Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases

v3.5.0.2
Outstanding Loans and Leases
6 Months Ended
Jun. 30, 2016
Receivables [Abstract]  
Outstanding Loans and Leases
NOTE 4 – Outstanding Loans and Leases

The following tables present total outstanding loans and leases and an aging analysis for the Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at June 30, 2016 and December 31, 2015. The classes of financing receivables are residential mortgage and home equity within the Consumer Real Estate portfolio segment; U.S. credit card, non-U.S. credit card, direct/indirect consumer and other consumer within the Credit Card and Other Consumer portfolio segment; and U.S. commercial, commercial real estate, commercial lease financing, non-U.S. commercial and U.S. small business commercial within the Commercial portfolio segment.

 
June 30, 2016
(Dollars in millions)
30-59 Days
Past Due
(1)
60-89 Days
Past Due
(1)
90 Days or
More
 Past Due (2)
Total Past
Due 30 Days or More
Total Current or Less Than 30 Days Past Due (3)
Purchased
Credit -
impaired
(4)
Loans Accounted for Under the Fair Value Option
Total
Outstandings
Consumer real estate
 
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
 
Residential mortgage
$
1,093

$
329

$
1,314

$
2,736

$
143,364

 
 
$
146,100

Home equity
190

104

474

768

51,709

 
 
52,477

Non-core portfolio
 
 
 
 
 
 
 
 
Residential mortgage (5)
1,452

804

6,444

8,700

20,036

$
11,107

 
39,843

Home equity
278

147

936

1,361

13,628

4,121

 
19,110

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
416

279

693

1,388

86,715

 
 
88,103

Non-U.S. credit card
34

26

69

129

9,251

 
 
9,380

Direct/Indirect consumer (6)
197

65

26

288

92,458

 
 
92,746

Other consumer (7)
20

4

3

27

2,257

 
 
2,284

Total consumer
3,680

1,758

9,959

15,397

419,418

15,228

 
450,043

Consumer loans accounted for under the fair value option (8)
 
 
 
 
 
 
$
1,844

1,844

Total consumer loans and leases
3,680

1,758

9,959

15,397

419,418

15,228

1,844

451,887

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
290

102

263

655

262,812

 
 
263,467

Commercial real estate (9)
27

9

53

89

57,523

 
 
57,612

Commercial lease financing
28

32

31

91

21,112

 
 
21,203

Non-U.S. commercial
52

4

1

57

88,991

 
 
89,048

U.S. small business commercial
50

38

78

166

12,954

 
 
13,120

Total commercial
447

185

426

1,058

443,392

 
 
444,450

Commercial loans accounted for under the fair value option (8)
 
 
 
 
 
 
6,816

6,816

Total commercial loans and leases
447

185

426

1,058

443,392

 
6,816

451,266

Total loans and leases (10)
$
4,127

$
1,943

$
10,385

$
16,455

$
862,810

$
15,228

$
8,660

$
903,153

Percentage of outstandings
0.46
%
0.22
%
1.14
%
1.82
%
95.53
%
1.69
%
0.96
%
100.00
%
(1) 
Consumer real estate loans 30-59 days past due includes fully-insured loans of $1.1 billion and nonperforming loans of $284 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $691 million and nonperforming loans of $245 million.
(2) 
Consumer real estate includes fully-insured loans of $5.7 billion.
(3) 
Consumer real estate includes $2.7 billion and direct/indirect consumer includes $26 million of nonperforming loans.
(4) 
Purchased credit-impaired (PCI) loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes pay option loans of $2.1 billion. The Corporation no longer originates this product.
(6) 
Total outstandings includes auto and specialty lending loans of $47.0 billion, unsecured consumer lending loans of $696 million, U.S. securities-based lending loans of $40.1 billion, non-U.S. consumer loans of $3.4 billion, student loans of $531 million and other consumer loans of $1.1 billion.
(7) 
Total outstandings includes consumer finance loans of $512 million, consumer leases of $1.6 billion and consumer overdrafts of $191 million.
(8) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $1.5 billion and home equity loans of $354 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.7 billion and non-U.S. commercial loans of $4.1 billion. For additional information, see Note 14 – Fair Value Measurements and Note 15 – Fair Value Option.
(9) 
Total outstandings includes U.S. commercial real estate loans of $54.3 billion and non-U.S. commercial real estate loans of $3.3 billion.
(10) 
The Corporation pledged $148.0 billion of loans to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Banks. This amount is not included in the parenthetical disclosure of loans and leases pledged as collateral on the Consolidated Balance Sheet as there were no related outstanding borrowings.

 
December 31, 2015
(Dollars in millions)
30-59 Days
Past Due
(1)
60-89 Days
Past Due
(1)
90 Days or
More
 Past Due (2)
Total Past
Due 30 Days or More
Total Current or Less Than 30 Days Past Due (3)
Purchased
Credit -
impaired
(4)
Loans
Accounted
for Under
 the Fair
Value Option
Total
Outstandings
Consumer real estate
 
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
 
Residential mortgage
$
1,214

$
368

$
1,414

$
2,996

$
138,799

 
 
$
141,795

Home equity
200

93

579

872

54,045

 
 
54,917

Non-core portfolio
 
 
 
 
 
 
 
 
Residential mortgage (5)
2,045

1,167

8,439

11,651

22,399

$
12,066

 
46,116

Home equity
335

174

1,170

1,679

14,733

4,619

 
21,031

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
454

332

789

1,575

88,027

 
 
89,602

Non-U.S. credit card
39

31

76

146

9,829

 
 
9,975

Direct/Indirect consumer (6)
227

62

42

331

88,464

 
 
88,795

Other consumer (7)
18

3

4

25

2,042

 
 
2,067

Total consumer
4,532

2,230

12,513

19,275

418,338

16,685

 
454,298

Consumer loans accounted for under the fair value option (8)
 
 
 
 
 
 
$
1,871

1,871

Total consumer loans and leases
4,532

2,230

12,513

19,275

418,338

16,685

1,871

456,169

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
444

148

332

924

251,847

 
 
252,771

Commercial real estate (9)
36

11

82

129

57,070

 
 
57,199

Commercial lease financing
150

29

20

199

21,153

 
 
21,352

Non-U.S. commercial
6

1

1

8

91,541

 
 
91,549

U.S. small business commercial
83

41

72

196

12,680

 
 
12,876

Total commercial
719

230

507

1,456

434,291

 
 
435,747

Commercial loans accounted for under the fair value option (8)
 
 
 
 
 
 
5,067

5,067

Total commercial loans and leases
719

230

507

1,456

434,291

 
5,067

440,814

Total loans and leases (10)
$
5,251

$
2,460

$
13,020

$
20,731

$
852,629

$
16,685

$
6,938

$
896,983

Percentage of outstandings
0.59
%
0.27
%
1.45
%
2.31
%
95.06
%
1.86
%
0.77
%
100.00
%
(1) 
Consumer real estate loans 30-59 days past due includes fully-insured loans of $1.7 billion and nonperforming loans of $379 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $1.0 billion and nonperforming loans of $297 million.
(2) 
Consumer real estate includes fully-insured loans of $7.2 billion.
(3) 
Consumer real estate includes $3.0 billion and direct/indirect consumer includes $21 million of nonperforming loans.
(4) 
PCI loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes pay option loans of $2.3 billion. The Corporation no longer originates this product.
(6) 
Total outstandings includes auto and specialty lending loans of $42.6 billion, unsecured consumer lending loans of $886 million, U.S. securities-based lending loans of $39.8 billion, non-U.S. consumer loans of $3.9 billion, student loans of $564 million and other consumer loans of $1.0 billion.
(7) 
Total outstandings includes consumer finance loans of $564 million, consumer leases of $1.4 billion and consumer overdrafts of $146 million.
(8) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $1.6 billion and home equity loans of $250 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.3 billion and non-U.S. commercial loans of $2.8 billion. For additional information, see Note 14 – Fair Value Measurements and Note 15 – Fair Value Option.
(9) 
Total outstandings includes U.S. commercial real estate loans of $53.6 billion and non-U.S. commercial real estate loans of $3.5 billion.
(10) 
The Corporation pledged $149.4 billion of loans to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Banks. This amount is not included in the parenthetical disclosure of loans and leases pledged as collateral on the Consolidated Balance Sheet as there were no related outstanding borrowings.

Following the realignment of its business segments effective April 1, 2016, the Corporation now categorizes consumer real estate loans as core and non-core on the basis of loan and customer characteristics such as origination date, product type, LTV, FICO score and delinquency status consistent with its current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise underwriting guidelines, or otherwise met the Corporation's underwriting guidelines in place in 2015 are characterized as core loans. Loans held in legacy private-label securitizations, government-insured loans originated prior to 2010, loan products no longer originated, and loans originated prior to 2010 and classified as nonperforming or modified in a troubled debt restructuring (TDR) prior to 2016 are generally characterized as non-core loans, and are principally run-off portfolios. Core loans as reported within this Note include loans held in the Consumer Banking and GWIM segments, as well as loans held for ALM activities in All Other.

The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $5.1 billion and $3.7 billion at June 30, 2016 and December 31, 2015, providing full credit protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured and therefore the Corporation does not record an allowance for credit losses related to these loans.

Nonperforming Loans and Leases

The Corporation classifies junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At June 30, 2016 and December 31, 2015, $449 million and $484 million of such junior-lien home equity loans were included in nonperforming loans.

The Corporation classifies consumer real estate loans that have been discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. The Corporation continues to have a lien on the underlying collateral. At June 30, 2016, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $682 million of which $402 million were current on their contractual payments, while $245 million were 90 days or more past due. Of the contractually current nonperforming loans, approximately 82 percent were discharged in Chapter 7 bankruptcy more than 12 months ago, and approximately 67 percent were discharged 24 months or more ago. As subsequent cash payments are received on these nonperforming loans that are contractually current, the interest component of the payments is generally recorded as interest income on a cash basis and the principal component is recorded as a reduction in the carrying value of the loan.

During the three and six months ended June 30, 2016, the Corporation sold nonperforming and other delinquent consumer real estate loans with a carrying value of $417 million and $1.4 billion, including $150 million and $324 million of PCI loans, compared to $1.0 billion and $1.9 billion, including $401 million and $987 million of PCI loans, for the same periods in 2015. The Corporation recorded net charge-offs of $5 million and $45 million related to these sales for the three and six months ended June 30, 2016 compared to net recoveries of $27 million and $67 million for the same periods in 2015. Gains related to these sales of $13 million and $44 million were recorded in other income in the Consolidated Statement of Income for the three and six months ended June 30, 2016 compared to gains of $40 million and $75 million for the same periods in 2015.
The table below presents the Corporation's nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at June 30, 2016 and December 31, 2015. Nonperforming LHFS are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2015 Annual Report on Form 10-K.

Credit Quality
 
 
 
 
 
 
 
 
Nonperforming Loans and Leases
 
Accruing Past Due 90 Days or More
(Dollars in millions)
June 30
2016
 
December 31
2015
 
June 30
2016
 
December 31
2015
Consumer real estate
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
Residential mortgage (1)
$
1,492

 
$
1,825

 
$
455

 
$
382

Home equity
937

 
974

 

 

Non-core portfolio
 
 
 
 
 
 
 
Residential mortgage (1)
2,100

 
2,978

 
5,204

 
6,768

Home equity
2,148

 
2,363

 

 

Credit card and other consumer
 
 
 
 
 
 
 
U.S. credit card
n/a

 
n/a

 
693

 
789

Non-U.S. credit card
n/a

 
n/a

 
69

 
76

Direct/Indirect consumer
27

 
24

 
26

 
39

Other consumer
1

 
1

 
2

 
3

Total consumer
6,705

 
8,165

 
6,449

 
8,057

Commercial
 
 
 
 
 
 
 
U.S. commercial
1,349

 
867

 
55

 
113

Commercial real estate
84

 
93

 
6

 
3

Commercial lease financing
13

 
12

 
29

 
15

Non-U.S. commercial
144

 
158

 
1

 
1

U.S. small business commercial
69

 
82

 
61

 
61

Total commercial
1,659

 
1,212

 
152

 
193

Total loans and leases
$
8,364

 
$
9,377

 
$
6,601

 
$
8,250


(1) 
Residential mortgage loans in the core and non-core portfolios accruing past due 90 days or more are fully-insured loans. At June 30, 2016 and December 31, 2015, residential mortgage includes $3.3 billion and $4.3 billion of loans on which interest has been curtailed by the Federal Housing Administration (FHA), and therefore are no longer accruing interest, although principal is still insured, and $2.4 billion and $2.9 billion of loans on which interest is still accruing.
n/a = not applicable

Credit Quality Indicators

The Corporation monitors credit quality within its Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments based on primary credit quality indicators. For more information on the portfolio segments, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2015 Annual Report on Form 10-K. Within the Consumer Real Estate portfolio segment, the primary credit quality indicators are refreshed LTV and refreshed FICO score. Refreshed LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan, refreshed quarterly. Home equity loans are evaluated using combined loan-to-value (CLTV) which measures the carrying value of the Corporation's loan and available line of credit combined with any outstanding senior liens against the property as a percentage of the value of the property securing the loan, refreshed quarterly. FICO score measures the creditworthiness of the borrower based on the financial obligations of the borrower and the borrower's credit history. At a minimum, FICO scores are refreshed quarterly, and in many cases, more frequently. FICO scores are also a primary credit quality indicator for the Credit Card and Other Consumer portfolio segment and the business card portfolio within U.S. small business commercial. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as Special Mention, Substandard or Doubtful, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans.
The following tables present certain credit quality indicators for the Corporation's Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at June 30, 2016 and December 31, 2015.

Consumer Real Estate – Credit Quality Indicators (1)
 
 
 
 
 
 
 
June 30, 2016
(Dollars in millions)
Core Portfolio Residential Mortgage (2)
Non-core Residential Mortgage (2)
Residential
Mortgage PCI
(3)
Core Portfolio Home Equity (2)
Non-core Home Equity (2)
Home
Equity PCI
Refreshed LTV (4)
 
 
 
 
 
 
Less than or equal to 90 percent
$
117,311

$
14,990

$
8,087

$
49,186

$
8,178

$
1,821

Greater than 90 percent but less than or equal to 100 percent
4,036

1,859

1,215

1,629

1,925

741

Greater than 100 percent
2,394

2,767

1,805

1,662

4,886

1,559

Fully-insured loans (5)
22,359

9,120





Total consumer real estate
$
146,100

$
28,736

$
11,107

$
52,477

$
14,989

$
4,121

Refreshed FICO score
 
 
 
 
 
 
Less than 620
$
2,789

$
3,716

$
3,177

$
1,276

$
3,040

$
617

Greater than or equal to 620 and less than 680
5,278

3,164

2,437

3,044

3,501

735

Greater than or equal to 680 and less than 740
22,372

4,932

3,103

11,042

3,332

1,210

Greater than or equal to 740
93,302

7,804

2,390

37,115

5,116

1,559

Fully-insured loans (5)
22,359

9,120





Total consumer real estate
$
146,100

$
28,736

$
11,107

$
52,477

$
14,989

$
4,121

(1) 
Excludes $1.8 billion of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $1.8 billion of pay option loans. The Corporation no longer originates this product.
(4) 
Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
(5) 
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.

Credit Card and Other Consumer – Credit Quality Indicators
 
June 30, 2016
(Dollars in millions)
U.S. Credit
Card
 
Non-U.S.
Credit Card
 
Direct/Indirect
Consumer
 
Other
Consumer
(1)
Refreshed FICO score
 
 
 
 
 
 
 
Less than 620
$
3,940

 
$

 
$
1,315

 
$
200

Greater than or equal to 620 and less than 680
11,562

 

 
1,855

 
213

Greater than or equal to 680 and less than 740
33,592

 

 
11,818

 
364

Greater than or equal to 740
39,009

 

 
32,730

 
1,312

Other internal credit metrics (2, 3, 4)

 
9,380

 
45,028

 
195

Total credit card and other consumer
$
88,103

 
$
9,380

 
$
92,746

 
$
2,284

(1) 
At June 30, 2016, 22 percent of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
(2) 
Other internal credit metrics may include delinquency status, geography or other factors.
(3) 
Direct/indirect consumer includes $43.4 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $534 million of loans the Corporation no longer originates, primarily student loans.
(4) 
Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At June 30, 2016, 98 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and one percent was 90 days or more past due.

Commercial – Credit Quality Indicators (1)
 
June 30, 2016
(Dollars in millions)
U.S.
Commercial
 
Commercial
Real Estate
 
Commercial
Lease
Financing
 
Non-U.S.
Commercial
 
U.S. Small
Business
Commercial
(2)
Risk ratings
 
 
 
 
 
 
 
 
 
Pass rated
$
252,353

 
$
57,170

 
$
20,371

 
$
85,609

 
$
488

Reservable criticized
11,114

 
442

 
832

 
3,439

 
83

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
184

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
561

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,736

Greater than or equal to 740
 
 
 
 
 
 
 
 
3,328

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
6,740

Total commercial
$
263,467

 
$
57,612

 
$
21,203

 
$
89,048

 
$
13,120

(1) 
Excludes $6.8 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $669 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At June 30, 2016, 99 percent of the balances where internal credit metrics are used was current or less than 30 days past due.
(3) 
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
(4) 
Other internal credit metrics may include delinquency status, application scores, geography or other factors.
Consumer Real Estate – Credit Quality Indicators (1)
 
 
 
 
 
 
 
December 31, 2015
(Dollars in millions)
Core Portfolio
Residential
Mortgage
(2)
Non-core
Residential Mortgage
(2)
Residential
Mortgage PCI
(3)
Core Portfolio Home Equity (2)
Non-core Home
Equity
(2)
Home
Equity PCI
Refreshed LTV (4)
 
 
 
 
 
 
Less than or equal to 90 percent
$
110,023

$
16,481

$
8,655

$
51,262

$
8,347

$
2,003

Greater than 90 percent but less than or equal to 100 percent
4,038

2,224

1,403

1,858

2,190

852

Greater than 100 percent
2,638

3,364

2,008

1,797

5,875

1,764

Fully-insured loans (5)
25,096

11,981





Total consumer real estate
$
141,795

$
34,050

$
12,066

$
54,917

$
16,412

$
4,619

Refreshed FICO score
 
 
 
 
 
 
Less than 620
$
3,129

$
4,749

$
3,798

$
1,322

$
3,490

$
729

Greater than or equal to 620 and less than 680
5,472

3,762

2,586

3,295

3,862

825

Greater than or equal to 680 and less than 740
22,486

5,138

3,187

12,180

3,451

1,356

Greater than or equal to 740
85,612

8,420

2,495

38,120

5,609

1,709

Fully-insured loans (5)
25,096

11,981





Total consumer real estate
$
141,795

$
34,050

$
12,066

$
54,917

$
16,412

$
4,619

(1) 
Excludes $1.9 billion of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $2.0 billion of pay option loans. The Corporation no longer originates this product.
(4) 
Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
(5) 
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.

Credit Card and Other Consumer – Credit Quality Indicators
 
December 31, 2015
(Dollars in millions)
U.S. Credit
Card
 
Non-U.S.
Credit Card
 
Direct/Indirect
Consumer
 
Other
Consumer
(1)
Refreshed FICO score
 
 
 
 
 
 
 
Less than 620
$
4,196

 
$

 
$
1,244

 
$
217

Greater than or equal to 620 and less than 680
11,857

 

 
1,698

 
214

Greater than or equal to 680 and less than 740
34,270

 

 
10,955

 
337

Greater than or equal to 740
39,279

 

 
29,581

 
1,149

Other internal credit metrics (2, 3, 4)

 
9,975

 
45,317

 
150

Total credit card and other consumer
$
89,602

 
$
9,975

 
$
88,795

 
$
2,067


(1) 
At December 31, 2015, 27 percent of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
(2) 
Other internal credit metrics may include delinquency status, geography or other factors.
(3) 
Direct/indirect consumer includes $43.7 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $567 million of loans the Corporation no longer originates, primarily student loans.
(4) 
Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At December 31, 2015, 98 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and one percent was 90 days or more past due.

Commercial – Credit Quality Indicators (1)
 
December 31, 2015
(Dollars in millions)
U.S.
Commercial
 
Commercial
Real Estate
 
Commercial
Lease
Financing
 
Non-U.S.
Commercial
 
U.S. Small
Business
Commercial
(2)
Risk ratings
 
 
 
 
 
 
 
 
 
Pass rated
$
243,922

 
$
56,688

 
$
20,644

 
$
87,905

 
$
571

Reservable criticized
8,849

 
511

 
708

 
3,644

 
96

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
184

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
543

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,627

Greater than or equal to 740
 
 
 
 
 
 
 
 
3,027

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
6,828

Total commercial
$
252,771

 
$
57,199

 
$
21,352

 
$
91,549

 
$
12,876


(1) 
Excludes $5.1 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $670 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At December 31, 2015, 98 percent of the balances where internal credit metrics are used was current or less than 30 days past due.
(3) 
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
(4) 
Other internal credit metrics may include delinquency status, application scores, geography or other factors.

Impaired Loans and Troubled Debt Restructurings


A loan is considered impaired when, based on current information, it is probable that the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans and all consumer and commercial TDRs. Impaired loans exclude nonperforming consumer loans and nonperforming commercial leases unless they are classified as TDRs. Loans accounted for under the fair value option are also excluded. PCI loans are excluded and reported separately on page 157. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2015 Annual Report on Form 10-K.

Consumer Real Estate

Impaired consumer real estate loans within the Consumer Real Estate portfolio segment consist entirely of TDRs. Excluding PCI loans, most modifications of consumer real estate loans meet the definition of TDRs when a binding offer is extended to a borrower. Modifications of consumer real estate loans are done in accordance with the government's Making Home Affordable Program (modifications under government programs) or the Corporation's proprietary programs (modifications under proprietary programs). These modifications are considered to be TDRs if concessions have been granted to borrowers experiencing financial difficulties. Concessions may include reductions in interest rates, capitalization of past due amounts, principal and/or interest forbearance, payment extensions, principal and/or interest forgiveness, or combinations thereof.

Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers under both government and proprietary programs. Trial modifications generally represent a three- to four-month period during which the borrower makes monthly payments under the anticipated modified payment terms. Upon successful completion of the trial period, the Corporation and the borrower enter into a permanent modification. Binding trial modifications are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification.

Consumer real estate loans that have been discharged in Chapter 7 bankruptcy with no change in repayment terms and not reaffirmed by the borrower of $1.6 billion were included in TDRs at June 30, 2016, of which $682 million were classified as nonperforming and $631 million were loans fully-insured by the FHA. For more information on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.

A consumer real estate loan, excluding PCI loans which are reported separately, is not classified as impaired unless it is a TDR. Once such a loan has been designated as a TDR, it is then individually assessed for impairment. Consumer real estate TDRs are measured primarily based on the net present value of the estimated cash flows discounted at the loan's original effective interest rate, as discussed in the following paragraph. If the carrying value of a TDR exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses. Alternatively, consumer real estate TDRs that are considered to be dependent solely on the collateral for repayment (e.g., due to the lack of income verification) are measured based on the estimated fair value of the collateral and a charge-off is recorded if the carrying value exceeds the fair value of the collateral. Consumer real estate loans that reached 180 days past due prior to modification had been charged off to their net realizable value, less costs to sell, before they were modified as TDRs in accordance with established policy. Therefore, modifications of consumer real estate loans that are 180 or more days past due as TDRs do not have an impact on the allowance for loan and lease losses nor are additional charge-offs required at the time of modification. Subsequent declines in the fair value of the collateral after a loan has reached 180 days past due are recorded as charge-offs. Fully-insured loans are protected against principal loss, and therefore, the Corporation does not record an allowance for loan and lease losses on the outstanding principal balance, even after they have been modified in a TDR.

The net present value of the estimated cash flows used to measure impairment is based on model-driven estimates of projected payments, prepayments, defaults and loss-given-default (LGD). Using statistical modeling methodologies, the Corporation estimates the probability that a loan will default prior to maturity based on the attributes of each loan. The factors that are most relevant to the probability of default are the refreshed LTV, or in the case of a subordinated lien, refreshed CLTV, borrower credit score, months since origination (i.e., vintage) and geography. Each of these factors is further broken down by present collection status (whether the loan is current, delinquent, in default or in bankruptcy). Severity (or LGD) is estimated based on the refreshed LTV for first mortgages or CLTV for subordinated liens. The estimates are based on the Corporation's historical experience as adjusted to reflect an assessment of environmental factors that may not be reflected in the historical data, such as changes in real estate values, local and national economies, underwriting standards and the regulatory environment. The probability of default models also incorporate recent experience with modification programs including redefaults subsequent to modification, a loan's default history prior to modification and the change in borrower payments post-modification.

At June 30, 2016 and December 31, 2015, remaining commitments to lend additional funds to debtors whose terms have been modified in a consumer real estate TDR were immaterial. Consumer real estate foreclosed properties totaled $416 million and $444 million at June 30, 2016 and December 31, 2015. The carrying value of consumer real estate loans, including fully-insured and PCI loans, for which formal foreclosure proceedings were in process as of June 30, 2016 was $4.7 billion. During the three and six months ended June 30, 2016, the Corporation reclassified $392 million and $808 million of consumer real estate loans to foreclosed properties or, for properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans), to other assets. This compared to reclassifications of $474 million and $1.1 billion for the same periods in 2015. The reclassifications represent non-cash investing activities and, accordingly, are not reflected on the Consolidated Statement of Cash Flows.

The table below provides the unpaid principal balance, carrying value and related allowance at June 30, 2016 and December 31, 2015, and the average carrying value and interest income recognized for the three and six months ended June 30, 2016 and 2015 for impaired loans in the Corporation's Consumer Real Estate portfolio segment. Certain impaired consumer real estate loans do not have a related allowance as the current valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.

Impaired Loans – Consumer Real Estate
 
 
 
 
 
June 30, 2016
 
December 31, 2015
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
12,619

 
$
9,929

 
$

 
$
14,888

 
$
11,901

 
$

Home equity
 
 
 
 
3,691

 
1,921

 

 
3,545

 
1,775

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
5,281

 
$
5,157

 
$
296

 
$
6,624

 
$
6,471

 
$
399

Home equity
 
 
 
 
939

 
835

 
146

 
1,047

 
911

 
235

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
17,900

 
$
15,086

 
$
296

 
$
21,512

 
$
18,372

 
$
399

Home equity
 
 
 
 
4,630

 
2,756

 
146

 
4,592

 
2,686

 
235

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2016
 
2015
 
2016
 
2015
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
10,345

 
$
100

 
$
14,401

 
$
105

 
$
10,925

 
$
194

 
$
14,897

 
$
213

Home equity
1,870

 
17

 
1,805

 
20

 
1,843

 
30

 
1,748

 
45

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
5,387

 
$
46

 
$
7,706

 
$
61

 
$
5,737

 
$
97

 
$
7,646

 
$
125

Home equity
873

 
5

 
744

 
5

 
882

 
11

 
729

 
12

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
15,732

 
$
146

 
$
22,107

 
$
166

 
$
16,662

 
$
291

 
$
22,543

 
$
338

Home equity
2,743

 
22

 
2,549

 
25

 
2,725

 
41

 
2,477

 
57

(1) 
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible.
The table below presents the June 30, 2016 and 2015 unpaid principal balance, carrying value, and average pre- and post-modification interest rates on consumer real estate loans that were modified in TDRs during the three and six months ended June 30, 2016 and 2015, and net charge-offs recorded during the period in which the modification occurred. The following Consumer Real Estate portfolio segment tables include loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period.

Consumer Real Estate – TDRs Entered into During the Three Months Ended June 30, 2016 and 2015 (1)
 
June 30, 2016
 
Three Months Ended June 30, 2016
(Dollars in millions)
Unpaid Principal Balance
 
Carrying
 Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate (2)
 
Net Charge-offs (3)
Residential mortgage
$
437

 
$
405

 
4.68
%
 
4.42
%
 
$
3

Home equity
250

 
200

 
3.81

 
3.27

 
16

Total
$
687

 
$
605

 
4.36

 
4.00

 
$
19

 
 
 
 
 
 
 
 
 
 
 
June 30, 2015
 
Three Months Ended June 30, 2015
Residential mortgage
$
1,409

 
$
1,294

 
4.87
%
 
4.71
%
 
$
25

Home equity
348

 
285

 
3.49

 
3.36

 
19

Total
$
1,757

 
$
1,579

 
4.60

 
4.44

 
$
44

 
 
 
 
 
 
 
 
 
 
Consumer Real Estate – TDRs Entered into During the Six Months Ended June 30, 2016 and 2015 (1)
 
June 30, 2016
 
Six Months Ended June 30, 2016
Residential mortgage
$
854

 
$
785

 
4.72
%
 
4.45
%
 
$
5

Home equity
460

 
361

 
3.63

 
3.10

 
26

Total
$
1,314

 
$
1,146

 
4.34

 
3.98

 
$
31

 
 
 
 
 
 
 
 
 
 
 
June 30, 2015
 
Six Months Ended June 30, 2015
Residential mortgage
$
2,760

 
$
2,479

 
4.98
%
 
4.64
%
 
$
42

Home equity
579

 
447

 
3.72

 
3.36

 
30

Total
$
3,339

 
$
2,926

 
4.76

 
4.42

 
$
72


(1) 
During the three and six months ended June 30, 2016, the Corporation forgave principal of $1 million and $11 million related to residential mortgage loans in connection with TDRs compared to $102 million and $261 million for the same periods in 2015.
(2) 
The post-modification interest rate reflects the interest rate applicable only to permanently completed modifications, which exclude loans that are in a trial modification period.
(3) 
Net charge-offs include amounts recorded on loans modified during the period that are no longer held by the Corporation at June 30, 2016 and 2015 due to sales and other dispositions.
The table below presents the June 30, 2016 and 2015 carrying value for consumer real estate loans that were modified in a TDR during the three and six months ended June 30, 2016 and 2015 by type of modification.

Consumer Real Estate – Modification Programs
 
TDRs Entered into During the
Three Months Ended June 30, 2016
(Dollars in millions)
Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
23

 
$
12

 
$
35

Principal and/or interest forbearance

 
4

 
4

Other modifications (1)
8

 

 
8

Total modifications under government programs
31

 
16

 
47

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
14

 
2

 
16

Capitalization of past due amounts
5

 

 
5

Principal and/or interest forbearance
2

 
1

 
3

Other modifications (1)
9

 
17

 
26

Total modifications under proprietary programs
30

 
20

 
50

Trial modifications
300

 
145

 
445

Loans discharged in Chapter 7 bankruptcy (2)
44

 
19

 
63

Total modifications
$
405

 
$
200

 
$
605

 
 
 
 
 
 
 
TDRs Entered into During the
Three Months Ended June 30, 2015
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
95

 
$
3

 
$
98

Principal and/or interest forbearance

 
2

 
2

Other modifications (1)
11

 

 
11

Total modifications under government programs
106

 
5

 
111

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
38

 
1

 
39

Capitalization of past due amounts
19

 
1

 
20

Principal and/or interest forbearance
18

 
1

 
19

Other modifications (1)
14

 
1

 
15

Total modifications under proprietary programs
89

 
4

 
93

Trial modifications
997

 
230

 
1,227

Loans discharged in Chapter 7 bankruptcy (2)
102

 
46

 
148

Total modifications
$
1,294

 
$
285

 
$
1,579

(1) 
Includes other modifications such as term or payment extensions and repayment plans.
(2) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.
Consumer Real Estate – Modification Programs
 
TDRs Entered into During the
Six Months Ended June 30, 2016
(Dollars in millions)
Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
66

 
$
18

 
$
84

Principal and/or interest forbearance

 
6

 
6

Other modifications (1)
19

 
1

 
20

Total modifications under government programs
85

 
25

 
110

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
32

 
28

 
60

Capitalization of past due amounts
14

 
3

 
17

Principal and/or interest forbearance
6

 
16

 
22

Other modifications (1)
11

 
20

 
31

Total modifications under proprietary programs
63

 
67

 
130

Trial modifications
540

 
230

 
770

Loans discharged in Chapter 7 bankruptcy (2)
97

 
39

 
136

Total modifications
$
785

 
$
361

 
$
1,146

 
 
 
 
 
 
 
TDRs Entered into During the
Six Months Ended June 30, 2015
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
266

 
$
15

 
$
281

Principal and/or interest forbearance
2

 
5

 
7

Other modifications (1)
23

 
1

 
24

Total modifications under government programs
291

 
21

 
312

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
113

 
6

 
119

Capitalization of past due amounts
50

 
3

 
53

Principal and/or interest forbearance
75

 
9

 
84

Other modifications (1)
18

 
26

 
44

Total modifications under proprietary programs
256

 
44

 
300

Trial modifications
1,734

 
298

 
2,032

Loans discharged in Chapter 7 bankruptcy (2)
198

 
84

 
282

Total modifications
$
2,479

 
$
447

 
$
2,926


(1) 
Includes other modifications such as term or payment extensions and repayment plans.
(2) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.

The table below presents the carrying value of consumer real estate loans that entered into payment default during the three and six months ended June 30, 2016 and 2015 that were modified in a TDR during the 12 months preceding payment default. A payment default for consumer real estate TDRs is recognized when a borrower has missed three monthly payments (not necessarily consecutively) since modification. Payment defaults on a trial modification where the borrower has not yet met the terms of the agreement are included in the table below if the borrower is 90 days or more past due three months after the offer to modify is made.

Consumer Real Estate – TDRs Entering Payment Default That Were Modified During the Preceding 12 Months
 
Three Months Ended June 30, 2016
(Dollars in millions)
 Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
$
85

 
$
1

 
$
86

Modifications under proprietary programs
35

 
5

 
40

Loans discharged in Chapter 7 bankruptcy (1)
31

 
6

 
37

Trial modifications
184

 
29

 
213

Total modifications
$
335

 
$
41

 
$
376

 
 
 
 
 
 
 
Three Months Ended June 30, 2015
Modifications under government programs
$
99

 
$
1

 
$
100

Modifications under proprietary programs
38

 
6

 
44

Loans discharged in Chapter 7 bankruptcy (1)
61

 
10

 
71

Trial modifications (2)
468

 
27

 
495

Total modifications
$
666

 
$
44

 
$
710

 
 
 
 
 
 
 
Six Months Ended June 30, 2016
Modifications under government programs
$
178

 
$
1

 
$
179

Modifications under proprietary programs
78

 
27

 
105

Loans discharged in Chapter 7 bankruptcy (1)
71

 
11

 
82

Trial modifications
421

 
66

 
487

Total modifications
$
748

 
$
105

 
$
853

 
 
 
 
 
 
 
Six Months Ended June 30, 2015
Modifications under government programs
$
206

 
$
2

 
$
208

Modifications under proprietary programs
78

 
18

 
96

Loans discharged in Chapter 7 bankruptcy (1)
132

 
20

 
152

Trial modifications (2)
2,236

 
51

 
2,287

Total modifications
$
2,652

 
$
91

 
$
2,743


(1) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.
(2) 
Includes $116 million and $1.5 billion for the three and six months ended June 30, 2015 of trial modification offers made in connection with the August 2014 U.S. Department of Justice settlement to which the customer did not respond.

Credit Card and Other Consumer

Impaired loans within the Credit Card and Other Consumer portfolio segment consist entirely of loans that have been modified in TDRs (the renegotiated credit card and other consumer TDR portfolio, collectively referred t