Loans and Asset Quality

3 Months Ended

Mar. 31, 2014

Receivables [Abstract]

Loans and asset quality

Loans and asset quality

Loans

The table below provides the details of our loan portfolio and industry concentrations of credit risk at March 31, 2014 and Dec. 31, 2013.

Loans	March 31, 2014		Dec. 31, 2013
(in millions)
Domestic:
Financial institutions	$	4,492	$	4,511
Commercial	1,754		1,534
Wealth management loans and mortgages	9,922		9,743
Commercial real estate	2,128		2,001
Lease financings (a)	1,308		1,322
Other residential mortgages	1,346		1,385
Overdrafts	1,078		1,314
Other	788		768
Margin loans	16,430		15,652
Total domestic	39,246		38,230
Foreign:
Financial institutions	9,084		9,848
Commercial	205		113
Wealth management loans and mortgages	82		75
Commercial real estate	17		9
Lease financings (a)	860		945
Other (primarily overdrafts)	4,542		2,437
Total foreign	14,790		13,427
Total loans	$	54,036	$	51,657

(a) Net of unearned income on domestic and foreign lease financings of $934 million at March 31, 2014 and $1,020 million at Dec. 31, 2013.

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 March 31, 2014												Wealth management loans and mortgages			Other residential mortgages
(in millions)	Commercial			Commercial real estate		Financial institutions			Lease financings									All Other			Foreign			Total
Beginning balance	$	83		$	41	$	49		$	37		$	24		$	54		$	—		$	56		$	344
Charge-offs	—			—		—			—			—			(1		)	—			—			(1		)
Recoveries	—			—		—			—			—			1			—			—			1
Net (charge-offs) recoveries	—			—		—			—			—			—			—			—			—
Provision	(4		)	1		(1		)	(2		)	(1		)	(4		)	—			(7		)	(18		)
Ending balance	$	79		$	42	$	48		$	35		$	23		$	50		$	—		$	49		$	326
Allowance for:
Loan losses	$	20		$	23	$	9		$	35		$	18		$	50		$	—		$	43		$	198
Lending-related commitments	59			19		39			—			5			—			—			6			128
Individually evaluated for impairment:
Loan balance	$	13		$	3	$	—		$	—		$	10		$	—		$	—		$	7		$	33
Allowance for loan losses	3			1		—			—			2			—			—			2			8
Collectively evaluated for impairment:
Loan balance	$	1,741		$	2,125	$	4,492		$	1,308		$	9,912		$	1,346		$	18,296	(a)	$	14,783		$	54,003
Allowance for loan losses	17			22		9			35			16			50			—			41			190

(a) Includes $1,078 million of domestic overdrafts, $16,430 million of margin loans and $788 million of other loans at March 31, 2014.

Allowance for credit losses activity for the quarter ended Dec. 31, 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	$	91		$	32	$	41	$	39		$	18	$	70		$	—		$	48		$	339
Charge-offs	(1		)	—		—		—			—		(2		)	—			(3		)	(6		)
Recoveries	—			—		3		—			—		2			—			—			5
Net (charge-offs) recoveries	(1		)	—		3		—			—		—			—			(3		)	(1		)
Provision	(7		)	9		5		(2		)	6		(16		)	—			11			6
Ending balance	$	83		$	41	$	49	$	37		$	24	$	54		$	—		$	56		$	344
Allowance for:
Loan losses	$	21		$	21	$	10	$	37		$	19	$	54		$	—		$	48		$	210
Lending-related commitments	62			20		39		—			5		—			—			8			134
Individually evaluated for impairment:
Loan balance	$	15		$	3	$	—	$	—		$	12	$	—		$	—		$	6		$	36
Allowance for loan losses	2			1		—		—			3		—			—			1			7
Collectively evaluated for impairment:
Loan balance	$	1,519		$	1,998	$	4,511	$	1,322		$	9,731	$	1,385		$	17,734	(a)	$	13,421		$	51,621
Allowance for loan losses	19			20		10		37			16		54			—			47			203

(a) Includes $1,314 million of domestic overdrafts, $15,652 million of margin loans and $768 million of other loans at Dec. 31, 2013.

Allowance for credit losses activity for the quarter ended March 31, 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	(2		)	—		—			—			—			(3		)	—			—			(5		)
Recoveries	—			—		—			—			—			—			—			—			—
Net (charge-offs)	(2		)	—		—			—			—			(3		)	—			—			(5		)
Provision	(5		)	1		(3		)	(10		)	(1		)	(4		)	—			(2		)	(24		)
Ending balance	$	97		$	31	$	33		$	39		$	29		$	81		$	2		$	46		$	358
Allowance for:
Loan losses	$	22		$	19	$	11		$	39		$	25		$	81		$	2		$	38		$	237
Lending-related commitments	75			12		22			—			4			—			—			8			121
Individually evaluated for impairment:
Loan balance	$	54		$	16	$	3		$	—		$	31		$	—		$	—		$	9		$	113
Allowance for loan losses	7			1		—			—			7			—			—			5			20
Collectively evaluated for impairment:
Loan balance	$	1,297		$	1,806	$	4,917		$	1,295		$	8,888		$	1,570		$	16,658	(a)	$	12,680		$	49,111
Allowance for loan losses	15			18		11			39			18			81			2			33			217

(a) Includes $2,772 million of domestic overdrafts, $13,242 million of margin loans and $644 million of other loans at March 31, 2013.

Nonperforming assets

The table below presents the distribution of our nonperforming assets. 

Nonperforming assets	March 31, 2014		Dec. 31, 2013
(in millions)
Nonperforming loans:
Other residential mortgages	$	107	$	117
Commercial	13		15
Wealth management loans and mortgages	12		11
Foreign	7		6
Commercial real estate	4		4
Total nonperforming loans	143		153
Other assets owned	3		3
Total nonperforming assets (a)	$	146	$	156

(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 $74 million at March 31, 2014 and $16 million at Dec. 31, 2013. 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 March 31, 2014, undrawn commitments to borrowers whose loans were classified as nonaccrual or reduced rate were not material.

Lost interest

Lost interest
(in millions)	1Q14		4Q13		1Q13
Amount by which interest income recognized on nonperforming loans exceeded reversals	$	—	$	1	$	1
Amount by which interest income would have increased if nonperforming loans at period-end had been performing for the entire period	$	2	$	2	$	3

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
	March 31, 2014				Dec. 31, 2013				March 31, 2013
(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	$	14	$	—	$	15	$	—	$	56	$	1
Commercial real estate	3		—		2		—		9		—
Financial institutions	—		—		—		—		1		—
Wealth management loans and mortgages	9		—		10		—		27		—
Foreign	6		—		7		—		9		—
Total impaired loans with an allowance	32		—		34		—		102		1
Impaired loans without an allowance:
Commercial	—		—		—		—		—		—
Commercial real estate	1		—		1		—		8		—
Financial institutions	—		—		1		—		1		—
Wealth management loans and mortgages	2		—		3		—		4		—
Total impaired loans without an allowance (a)	3		—		5		—		13		—
Total impaired loans	$	35	$	—	$	39	$	—	$	115	$	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	March 31, 2014						Dec. 31, 2013
(in millions)	Recorded investment		Unpaid principal balance		Related allowance (a)		Recorded investment		Unpaid principal balance		Related allowance (a)
Impaired loans with an allowance:
Commercial	$	13	$	13	$	3	$	15	$	20	$	2
Commercial real estate	2		3		1		2		4		1
Financial institutions	—		—		—		—		—		—
Wealth management loans and mortgages	9		9		2		9		9		3
Foreign	7		11		2		6		17		1
Total impaired loans with an allowance	31		36		8		32		50		7
Impaired loans without an allowance:
Commercial real estate	1		2		N/A		1		1		N/A
Financial institutions	—		—		N/A		—		—		N/A
Wealth management loans and mortgages	1		1		N/A		3		3		N/A
Total impaired loans without an allowance (b)	2		3		N/A		4		4		N/A
Total impaired loans (c)	$	33	$	39	$	8	$	36	$	54	$	7

(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 less than $1 million of impaired loans in amounts individually less than $1 million at both March 31, 2014 and Dec. 31, 2013. The allowance for loan loss associated with these loans totaled less than $1 million at both March 31, 2014 and Dec. 31, 2013.

Past due loans

The table below sets forth information about our past due loans. 

Past due loans and still accruing interest	March 31, 2014								Dec. 31, 2013
	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:
Financial institutions (a)	$	—	$	—	$	312	$	312	$	37	$	—	$	—	$	37
Wealth management loans and mortgages	57		—		1		58		45		3		1		49
Commercial real estate	42		—		—		42		22		2		—		24
Other residential mortgages	15		5		7		27		32		6		6		44
Total domestic	114		5		320		439		136		11		7		154
Foreign	—		—		—		—		—		—		—		—
Total past due loans	$	114	$	5	$	320	$	439	$	136	$	11	$	7	$	154

(a) Past due loans at March 31, 2014 include a loan to an asset manager, Sentinel Management Group, Inc. (“Sentinel”), which was reestablished as a fully collateralized performing loan in the first quarter of 2014.

In August 2007, BNY Mellon loaned $312 million to 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 Dec. 31, 2013. On Jan. 22, 2014, the Bankruptcy Court, ordered that the funds distributed to BNY Mellon after the district court’s favorable decision be returned to the bankruptcy estate and held in a reserve earmarked for purposes of BNY Mellon’s claim until the district court issues its decision on the merits of the challenges to BNY Mellon’s lien. Accordingly, the loan was reestablished as a fully collateralized performing loan in the first quarter of 2014. The ongoing litigation could result in a ruling adverse to BNY Mellon 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.

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 first quarter of 2014, fourth quarter of 2013 and first quarter of 2013.

TDRs	1Q14							4Q13							1Q13
			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	31		$	5		$	5	30		$	6		$	8	31		$	5		$	6
Foreign	1		5			4		—		—			—		—		—			—
Total TDRs	32		$	10		$	9	30		$	6		$	8	31		$	5		$	6

Other residential mortgages

The modifications of the other residential mortgage loans in the first quarter of 2014, fourth quarter of 2013 and first quarter of 2013 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.

Foreign

The modification of the foreign loan in the first quarter of 2014 consisted of extending the maturity date of the loan. The difference between the book value of the loan and the net present value discounted at the original loan’s rate is included in the allowance for credit losses.

TDRs that subsequently defaulted

There were 5 residential mortgage loans that had been restructured in a TDR during the previous 12 months and have subsequently defaulted in the first quarter of 2014. The total recorded investment of these loans was less than $1 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)	March 31, 2014		Dec. 31, 2013		March 31, 2014		Dec. 31, 2013		March 31, 2014		Dec. 31, 2013
Investment grade	$	1,630	$	1,323	$	1,518	$	1,444	$	11,961	$	12,598
Non-investment grade	329		324		627		566		1,615		1,761
Total	$	1,959	$	1,647	$	2,145	$	2,010	$	13,576	$	14,359

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)	March 31, 2014		Dec. 31, 2013
Wealth management loans:
Investment grade	$	5,009	$	4,920
Non-investment grade	67		64
Wealth management mortgages	4,928		4,834
Total	$	10,004	$	9,818

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 March 31, 2014.

At March 31, 2014, the wealth management mortgage portfolio was comprised of the following geographic concentrations: New York - 21%; California - 21%; Massachusetts - 16%; Florida - 8%; and other - 34%.

Other residential mortgages

The other residential mortgage portfolio primarily consists of 1-4 family residential mortgage loans and totaled $1,346 million at March 31, 2014 and $1,385 million at Dec. 31, 2013. These loans are not typically correlated to external ratings. Included in this portfolio at March 31, 2014 are $394 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 March 31, 2014, the purchased loans in this portfolio had a weighted-average loan-to-value ratio of 76% at origination and 18% 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 $5,583 million at March 31, 2014 and $3,715 million at Dec. 31, 2013. 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 $16,430 million of secured margin loans on our balance sheet at March 31, 2014 compared with $15,652 million at Dec. 31, 2013. 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.

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.