. 30, 2022.

(b) Includes collateral-dependent loans of $90 million with $135 million of collateral at fair value.


Allowance for credit losses activity for the quarter ended June 30, 2022									Wealth management loans		Wealth management mortgages		Other residential mortgages		Capital call financing
(in millions)	Commercial		Commercial real estate		Financial institutions		Lease financings										Total
Beginning balance	$	12	$	176	$	15	$	1	$	1	$	9	$	7	$	3	$	224
Charge-offs	—		—		—		—		—		—		—		—		—
Recoveries	—		—		—		—		—		—		1		—		1
Net recoveries	—		—		—		—		—		—		1		—		1
Provision (a)	4		8		6		—		—		(2)		(1)		3		18
Ending balance	$	16	$	184	$	21	$	1	$	1	$	7	$	7	$	6	$	243
Allowance for:
Loan losses	$	4	$	147	$	10	$	1	$	1	$	6	$	7	$	5	$	181
Lending-related commitments	12		37		11		—		—		1		—		1		62
Individually evaluated for impairment:
Loan balance (b)	$	—	$	121	$	—	$	—	$	—	$	14	$	1	$	—	$	136
Allowance for loan losses	—		1		—		—		—		—		—		—		1

(a) Does not include the provision for credit losses related to other financial instruments of $29 million for the quarter ended June 30, 2022.

(b) Includes collateral-dependent loans of $136 million with $179 million of collateral at fair value.


Allowance for credit losses activity for the quarter ended Sept. 30, 2021									Wealth management loans (a)		Wealth management mortgages (a)		Other residential mortgages		Capital call financing (a)		Other		Total
(in millions)	Commercial		Commercial real estate		Financial institutions		Lease financings
Beginning balance	$	8	$	289	$	6	$	2	$	1	$	4	$	8	$	1	$	—	$	319
Charge-offs	—		—		—		—		—		—		—		—		—		—
Recoveries	—		—		—		—		—		—		1		—		—		1
Net recoveries	—		—		—		—		—		—		1		—		—		1
Provision (b)	2		(63)		2		(1)		—		—		(3)		—		16		(47)
Ending balance	$	10	$	226	$	8	$	1	$	1	$	4	$	6	$	1	$	16	$	273
Allowance for:
Loan losses	$	2	$	199	$	4	$	1	$	1	$	3	$	6	$	1	$	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) In 2021, we began disclosing wealth management loans and wealth management mortgages separately and capital call financing loans. Beginning balances and the activity for the third quarter of 2021 have been revised to be comparable.

(b) Does not include the provision for credit losses related to other financial instruments of $2 million for the third quarter of 2021.


Allowance for credit losses activity for the nine months ended Sept. 30, 2022													Other residential mortgages		Capital call financing		Total
(in millions)	Commercial		Commercial real estate		Financial institutions		Lease financings		Wealth management loans		Wealth management mortgages
Beginning balance	$	12	$	199	$	13	$	1	$	1	$	6	$	7	$	2	$	241
Charge-offs	—		—		—		—		—		—		—		—		—
Recoveries	—		—		—		—		—		—		3		—		3
Net recoveries	—		—		—		—		—		—		3		—		3
Provision (a)	5		(23)		7		—		—		3		(2)		2		(8)
Ending balance	$	17	$	176	$	20	$	1	$	1	$	9	$	8	$	4	$	236

(a) Does not include the provision for credit losses related to other financial instruments of $27 million for the nine months ended Sept. 30, 2022.


Allowance for credit losses activity for the nine months ended Sept. 30, 2021													Other residential mortgages		Capital call financing (a)		Other		Total
(in millions)	Commercial		Commercial real estate		Financial institutions		Lease financings		Wealth management loans (a)		Wealth management mortgages (a)
Beginning balance	$	16	$	430	$	10	$	2	$	1	$	7	$	13	$	—	$	—	$	479
Charge-offs	—		—		—		—		—		(1)		(1)		—		—		(2)
Recoveries	—		—		2		—		—		—		4		—		—		6
Net recoveries (charge-offs)	—		—		2		—		—		(1)		3		—		—		4
Provision (b)	(6)		(204)		(4)		(1)		—		(2)		(10)		1		16		(210)
Ending balance	$	10	$	226	$	8	$	1	$	1	$	4	$	6	$	1	$	16	$	273

(a) In 2021, we began disclosing wealth management loans and wealth management mortgages separately and capital call financing loans. Beginning balances and the activity for the first nine months of 2021 have been revised to be comparable.

(b) Does not include the provision for credit losses benefit related to other financial instruments of $4 million for the nine months ended Sept. 30, 2021.

Nonperforming assets

The table below presents our nonperforming assets.


Nonperforming assets	Sept. 30, 2022						Dec. 31, 2021
	Recorded investment						Recorded investment
	With an allowance		Without an allowance				With an allowance		Without an allowance
(in millions)					Total						Total
Nonperforming loans:

Commercial real estate	$	—	$	51	$	51	$	12	$	42	$	54
Other residential mortgages	32		1		33		38		1		39
Wealth management mortgages	8		12		20		8		17		25

Total nonperforming loans	40		64		104		58		60		118
Other assets owned	—		3		3		—		2		2
Total nonperforming assets	$	40	$	67	$	107	$	58	$	62	$	120

Past due loans

The table below presents our past due loans.


Past due loans and still accruing interest	Sept. 30, 2022							Dec. 31, 2021
	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	$	33	$	5		$	—	$	38		$	33	$	—	$	—	$	33
Wealth management mortgages	1		5			—		6			24		—		—		24
Commercial real estate	5		—			—		5			3		—		—		3
Other residential mortgages	4		1			—		5			2		1		—		3
Financial institutions	—		—			—		—			31		—		—		31

Total past due loans	$	43	$	11		$	—	$	54		$	93	$	1	$	—	$	94

Loan modifications

A modified loan is considered a troubled debt restructuring (“TDR”) if the debtor is experiencing financial difficulties and the creditor grants a concession to the debtor that would not otherwise be considered. A TDR may include a transfer of real estate or other assets from the debtor to the creditor, or a modification of the term of the loan. Not all modified loans are considered TDRs. We modified eight loans in the first nine months of 2022 with an aggregate recorded investment of $13 million. The modifications of the other residential and commercial real estate loans in the first nine months of 2022 consisted of reducing the stated interest rates and, in certain cases, forbearance of default and extending the maturity dates.

TDRs that subsequently defaulted

There were two residential mortgage loans that had been restructured in a TDR in 2022 and have subsequently defaulted in the third quarter of 2022.

The total recorded investment of these loans was less than $1 million.Due to the coronavirus pandemic, there were 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. The extension period ended Jan. 1, 2022. See Note 1 of the Notes to Consolidated Financial Statements in our 2021 Annual Report for additional details on the CARES Act, Consolidated Appropriations Act, 2021, and Interagency Guidance. Loans modified under the CARES Act or Interagency Guidance totaled $23 million in the third 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 did not identify any of the modifications as TDRs. At Sept. 30, 2022, the unpaid principal balance of the loans modified under the CARES Act or Interagency Guidance was $74 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, 2022
													Revolving loans
	Originated, at amortized cost												Amortized cost		Converted to term loans – Amortized cost				Accrued interest receivable
(in millions)	YTD22		2021		2020		2019		2018		Prior to 2018						Total (a)
Commercial:
Investment grade	$	322	$	168	$	20	$	—	$	13	$	45	$	1,402	$	—	$	1,970
Non-investment grade	82		6		—		—		—		—		77		—		165
Total commercial	404		174		20		—		13		45		1,479		—		2,135		$	3
Commercial real estate:
Investment grade	919		1,172		458		904		212		912		296		—		4,873
Non-investment grade	416		445		145		236		109		19		33		23		1,426
Total commercial real estate	1,335		1,617		603		1,140		321		931		329		23		6,299		20
Financial institutions:
Investment grade	176		391		—		—		—		33		9,029		—		9,629
Non-investment grade	70		—		—		—		—		—		1,406		—		1,476
Total financial institutions	246		391		—		—		—		33		10,435		—		11,105		57
Wealth management loans:
Investment grade	28		58		18		47		—		228		10,264		—		10,643
Non-investment grade	—		—		—		—		—		—		33		—		33
Total wealth management loans	28		58		18		47		—		228		10,297		—		10,676		38
Wealth management mortgages	1,523		1,997		934		788		494		3,120		22		—		8,878		18
Lease financings	18		—		52		11		7		614		—		—		702		—
Other residential mortgages	—		—		—		—		—		356		—		—		356		1
Capital call financing	—		—		—		—		—		—		3,985		—		3,985		18
Other loans	—		—		—		—		—		—		2,884		—		2,884		4
Margin loans	5,259		—		—		—		—		—		12,450		—		17,709		24
Total loans	$	8,813	$	4,237	$	1,627	$	1,986	$	835	$	5,327	$	41,881	$	23	$	64,729	$	183

(a) Excludes overdrafts of $5,100 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, 2021
													Revolving loans
	Originated, at amortized cost												Amortized cost		Converted to term loans – Amortized cost				Accrued interest receivable
(in millions)	2021		2020		2019		2018		2017		Prior to 2017						Total (a)
Commercial:
Investment grade	$	348	$	20	$	—	$	8	$	145	$	—	$	1,450	$	—	$	1,971
Non-investment grade	81		—		—		—		—		—		76		—		157
Total commercial	429		20		—		8		145		—		1,526		—		2,128		$	1
Commercial real estate:
Investment grade	1,577		528		683		173		298		601		205		—		4,065
Non-investment grade	660		97		568		351		50		95		121		26		1,968
Total commercial real estate	2,237		625		1,251		524		348		696		326		26		6,033		7
Financial institutions:
Investment grade	705		—		—		—		—		60		8,015		—		8,780
Non-investment grade	20		—		—		—		—		—		1,432		—		1,452
Total financial institutions	725		—		—		—		—		60		9,447		—		10,232		11
Wealth management loans:
Investment grade	117		18		73		6		104		122		9,320		—		9,760
Non-investment grade	1		—		—		—		—		—		31		—		32
Total wealth management loans	118		18		73		6		104		122		9,351		—		9,792		12
Wealth management mortgages	2,058		1,008		855		542		885		2,838		14		—		8,200		14
Lease financings	25		67		15		10		2		612		—		—		731		—
Other residential mortgages	—		—		—		—		—		299		—		—		299		1
Capital call financing	—		—		—		—		—		—		2,284		—		2,284		3
Other loans	—		—		—		—		—		—		2,541		—		2,541		2
Margin loans	7,697		—		—		—		—		—		14,790		—		22,487		10
Total loans	$	13,289	$	1,738	$	2,194	$	1,090	$	1,484	$	4,627	$	40,279	$	26	$	64,727	$	61

(a) Excludes overdrafts of $3,060 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within two business days.

Commercial loans

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, 2022. In addition, 66% 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

Wealth management 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 loan 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. For the loans collateralized by other assets, the credit quality of the obligor is carefully analyzed,

but we do not consider this portion of wealth management loan portfolio to be investment grade.

Wealth management mortgages

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 61% at origination. Delinquency rate is a key indicator of credit quality in the wealth management portfolio. At Sept. 30, 2022, less than 1% of the mortgages were past due.

At Sept. 30, 2022, the wealth management mortgage portfolio consisted of the following geographic concentrations: California – 21%; New York – 15%; Florida – 11%; Massachusetts – 8%; and other – 45%.

Lease financings

At Sept. 30, 2022, 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 $356 million at Sept. 30, 2022 and $299 million at Dec. 31, 2021. Included in this portfolio at Sept. 30, 2022 were $94 million of fixed-rate jumbo mortgage loans purchased in the second quarter of

2022 with a weighted-average loan-to-value ratio of 69% at origination. These loans are not typically correlated to external ratings.

Capital call financing

Capital call financing includes loans to private equity funds that are secured by the fund investors’ capital commitments and the funds’ right to call capital.

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 $17.7 billion of secured margin loans at Sept. 30, 2022, compared with $22.5 billion at Dec. 31, 2021. 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.

Overdrafts

Overdrafts primarily relate to custody and securities clearance clients and totaled $5.1 billion at Sept. 30, 2022 and $3.1 billion at Dec. 31, 2021. Overdrafts occur on a daily basis and are generally repaid within two business days.

Reverse repurchase agreements

Reverse repurchase agreements at Sept. 30, 2022 and Dec. 31, 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, 2022 and Dec. 31, 2021.