| Loans and asset quality |
Loans and asset quality
Loans
The table below provides the details of our loan distribution and industry concentrations of credit risk at Sept. 30, 2013 and Dec. 31, 2012.
| | | | | | | | | Loans | Sept. 30, 2013 |
| | Dec. 31, 2012 |
| (in millions) | | Domestic: | | | | Financial institutions | $ | 3,725 |
| | $ | 5,455 |
| Commercial | 1,544 |
| | 1,306 |
| Wealth management loans and mortgages | 9,381 |
| | 8,796 |
| Commercial real estate | 1,970 |
| | 1,677 |
| Lease financings (a) | 1,278 |
| | 1,329 |
| Other residential mortgages | 1,433 |
| | 1,632 |
| Overdrafts | 1,487 |
| | 2,228 |
| Other | 701 |
| | 639 |
| Margin loans | 15,146 |
| | 13,397 |
| Total domestic | 36,665 |
| | 36,459 |
| Foreign: | | | | Financial institutions | 8,950 |
| | 5,833 |
| Commercial | 100 |
| | 111 |
| Wealth management loans and mortgages | 63 |
| | 68 |
| Commercial real estate | 17 |
| | 63 |
| Lease financings (a) | 954 |
| | 1,025 |
| Other (primarily overdrafts) | 3,389 |
| | 3,070 |
| Total foreign | 13,473 |
| | 10,170 |
| Total loans | $ | 50,138 |
| | $ | 46,629 |
|
| | (a) | Net of unearned income on domestic and foreign lease financings of $1,041 million at Sept. 30, 2013 and $1,135 million at Dec. 31, 2012. |
Our loan portfolio is comprised of three portfolio segments: commercial, lease financings and mortgages. We manage our portfolio at the class level which is comprised 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 receivable, and provide additional information about our credit risks and the adequacy of our allowance for credit losses. Allowance for credit losses
Transactions in the allowance for credit losses are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2013 | Wealth management loans and mortgages |
| Other residential mortgages |
| | | | | (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| All Other |
| | Foreign |
| Total |
| Beginning balance | $ | 93 |
| $ | 30 |
| $ | 34 |
| $ | 41 |
| $ | 19 |
| $ | 75 |
| $ | — |
| | $ | 45 |
| $ | 337 |
| Charge-offs | (1 | ) | — |
| — |
| — |
| — |
| (1 | ) | — |
| | — |
| (2 | ) | Recoveries | — |
| — |
| — |
| — |
| — |
| 1 |
| — |
| | 1 |
| 2 |
| Net (charge-offs) recoveries | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| | 1 |
| — |
| Provision | (1 | ) | 2 |
| 7 |
| (2 | ) | (1 | ) | (5 | ) | — |
| | 2 |
| 2 |
| Ending balance | $ | 91 |
| $ | 32 |
| $ | 41 |
| $ | 39 |
| $ | 18 |
| $ | 70 |
| $ | — |
| | $ | 48 |
| $ | 339 |
| Allowance for: | | | | | | | | | | | Loans losses | $ | 17 |
| $ | 19 |
| $ | 7 |
| $ | 39 |
| $ | 14 |
| $ | 70 |
| $ | — |
| | $ | 40 |
| $ | 206 |
| Unfunded commitments | 74 |
| 13 |
| 34 |
| — |
| 4 |
| — |
| — |
| | 8 |
| 133 |
| Individually evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 15 |
| $ | 3 |
| $ | 1 |
| $ | — |
| $ | 13 |
| $ | — |
| $ | — |
| | $ | 9 |
| $ | 41 |
| Allowance for loan losses | 3 |
| 1 |
| — |
| — |
| 3 |
| — |
| — |
| | 4 |
| 11 |
| Collectively evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 1,529 |
| $ | 1,967 |
| $ | 3,724 |
| $ | 1,278 |
| $ | 9,368 |
| $ | 1,433 |
| $ | 17,334 |
| (a) | $ | 13,464 |
| $ | 50,097 |
| Allowance for loan losses | 14 |
| 18 |
| 7 |
| 39 |
| 11 |
| 70 |
| — |
| | 36 |
| 195 |
|
| | (a) | Includes $1,487 million of domestic overdrafts, $15,146 million of margin loans and $701 million of other loans at Sept. 30, 2013. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended June 30, 2013 | Wealth management loans and mortgages |
| Other residential mortgages |
| | | | | (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| All Other |
| | Foreign |
| Total |
| Beginning balance | $ | 97 |
| $ | 31 |
| $ | 33 |
| $ | 39 |
| $ | 29 |
| $ | 81 |
| $ | 2 |
|
| $ | 46 |
| $ | 358 |
| Charge-offs | — |
| — |
| — |
| — |
| — |
| (3 | ) | — |
|
| — |
| (3 | ) | Recoveries | — |
| — |
| — |
| — |
| — |
| 1 |
| — |
|
| — |
| 1 |
| Net (charge-offs) | — |
| — |
| — |
| — |
| — |
| (2 | ) | — |
|
| — |
| (2 | ) | Provision | (4 | ) | (1 | ) | 1 |
| 2 |
| (10 | ) | (4 | ) | (2 | ) | | (1 | ) | (19 | ) | Ending balance | $ | 93 |
| $ | 30 |
| $ | 34 |
| $ | 41 |
| $ | 19 |
| $ | 75 |
| $ | — |
|
| $ | 45 |
| $ | 337 |
| Allowance for: | | | | | | | | | | | Loans losses | $ | 19 |
| $ | 18 |
| $ | 7 |
| $ | 41 |
| $ | 15 |
| $ | 75 |
| $ | — |
|
| $ | 37 |
| $ | 212 |
| Unfunded commitments | 74 |
| 12 |
| 27 |
| — |
| 4 |
| — |
| — |
|
| 8 |
| 125 |
| Individually evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 54 |
| $ | 15 |
| $ | 2 |
| $ | — |
| $ | 14 |
| $ | — |
| $ | — |
|
| $ | 9 |
| $ | 94 |
| Allowance for loan losses | 3 |
| 1 |
| — |
| — |
| 3 |
| — |
| — |
|
| 4 |
| 11 |
| Collectively evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 1,457 |
| $ | 2,060 |
| $ | 3,944 |
| $ | 1,282 |
| $ | 9,176 |
| $ | 1,505 |
| $ | 16,853 |
| (a) | $ | 13,936 |
| $ | 50,213 |
| Allowance for loan losses | 16 |
| 17 |
| 7 |
| 41 |
| 12 |
| 75 |
| — |
|
| 33 |
| 201 |
|
| | (a) | Includes $1,762 million of domestic overdrafts, $14,434 million of margin loans and $657 million of other loans at June 30, 2013. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2012 | Wealth management loans and mortgages |
| Other residential mortgages |
| All Other |
| | Foreign |
| Total |
| (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| | Beginning balance | $ | 103 |
| $ | 33 |
| $ | 39 |
| $ | 56 |
| $ | 26 |
| $ | 153 |
| $ | — |
|
| $ | 57 |
| $ | 467 |
| Charge-offs | (1 | ) | — |
| (4 | ) | — |
| — |
| (3 | ) | — |
|
| — |
| (8 | ) | Recoveries | — |
| — |
| — |
| — |
| — |
| 2 |
| — |
|
| — |
| 2 |
| Net (charge-offs) | (1 | ) | — |
| (4 | ) | — |
| — |
| (1 | ) | — |
|
| — |
| (6 | ) | Provision | (4 | ) | 2 |
| 2 |
| (1 | ) | 7 |
| (11 | ) | 2 |
|
| (2 | ) | (5 | ) | Ending balance | $ | 98 |
| $ | 35 |
| $ | 37 |
| $ | 55 |
| $ | 33 |
| $ | 141 |
| $ | 2 |
|
| $ | 55 |
| $ | 456 |
| Allowance for: | | | | | | | | | | | Loans losses | $ | 32 |
| $ | 26 |
| $ | 11 |
| $ | 55 |
| $ | 28 |
| $ | 141 |
| $ | 1 |
|
| $ | 45 |
| $ | 339 |
| Unfunded commitments | 66 |
| 9 |
| 26 |
| — |
| 5 |
| — |
| 1 |
|
| 10 |
| 117 |
| Individually evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 60 |
| $ | 28 |
| $ | 3 |
| $ | — |
| $ | 38 |
| $ | — |
| $ | — |
|
| $ | 9 |
| $ | 138 |
| Allowance for loan losses | 12 |
| 5 |
| — |
| — |
| 7 |
| — |
| — |
|
| 4 |
| 28 |
| Collectively evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 727 |
| $ | 1,652 |
| $ | 4,439 |
| $ | 1,444 |
| $ | 8,177 |
| $ | 1,701 |
| $ | 15,791 |
| (a) | $ | 11,820 |
| $ | 45,751 |
| Allowance for loan losses | 20 |
| 21 |
| 11 |
| 55 |
| 21 |
| 141 |
| 1 |
|
| 41 |
| 311 |
|
| | (a) | Includes $2,070 million of domestic overdrafts, $13,036 million of margin loans and $685 million of other loans at Sept. 30, 2012. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2013 | Wealth management loans and mortgages |
| Other residential mortgages |
| All Other |
| | Foreign |
| Total |
| (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| | Beginning balance | $ | 104 |
| $ | 30 |
| $ | 36 |
| $ | 49 |
| $ | 30 |
| $ | 88 |
| $ | 2 |
| | $ | 48 |
| $ | 387 |
| Charge-offs | (3 | ) | — |
| — |
| — |
| — |
| (7 | ) | — |
| | — |
| (10 | ) | Recoveries | — |
| — |
| — |
| — |
| — |
| 2 |
| — |
| | 1 |
| 3 |
| Net (charge-offs) | (3 | ) | — |
| — |
| — |
| — |
| (5 | ) | — |
| | 1 |
| (7 | ) | Provision | (10 | ) | 2 |
| 5 |
| (10 | ) | (12 | ) | (13 | ) | (2 | ) | | (1 | ) | (41 | ) | Ending balance | $ | 91 |
| $ | 32 |
| $ | 41 |
| $ | 39 |
| $ | 18 |
| $ | 70 |
| $ | — |
| | $ | 48 |
| $ | 339 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2012 | Wealth management loans and mortgages |
| Other residential mortgages |
| All Other |
| | Foreign |
| Total |
| (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| | Beginning balance | $ | 91 |
| $ | 34 |
| $ | 63 |
| $ | 66 |
| $ | 29 |
| $ | 156 |
| $ | — |
| | $ | 58 |
| $ | 497 |
| Charge-offs | (1 | ) | — |
| (8 | ) | — |
| — |
| (19 | ) | — |
| | — |
| (28 | ) | Recoveries | 1 |
| — |
| — |
| — |
| — |
| 5 |
| — |
| | — |
| 6 |
| Net (charge-offs) | — |
| — |
| (8 | ) | — |
| — |
| (14 | ) | — |
| | — |
| (22 | ) | Provision | 7 |
| 1 |
| (18 | ) | (11 | ) | 4 |
| (1 | ) | 2 |
| | (3 | ) | (19 | ) | Ending balance | $ | 98 |
| $ | 35 |
| $ | 37 |
| $ | 55 |
| $ | 33 |
| $ | 141 |
| $ | 2 |
| | $ | 55 |
| $ | 456 |
|
Nonperforming assets
The table below presents the distribution of our nonperforming assets.
| | | | | | | | | Nonperforming assets | Sept. 30, 2013 |
| | Dec. 31, 2012 |
| (in millions) | | Nonperforming loans: | | | | Other residential mortgages | $ | 128 |
| | $ | 158 |
| Commercial | 15 |
| | 27 |
| Wealth management loans and mortgages | 12 |
| | 30 |
| Foreign loans | 9 |
| | 9 |
| Commercial real estate | 4 |
| | 18 |
| Financial institutions | 1 |
| | 3 |
| Total nonperforming loans | 169 |
| | 245 |
| Other assets owned | 3 |
| | 4 |
| Total nonperforming assets (a) | $ | 172 |
| | $ | 249 |
|
| | (a) | Loans of consolidated investment management funds are not part of BNY Mellon’s loan portfolio. Included in the loans of consolidated investment management funds are nonperforming loans of $31 million at Sept. 30, 2013 and $174 million at Dec. 31, 2012. These loans are recorded at fair value and therefore do not impact the provision for credit losses and allowance for loan losses, and accordingly are excluded from the nonperforming assets table above. |
At Sept. 30, 2013, undrawn commitments to borrowers whose loans were classified as nonaccrual or reduced rate were not material. Lost interest
| | | | | | | | | | | | | | | | | Lost interest | 3Q13 |
| 2Q13 |
| 3Q12 |
| YTD13 |
| YTD12 |
| (in millions) | Amount by which interest income recognized on nonperforming loans exceeded reversals | $ | 1 |
| $ | 1 |
| $ | 2 |
| $ | 1 |
| $ | 3 |
| Amount by which interest income would have increased if nonperforming loans at period-end had been performing for the entire period | $ | 3 |
| $ | 3 |
| $ | 3 |
| $ | 8 |
| $ | 12 |
|
Impaired loans
The table below sets forth information about our impaired loans. We use the discounted cash flow method as the primary method for valuing impaired loans.
| | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans | Quarter ended | | Sept. 30, 2013 | | June 30, 2013 | | Sept. 30, 2012 | (in millions) | Average recorded investment |
| | Interest income recognized |
| | Average recorded investment |
| | Interest income recognized |
| | Average recorded investment |
| | Interest income recognized |
| Impaired loans with an allowance: | | | | | | | | | | | | Commercial | $ | 30 |
| | $ | — |
| | $ | 50 |
| | $ | 1 |
| | $ | 61 |
| | $ | 1 |
| Commercial real estate | 2 |
| | — |
| | 2 |
| | — |
| | 26 |
| | — |
| Financial institutions | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| Wealth management loans and mortgages | 10 |
| | — |
| | 19 |
| | — |
| | 28 |
| | — |
| Foreign | 9 |
| | — |
| | 9 |
| | — |
| | 9 |
| | — |
| Total impaired loans with an allowance | 51 |
| | — |
| | 81 |
| | 1 |
| | 125 |
| | 1 |
| Impaired loans without an allowance: | | | | | | | | | | | | Commercial | 4 |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| Commercial real estate | 7 |
| | — |
| | 13 |
| | — |
| | 2 |
| | — |
| Financial institutions | 2 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
| Wealth management loans and mortgages | 4 |
| | — |
| | 4 |
| | — |
| | 6 |
| | — |
| Total impaired loans without an allowance (a) | 17 |
| | — |
| | 23 |
| | — |
| | 10 |
| | — |
| Total impaired loans | $ | 68 |
| | $ | — |
| | $ | 104 |
| | $ | 1 |
| | $ | 135 |
| | $ | 1 |
|
| | (a) | When the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, then the loan does not require an allowance under the accounting standard related to impaired loans. |
| | | | | | | | | | | | | | | | | Impaired loans | Year-to-date | | Sept. 30, 2013 | | Sept. 30, 2012 | (in millions) | Average recorded investment |
| | Interest income recognized |
| | Average recorded investment |
| | Interest income recognized |
| Impaired loans with an allowance: | | | | | | | | Commercial | $ | 43 |
| | $ | 1 |
| | $ | 53 |
| | $ | 3 |
| Commercial real estate | 6 |
| | — |
| | 31 |
| | — |
| Financial institutions | — |
| | — |
| | 9 |
| | — |
| Wealth management loans and mortgages | 18 |
| | — |
| | 28 |
| | — |
| Foreign | 9 |
| | — |
| | 10 |
| | — |
| Total impaired loans with an allowance | 76 |
| | 1 |
| | 131 |
| | 3 |
| Impaired loans without an allowance: | | | | | | | | Commercial | 2 |
| | — |
| | — |
| | — |
| Commercial real estate | 7 |
| | — |
| | 3 |
| | — |
| Financial institutions | 2 |
| | — |
| | 2 |
| | — |
| Wealth management loans and mortgages | 4 |
| | — |
| | 4 |
| | — |
| Total impaired loans without an allowance (a) | 15 |
| | — |
| | 9 |
| | — |
| Total impaired loans | $ | 91 |
| | $ | 1 |
| | $ | 140 |
| | $ | 3 |
|
| | (a) | When the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, then the loan does not require an allowance under the accounting standard related to impaired loans. |
| | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans | Sept. 30, 2013 | | Dec. 31, 2012 | (in millions) | Recorded investment |
| | Unpaid principal balance |
| | Related allowance (a) |
| | Recorded investment |
| | Unpaid principal balance |
| | Related allowance (a) |
| Impaired loans with an allowance: | | | | | | | | | | | | Commercial | $ | 15 |
| | $ | 19 |
| | $ | 3 |
| | $ | 57 |
| | $ | 61 |
| | $ | 12 |
| Commercial real estate | 2 |
| | 3 |
| | 1 |
| | 15 |
| | 16 |
| | 1 |
| Financial institutions | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | — |
| Wealth management loans and mortgages | 10 |
| | 10 |
| | 3 |
| | 28 |
| | 28 |
| | 7 |
| Foreign | 9 |
| | 17 |
| | 4 |
| | 9 |
| | 17 |
| | 4 |
| Total impaired loans with an allowance | 36 |
| | 49 |
| | 11 |
| | 110 |
| | 123 |
| | 24 |
| Impaired loans without an allowance: | | | | | | | | | | | | Commercial | — |
| | — |
| | N/A |
| | — |
| | — |
| | N/A |
| Commercial real estate | 1 |
| | 2 |
| | N/A |
| | 2 |
| | 2 |
| | N/A |
| Financial institutions | 1 |
| | 7 |
| | N/A |
| | 1 |
| | 8 |
| | N/A |
| Wealth management loans and mortgages | 3 |
| | 3 |
| | N/A |
| | 4 |
| | 4 |
| | N/A |
| Total impaired loans without an allowance (b) | 5 |
| | 12 |
| | N/A |
| | 7 |
| | 14 |
| | N/A |
| Total impaired loans (c) | $ | 41 |
| | $ | 61 |
| | $ | 11 |
| | $ | 117 |
| | $ | 137 |
| | $ | 24 |
|
| | (a) | The allowance for impaired loans is included in the allowance for loan losses. |
| | (b) | When the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, then the loan does not require an allowance under the accounting standard related to impaired loans. |
| | (c) | Excludes an aggregate of $1 million and $2 million of impaired loans in amounts individually less than $1 million at Sept. 30, 2013 and Dec. 31, 2012, respectively. The allowance for loan loss associated with these loans totaled less than $1 million at both Sept. 30, 2013 and Dec. 31, 2012. |
Past due loans
The table below sets forth information about our past due loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Past due loans and still accruing interest | Sept. 30, 2013 | | Dec. 31, 2012 | | Days past due | Total past due |
| | Days past due | Total past due |
| (in millions) | 30-59 |
| 60-89 |
| >90 |
| 30-59 |
| 60-89 |
| >90 |
| Domestic: | | | | | | | | | | Commercial real estate | $ | 28 |
| $ | 3 |
| $ | — |
| $ | 31 |
| | $ | 44 |
| $ | — |
| $ | — |
| $ | 44 |
| Wealth management loans and mortgages | 23 |
| 3 |
| 6 |
| 32 |
| | 33 |
| 7 |
| 1 |
| 41 |
| Commercial | — |
| — |
| — |
| — |
| | — |
| 60 |
| — |
| 60 |
| Other residential mortgages | 24 |
| 4 |
| 7 |
| 35 |
| | 50 |
| 9 |
| 5 |
| 64 |
| Total domestic | 75 |
| 10 |
| 13 |
| 98 |
| | 127 |
| 76 |
| 6 |
| 209 |
| Foreign | — |
| — |
| — |
| — |
| | — |
| — |
| — |
| — |
| Total past due loans | $ | 75 |
| $ | 10 |
| $ | 13 |
| $ | 98 |
| | $ | 127 |
| $ | 76 |
| $ | 6 |
| $ | 209 |
|
Troubled debt restructurings (“TDRs”)
A modified loan is considered a 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.
The following table presents TDRs that occurred in the third quarter of 2013, second quarter of 2013 and the third quarter of 2012.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | TDRs | 3Q13 | | 2Q13 | | 3Q12 | | | Outstanding recorded investment | | | Outstanding recorded investment | | | Outstanding recorded investment | (dollars in millions) | Number of contracts |
| Pre-modification |
| Post-modification |
| | Number of contracts |
| Pre-modification |
| Post-modification |
| | Number of contracts |
| Pre-modification |
| Post-modification |
| Other residential mortgages | 34 |
| $ | 8 |
| $ | 9 |
| | 28 |
| $ | 5 |
| $ | 7 |
| | 48 |
| $ | 14 |
| $ | 14 |
| Wealth management loans and mortgages | — |
| — |
| — |
| | — |
| — |
| — |
| | 4 |
| 2 |
| 2 |
| Total TDRs | 34 |
| $ | 8 |
| $ | 9 |
| | 28 |
| $ | 5 |
| $ | 7 |
| | 52 |
| $ | 16 |
| $ | 16 |
|
Other residential mortgages
The modifications of the other residential mortgage loans in the third quarter of 2013, second quarter of 2013 and third quarter of 2012 consisted of reducing the stated interest rates, and in certain cases, a forbearance of default and extending the maturity dates. The value of modified loans is based on the fair value of the collateral. Probable loss factors are applied to the value of the modified loans to determine the allowance for credit losses.
Wealth management loans and mortgages
The modifications of the wealth management loans and mortgages in the third quarter of 2012 consisted of changes in payment terms and extensions of the maturity dates. The difference between the book value of the loan and the estimated fair value of the collateral is included in the allowance for credit losses.
TDRs that subsequently defaulted
There were 10 residential mortgage loans that had been restructured in a TDR during the previous 12 months and have subsequently defaulted in the third quarter of 2013. The total recorded investment of these loans was $2 million. Credit quality indicators
Our credit strategy is to focus on investment grade names to support cross-selling opportunities and avoid single name/industry concentrations. Each customer is assigned an internal credit rating which is mapped to an external rating agency grade equivalent based upon a number of dimensions which are continually evaluated and may change over time.
The following tables set forth information about credit quality indicators.
Commercial loan portfolio
| | | | | | | | | | | | | | | | | | | | | | | | | Commercial loan portfolio – Credit risk profile by creditworthiness category | | Commercial | | Commercial real estate | | Financial institutions | (in millions) | Sept. 30, 2013 |
| | Dec. 31, 2012 |
| | Sept. 30, 2013 |
| | Dec. 31, 2012 |
| | Sept. 30, 2013 |
| | Dec 31,
2012 |
| Investment grade | $ | 1,287 |
| | $ | 1,064 |
| | $ | 1,514 |
| | $ | 1,289 |
| | $ | 11,003 |
| | $ | 9,935 |
| Noninvestment grade | 357 |
| | 353 |
| | 473 |
| | 451 |
| | 1,672 |
| | 1,353 |
| Total | $ | 1,644 |
| | $ | 1,417 |
| | $ | 1,987 |
| | $ | 1,740 |
| | $ | 12,675 |
| | $ | 11,288 |
|
The commercial loan portfolio is divided into investment grade and non-investment grade categories based on rating criteria largely consistent with those of the public rating agencies. Each customer in the portfolio is assigned an internal credit rating. These internal credit ratings are generally consistent with the ratings categories 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.
Wealth management loans and mortgages
| | | | | | | | | Wealth management loans and mortgages – Credit risk profile by internally assigned grade | (in millions) | Sept. 30, 2013 |
| | Dec. 31, 2012 |
| Wealth management loans: | | | | Investment grade | $ | 4,687 |
| | $ | 4,597 |
| Noninvestment grade | 63 |
| | 125 |
| Wealth management mortgages | 4,694 |
| | 4,142 |
| Total | $ | 9,444 |
| | $ | 8,864 |
|
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 an average loan-to-value ratio of 64% at origination. In the wealth management portfolio, less than 1% of the mortgages were past due at Sept. 30, 2013.
At Sept. 30, 2013, the private wealth mortgage portfolio was comprised of the following geographic concentrations: New York - 22%; California - 21%; Massachusetts - 16%; Florida - 8%; and other - 33%.
Other residential mortgages
The other residential mortgage portfolio primarily consists of 1-4 family residential mortgage loans and totaled $1,433 million at Sept. 30, 2013 and $1,632 million at Dec. 31, 2012. These loans are not typically correlated to external ratings. Included in this portfolio at Sept. 30, 2013 are $434 million of mortgage loans purchased in 2005, 2006 and the first quarter of 2007 that are predominantly prime mortgage loans, with a small portion of Alt-A loans. As of Sept. 30, 2013, the purchased loans in this portfolio had a weighted-average loan-to-value ratio of 76% at origination and 22% of the serviced loan balance was at least 60 days delinquent. The properties securing the prime and Alt-A mortgage loans were located (in order of concentration) in California, Florida, Virginia, the tri-state area (New York, New Jersey and Connecticut) and Maryland.
Overdrafts
Overdrafts primarily relate to custody and securities clearance clients and totaled $4,837 million at Sept. 30, 2013 and $5,298 million at Dec. 31, 2012. Overdrafts occur on a daily basis in the custody and securities clearance business and are generally repaid within two business days.
Margin loans
We had $15,146 million of secured margin loans on our balance sheet at Sept. 30, 2013 compared with $13,397 million at Dec. 31, 2012. 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 and do not allocate any of our allowance for credit losses to margin loans.
Other loans
Other loans primarily includes loans to consumers that are fully collateralized with equities, mutual funds and fixed income securities, as well as bankers’ acceptances.
Reverse repurchase agreements
Reverse repurchase agreements are transactions fully collateralized with high-quality liquid securities. These transactions carry minimal credit risk and therefore are not allocated an allowance for credit losses.
Matter related to Sentinel
BNY Mellon loaned $312 million to an asset manager, Sentinel Management Group, Inc. (“Sentinel”), secured by securities and cash. Sentinel filed for bankruptcy in 2007, and BNY Mellon’s status as a secured lender is the subject of continuing litigation. In 2010, the district court ruled in favor of BNY Mellon, and the loan was repaid. An appellate court reversed the district court’s ruling on Aug. 26, 2013, and remanded to the district court for further proceedings. BNY Mellon held no loans to Sentinel at Sept. 30, 2013. Our status as a secured creditor is subject to ongoing litigation and therefore the loan could be reestablished at some point in the future. For additional information on our legal proceedings related to this matter, see Note 18 of the Notes to Consolidated Financial Statements. |