Loans and Asset Quality (Tables)

9 Months Ended

Sep. 30, 2014

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)	Sept. 30, 2014		Dec. 31, 2013
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.

Allowance for Credit Losses Activity

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		Wealth management loans and mortgages		Other residential mortgages		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			Wealth management loans and mortgages			Other residential mortgages			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			Wealth management loans and mortgages			Other residential mortgages			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)	(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			Wealth management loans and mortgages			Other residential mortgages			All Other		Foreign			Total
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			Wealth management loans and mortgages			Other residential mortgages			All Other			Foreign			Total
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)	Sept. 30, 2014		Dec. 31, 2013
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.

Lost Interest

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

Information about 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.

Information about 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.

Troubled Debt Restructurings

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

Credit Quality Indicators - Commercial Portfolio - Credit Risk Profile by Creditworthiness Category

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

Credit Quality Indicators - Wealth Management Loans and Mortgages - Credit Risk Profile by Internally Assigned 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