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Loans and Asset Quality
 9 Months Ended
Sep. 30, 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 Sept. 30, 2014 and Dec. 31, 2013.

Loans
Sept. 30, 2014

 
Dec. 31, 2013

(in millions)
 
Domestic:
 
 
 
Financial institutions
$
5,465

 
$
4,511

Commercial
1,317

 
1,534

Wealth management loans and mortgages
10,733

 
9,743

Commercial real estate
2,390

 
2,001

Lease financings
1,293

 
1,322

Other residential mortgages
1,262

 
1,385

Overdrafts
1,235

 
1,314

Other
855

 
768

Margin loans
17,548

 
15,652

Total domestic
42,098

 
38,230

Foreign:
 
 
 
Financial institutions
9,109

 
9,848

Commercial
241

 
113

Wealth management loans and mortgages
92

 
75

Commercial real estate
13

 
9

Lease financings
879

 
945

Other (primarily overdrafts)
5,095

 
2,437

Total foreign
15,429

 
13,427

Total loans (a)
$
57,527

 
$
51,657

(a)
Net of unearned income of $894 million at Sept. 30, 2014 and $1,020 million at Dec. 31, 2013 primarily on domestic and foreign lease financings.
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, 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
$
74

$
45

$
43

$
33

$
22

$
47

$
—

 
$
47

$
311

Charge-offs
(4
)
—

—

—

—

—

—

 
(1
)
(5
)
Recoveries
—

—

—

—

—

1

—

 
—

1

Net (charge-offs) recoveries
(4
)
—

—

—

—

1

—

 
(1
)
(4
)
Provision
1

2

(18
)
1

—

—

—

 
(5
)
(19
)
Ending balance
$
71

$
47

$
25

$
34

$
22

$
48

$
—

 
$
41

$
288

Allowance for:
 
 
 
 
 
 
 
 
 
 
Loan losses
$
20

$
30

$
9

$
34

$
17

$
48

$
—

 
$
33

$
191

Lending-related commitments
51

17

16

—

5

—

—

 
8

97

Individually evaluated for impairment:
 
 
 
 
 
 
 
 
 
 
Loan balance
$
13

$
3

$
—

$
—

$
9

$
—

$
—

 
$
—

$
25

Allowance for loan losses
4

1

—

—

1

—

—

 
—

6

Collectively evaluated for impairment:
 
 
 
 
 
 
 
 
 
 
Loan balance
$
1,304

$
2,387

$
5,465

$
1,293

$
10,724

$
1,262

$
19,638

(a)
$
15,429

$
57,502

Allowance for loan losses
16

29

9

34

16

48

—

 
33

185

(a)
Includes $1,235 million of domestic overdrafts, $17,548 million of margin loans and $855 million of other loans at Sept. 30, 2014.


Allowance for credit losses activity for the quarter ended June 30, 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
$
79

$
42

$
48

$
35

$
23

$
50

$
—


$
49

$
326

Charge-offs
—

—

—

—

(1
)
(1
)
—


(2
)
(4
)
Recoveries
1

—

—

—

—

—

—


—

1

Net (charge-offs) recoveries
1

—

—

—

(1
)
(1
)
—


(2
)
(3
)
Provision
(6
)
3

(5
)
(2
)
—

(2
)
—

 
—

(12
)
Ending balance
$
74

$
45

$
43

$
33

$
22

$
47

$
—


$
47

$
311

Allowance for:
 
 
 
 
 
 
 
 
 
 
Loan losses
$
17

$
27

$
8

$
33

$
16

$
47

$
—


$
39

$
187

Lending-related commitments
57

18

35

—

6

—

—


8

124

Individually evaluated for impairment:
 
 
 
 
 
 
 
 
 
 
Loan balance
$
13

$
3

$
—

$
—

$
9

$
—

$
—


$
5

$
30

Allowance for loan losses
3

1

—

—

2

—

—


1

7

Collectively evaluated for impairment:
 
 
 
 
 
 
 
 
 
 
Loan balance
$
1,531

$
2,205

$
5,761

$
1,321

$
10,310

$
1,309

$
20,275

(a)
$
16,506

$
59,218

Allowance for loan losses
14

26

8

33

14

47

—


38

180

(a)
Includes $1,748 million of domestic overdrafts, $17,685 million of margin loans and $842 million of other loans at June 30, 2014.


Allowance for credit losses activity for the quarter 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
$
93

$
30

$
34

$
41

$
19

$
75

$
—


$
45

$
337

Charge-offs
(1
)
—

—

—

—

(1
)
—


—

(2
)
Recoveries
—

—

—

—

—

1

—


1

2

Net (charge-offs)
(1
)
—

—

—

—

—

—


1

—

Provision
(1
)
2

7

(2
)
(1
)
(5
)
—


2

2

Ending balance
$
91

$
32

$
41

$
39

$
18

$
70

$
—


$
48

$
339

Allowance for:
 
 
 
 
 
 
 
 
 
 
Loan losses
$
17

$
19

$
7

$
39

$
14

$
70

$
—


$
40

$
206

Lending-related 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 nine months ended Sept. 30, 2014
Wealth
management
loans and
mortgages

Other
residential
mortgages

All
Other

Foreign

Total

(in millions)
Commercial

Commercial
real estate

Financial
institutions

Lease
financings

Beginning balance
$
83

$
41

$
49

$
37

$
24

$
54

$
—

$
56

$
344

Charge-offs
(4
)
—

—

—

(1
)
(2
)
—

(3
)
(10
)
Recoveries
1

—

—

—

—

2

—

—

3

Net (charge-offs) recoveries
(3
)
—

—

—

(1
)
—

—

(3
)
(7
)
Provision
(9
)
6

(24
)
(3
)
(1
)
(6
)
—

(12
)
(49
)
Ending balance
$
71

$
47

$
25

$
34

$
22

$
48

$
—

$
41

$
288



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

Nonperforming assets

The table below presents the distribution of our nonperforming assets. 

Nonperforming assets
Sept. 30, 2014

 
Dec. 31, 2013

(in millions)
Nonperforming loans:
 
 
 
Other residential mortgages
$
113

 
$
117

Commercial
13

 
15

Wealth management loans and mortgages
13

 
11

Foreign
—

 
6

Commercial real estate
4

 
4

Total nonperforming loans
143

 
153

Other assets owned
4

 
3

Total nonperforming assets (a)
$
147

 
$
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 $79 million at Sept. 30, 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 Sept. 30, 2014, undrawn commitments to borrowers whose loans were classified as nonaccrual or reduced rate were not material.
Lost interest
Lost interest
  
  
  
 
 
(in millions)
3Q14

2Q14

3Q13

YTD14

YTD13

Amount by which interest income recognized on nonperforming loans exceeded reversals
$
—

$
1

$
1

$
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

$
5

$
8

Impaired loans

The tables below provide 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, 2014
 
June 30, 2014
 
Sept. 30, 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
$
13

 
$
—

 
$
13

 
$
—

 
$
30

 
$
—

Commercial real estate
3

 
—

 
2

 
—

 
2

 
—

Financial institutions
—

 
—

 
—

 
—

 
—

 
—

Wealth management loans and mortgages
7

 
—

 
8

 
—

 
10

 
—

Foreign
2

 
—

 
6

 
—

 
9

 
—

Total impaired loans with an allowance
25

 
—

 
29

 
—

 
51

 
—

Impaired loans without an allowance:
 
 
 
 
 
 
 
 
 
 
 
Commercial
—

 
—

 
—

 
—

 
4

 
—

Commercial real estate
1

 
—

 
1

 
—

 
7

 
—

Financial institutions
—

 
—

 
—

 
—

 
2

 
—

Wealth management loans and mortgages
2

 
—

 
2

 
—

 
4

 
—

Total impaired loans without an allowance (a)
3

 
—

 
3

 
—

 
17

 
—

Total impaired loans
$
28

 
$
—

 
$
32

 
$
—

 
$
68

 
$
—

(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, 2014
 
Sept. 30, 2013
(in millions)
Average
recorded
investment

 
Interest
income
recognized

 
Average
recorded
investment

 
Interest
income
recognized

Impaired loans with an allowance:
 
 
 
 
 
 
 
Commercial
$
14

 
$
—

 
$
43

 
$
1

Commercial real estate
2

 
—

 
6

 
—

Financial institutions
—

 
—

 
—

 
—

Wealth management loans and mortgages
8

 
—

 
18

 
—

Foreign
4

 
—

 
9

 
—

Total impaired loans with an allowance
28

 
—

 
76

 
1

Impaired loans without an allowance:
 
 
 
 
 
 
 
Commercial
—

 
—

 
2

 
—

Commercial real estate
1

 
—

 
7

 
—

Financial institutions
—

 
—

 
2

 
—

Wealth management loans and mortgages
2

 
—

 
4

 
—

Total impaired loans without an allowance (a)
3

 
—

 
15

 
—

Total impaired loans
$
31

 
$
—

 
$
91

 
$
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
Sept. 30, 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

 
$
4

 
$
15

 
$
20

 
$
2

Commercial real estate
2

 
3

 
1

 
2

 
4

 
1

Financial institutions
—

 
—

 
—

 
—

 
—

 
—

Wealth management loans and mortgages
7

 
8

 
1

 
9

 
9

 
3

Foreign
—

 
—

 
—

 
6

 
17

 
1

Total impaired loans with an allowance
22

 
24

 
6

 
32

 
50

 
7

Impaired loans without an allowance:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
1

 
1

 
N/A

 
1

 
1

 
N/A

Wealth management loans and mortgages
2

 
2

 
N/A

 
3

 
3

 
N/A

Total impaired loans without an allowance (b)
3

 
3

 
N/A

 
4

 
4

 
N/A

Total impaired loans (c)
$
25

 
$
27

 
$
6

 
$
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 Sept. 30, 2014 and Dec. 31, 2013. The allowance for loan loss associated with these loans totaled less than $1 million at both Sept. 30, 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
Sept. 30, 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

Other residential mortgages
20

3

3

26

 
32

6

6

44

Commercial real estate
6

—

—

6

 
22

2

—

24

Wealth management loans and mortgages
24

2

25

51

 
45

3

1

49

Total domestic
50

5

340

395

 
136

11

7

154

Foreign
—

—

—

—

 
—

—

—

—

Total past due loans
$
50

$
5

$
340

$
395


$
136

$
11

$
7

$
154

 
(a)
Past due loans at Sept. 30, 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. Through Sept. 30, 2014, accrued interest on the reestablished loan totaled $28 million. 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 third quarter of 2014, second quarter of 2014 and third quarter of 2013.

TDRs
3Q14
 
2Q14
 
3Q13
 
 
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
27

 
$
4

 
$
5

 
28

 
$
5

 
$
6

 
34

 
$
8

 
$
9

Wealth management loans and mortgages
—

 
—

 
—

 
1

 
—

 
—

 
—

 
—

 
—

Total TDRs
27

 
$
4

 
$
5

 
29

 
$
5

 
$
6

 
34

 
$
8

 
$
9




Other residential mortgages

The modifications of the other residential mortgage loans in the third quarter of 2014, second quarter of 2014 and third quarter of 2013 consisted of reducing the stated interest rates and in certain cases, a forbearance of default and extending the maturity dates. The modified loans are primarily collateral dependent for which the value is based on the fair value of the collateral.

Wealth management loans and mortgages

The modifications of the wealth management loans and mortgages in the second quarter of 2014 consisted of a change in payment terms and extensions of the maturity date. 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 2014. 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, 2014

 
Dec. 31, 2013

 
Sept. 30, 2014

 
Dec. 31, 2013

 
Sept. 30, 2014

 
Dec. 31, 2013

Investment grade
$
1,326

 
$
1,323

 
$
1,603

 
$
1,444

 
$
12,837

 
$
12,598

Non-investment grade
232

 
324

 
800

 
566

 
1,737

 
1,761

Total
$
1,558

 
$
1,647

 
$
2,403

 
$
2,010

 
$
14,574

 
$
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)
Sept. 30, 2014

Dec. 31, 2013

Wealth management loans:
 
 
Investment grade
$
5,396

$
4,920

Non-investment grade
70

64

Wealth management mortgages
5,359

4,834

Total
$
10,825

$
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 65% at origination. In the wealth management portfolio, less than 1% of the mortgages were past due at Sept. 30, 2014.

At Sept. 30, 2014, the wealth management mortgage portfolio was comprised of the following geographic concentrations: California - 21%; New York - 21%; Massachusetts - 15%; Florida - 9%; and other - 34%.

Other residential mortgages

The other residential mortgage portfolio primarily consists of 1-4 family residential mortgage loans and totaled $1,262 million at Sept. 30, 2014 and $1,385 million at Dec. 31, 2013. These loans are not typically correlated to external ratings. Included in this portfolio at Sept. 30, 2014 are $366 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, 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 $6,301 million at Sept. 30, 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.

Other loans

Other loans primarily includes loans to consumers that are fully collateralized with equities, mutual funds and fixed income securities.

Margin loans

We had $17,548 million of secured margin loans on our balance sheet at Sept. 30, 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.

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.