Bank of America Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases

Outstanding Loans and Leases

9 Months Ended

Sep. 30, 2016

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 September 30, 2016 and December 31, 2015.



	September 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	$	1,100		$	337		$	1,244		$	2,681		$	147,810								$	150,491
Home equity	222			107			464			793			50,131									50,924
Non-core portfolio
Residential mortgage ⁽⁵⁾	1,402			717			5,803			7,922			18,941			$	10,614					37,477
Home equity	291			137			865			1,293			12,926			3,854						18,073
Credit card and other consumer
U.S. credit card	443			314			702			1,459			87,330									88,789
Non-U.S. credit card	32			28			65			125			9,133									9,258
Direct/Indirect consumer ⁽⁶⁾	223			62			29			314			92,980									93,294
Other consumer ⁽⁷⁾	25			6			4			35			2,354									2,389
Total consumer	3,738			1,708			9,176			14,622			421,605			14,468						450,695
Consumer loans accounted for under the fair value option ⁽⁸⁾																			$	1,768		1,768
Total consumer loans and leases	3,738			1,708			9,176			14,622			421,605			14,468			1,768			452,463
Commercial
U.S. commercial	260			142			310			712			266,307									267,019
Commercial real estate ⁽⁹⁾	19			19			38			76			57,227									57,303
Commercial lease financing	63			39			32			134			21,175									21,309
Non-U.S. commercial	1			18			3			22			87,475									87,497
U.S. small business commercial	51			41			79			171			12,906									13,077
Total commercial	394			259			462			1,115			445,090									446,205
Commercial loans accounted for under the fair value option ⁽⁸⁾																			6,340			6,340
Total commercial loans and leases	394			259			462			1,115			445,090						6,340			452,545
Total loans and leases ⁽¹⁰⁾	$	4,132		$	1,967		$	9,638		$	15,737		$	866,695		$	14,468		$	8,108		$	905,008
Percentage of outstandings	0.46		%	0.22		%	1.06		%	1.74		%	95.76		%	1.60		%	0.90		%	100.00		%


⁽¹⁾	Consumer real estate loans 30-59 days past due includes fully-insured loans of $1.1 billion and nonperforming loans of $306 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $603 million and nonperforming loans of $233 million.


⁽²⁾	Consumer real estate includes fully-insured loans of $5.1 billion.


⁽³⁾	Consumer real estate includes $2.5 billion and direct/indirect consumer includes $25 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 $1.9 billion. The Corporation no longer originates this product.


⁽⁶⁾	Total outstandings includes auto and specialty lending loans of $47.8 billion, unsecured consumer lending loans of $630 million, U.S. securities-based lending loans of $40.1 billion, non-U.S. consumer loans of $3.1 billion, student loans of $514 million and other consumer loans of $1.1 billion.


⁽⁷⁾	Total outstandings includes consumer finance loans of $489 million, consumer leases of $1.7 billion and consumer overdrafts of $151 million.


⁽⁸⁾	Consumer loans accounted for under the fair value option were residential mortgage loans of $1.4 billion and home equity loans of $340 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.6 billion and non-U.S. commercial loans of $3.7 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 $53.9 billion and non-U.S. commercial real estate loans of $3.4 billion.


⁽¹⁰⁾	The Corporation pledged $146.1 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.

The Corporation 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 Global Wealth & Investment Management (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 $6.0 billion and $3.7 billion at September 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 September 30, 2016 and December 31, 2015, $432 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 September 30, 2016, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $616 million of which $370 million were current on their contractual payments, while $212 million were 90 days or more past due. Of the contractually current nonperforming loans, approximately 81 percent were discharged in Chapter 7 bankruptcy more than 12 months ago, and approximately 68 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 nine months ended September 30, 2016, the Corporation sold nonperforming and other delinquent consumer real estate loans with a carrying value of $360 million and $1.8 billion, including $111 million and $435 million of PCI loans, compared to $742 million and $2.7 billion, including $220 million and $1.2 billion of PCI loans, for the same periods in 2015. The Corporation recorded net recoveries of $6 million and net charge-offs of $39 million related to these sales for the three and nine months ended September 30, 2016 compared to net recoveries of $58 million and $125 million for the same periods in 2015. Gains related to these sales of $19 million and $63 million were recorded in other income in the Consolidated Statement of Income for the three and nine months ended September 30, 2016 compared to gains of $67 million and $142 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 September 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)	September 30 2016		December 31 2015		September 30 2016		December 31 2015
Consumer real estate
Core portfolio
Residential mortgage ⁽¹⁾	$	1,394	$	1,825	$	452	$	382
Home equity	956		974		—		—
Non-core portfolio
Residential mortgage ⁽¹⁾	1,947		2,978		4,665		6,768
Home equity	2,026		2,363		—		—
Credit card and other consumer
U.S. credit card	n/a		n/a		702		789
Non-U.S. credit card	n/a		n/a		65		76
Direct/Indirect consumer	26		24		29		39
Other consumer	1		1		3		3
Total consumer	6,350		8,165		5,916		8,057
Commercial
U.S. commercial	1,439		867		40		113
Commercial real estate	60		93		—		3
Commercial lease financing	35		12		28		15
Non-U.S. commercial	400		158		3		1
U.S. small business commercial	65		82		63		61
Total commercial	1,999		1,212		134		193
Total loans and leases	$	8,349	$	9,377	$	6,050	$	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 September 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 $1.8 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. FICO scores are typically refreshed quarterly or more frequently. Certain borrowers (e.g., borrowers that have had debts discharged in a bankruptcy proceeding) may not have their FICO scores updated. 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 September 30, 2016 and December 31, 2015.



Consumer Real Estate – Credit Quality Indicators ⁽¹⁾
	September 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	$	122,783	$	14,696	$	7,972	$	48,256	$	8,363	$	1,860
Greater than 90 percent but less than or equal to 100 percent	3,808		1,638		1,106		1,283		1,864		686
Greater than 100 percent	2,034		2,335		1,536		1,385		3,992		1,308
Fully-insured loans ⁽⁵⁾	21,866		8,194		—		—		—		—
Total consumer real estate	$	150,491	$	26,863	$	10,614	$	50,924	$	14,219	$	3,854
Refreshed FICO score
Less than 620	$	2,679	$	3,442	$	2,948	$	1,279	$	2,875	$	587
Greater than or equal to 620 and less than 680	5,250		2,956		2,337		2,933		3,280		683
Greater than or equal to 680 and less than 740	22,095		4,789		3,015		10,537		3,265		1,133
Greater than or equal to 740	98,601		7,482		2,314		36,175		4,799		1,451
Fully-insured loans ⁽⁵⁾	21,866		8,194		—		—		—		—
Total consumer real estate	$	150,491	$	26,863	$	10,614	$	50,924	$	14,219	$	3,854


⁽¹⁾	Excludes $1.8 billion of loans accounted for under the fair value option.


⁽²⁾	Excludes PCI loans.


⁽³⁾	Includes $1.7 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
	September 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	$	4,136	$	—	$	1,297	$	193
Greater than or equal to 620 and less than 680	11,887		—		1,887		219
Greater than or equal to 680 and less than 740	34,065		—		12,132		395
Greater than or equal to 740	38,701		—		33,139		1,428
Other internal credit metrics ^{(2, 3, 4)}	—		9,258		44,839		154
Total credit card and other consumer	$	88,789	$	9,258	$	93,294	$	2,389


⁽¹⁾	At September 30, 2016, 20 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 $43.3 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $516 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 September 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)
	September 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	$	257,169	$	57,003	$	20,531	$	83,765	$	464
Reservable criticized	9,850		300		778		3,732		74
Refreshed FICO score ⁽³⁾
Less than 620									195
Greater than or equal to 620 and less than 680									578
Greater than or equal to 680 and less than 740									1,743
Greater than or equal to 740									3,349
Other internal credit metrics ^{(3, 4)}									6,674
Total commercial	$	267,019	$	57,303	$	21,309	$	87,497	$	13,077


⁽¹⁾	Excludes $6.3 billion of loans accounted for under the fair value option.


⁽²⁾	U.S. small business commercial includes $731 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 September 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 137. 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 $1.5 billion were included in TDRs at September 30, 2016, of which $616 million were classified as nonperforming and $603 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 September 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 $372 million and $444 million at September 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 September 30, 2016 was $4.9 billion. During the three and nine months ended September 30, 2016, the Corporation reclassified $326 million and $1.1 billion 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 $499 million and $1.6 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 September 30, 2016 and December 31, 2015, and the average carrying value and interest income recognized for the three and nine months ended September 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
					September 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					$	11,948	$	9,369	$	—	$	14,888	$	11,901	$	—
Home equity					3,734		1,959		—		3,545		1,775		—
With an allowance recorded
Residential mortgage					$	4,452	$	4,335	$	242	$	6,624	$	6,471	$	399
Home equity					940		844		142		1,047		911		235
Total
Residential mortgage					$	16,400	$	13,704	$	242	$	21,512	$	18,372	$	399
Home equity					4,674		2,803		142		4,592		2,686		235

	Three Months Ended September 30								Nine Months Ended September 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	$	9,673	$	83	$	13,202	$	97	$	10,523	$	277	$	14,332	$	310
Home equity	1,964		37		1,835		23		1,883		67		1,777		68
With an allowance recorded
Residential mortgage	$	4,676	$	36	$	7,398	$	61	$	5,371	$	133	$	7,563	$	186
Home equity	822		7		809		6		863		18		756		18
Total
Residential mortgage	$	14,349	$	119	$	20,600	$	158	$	15,894	$	410	$	21,895	$	496
Home equity	2,786		44		2,644		29		2,746		85		2,533		86


⁽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 September 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 nine months ended September 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 September 30, 2016 and 2015 ⁽¹⁾
	September 30, 2016								Three Months Ended September 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	$	487	$	445	4.83	%	4.51	%	$	4
Home equity	292		223		4.95		3.41		17
Total	$	779	$	668	4.87		4.10		$	21

	September 30, 2015								Three Months Ended September 30, 2015
Residential mortgage	$	1,163	$	1,030	4.91	%	4.71	%	$	28
Home equity	302		243		3.41		3.34		25
Total	$	1,465	$	1,273	4.60		4.42		$	53

Consumer Real Estate – TDRs Entered into During the Nine Months Ended September 30, 2016 and 2015 ⁽¹⁾
	September 30, 2016								Nine Months Ended September 30, 2016
Residential mortgage	$	1,039	$	942	4.77	%	4.29	%	$	9
Home equity	718		552		4.03		2.87		43
Total	$	1,757	$	1,494	4.47		3.71		$	52

	September 30, 2015								Nine Months Ended September 30, 2015
Residential mortgage	$	3,052	$	2,707	4.99	%	4.47	%	$	70
Home equity	824		637		3.55		3.20		55
Total	$	3,876	$	3,344	4.69		4.20		$	125


⁽¹⁾	During the three and nine months ended September 30, 2016, the Corporation forgave principal of $1 million and $12 million related to residential mortgage loans in connection with TDRs compared to $48 million and $371 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 September 30, 2016 and 2015 due to sales and other dispositions.

The table below presents the September 30, 2016 and 2015 carrying value for consumer real estate loans that were modified in a TDR during the three and nine months ended September 30, 2016 and 2015 by type of modification.



Consumer Real Estate – Modification Programs
	TDRs Entered into During the Three Months Ended September 30, 2016
(Dollars in millions)	Residential Mortgage		Home Equity		Total Carrying Value
Modifications under government programs
Contractual interest rate reduction	$	12	$	6	$	18
Principal and/or interest forbearance	—		2		2
Other modifications ⁽¹⁾	3		—		3
Total modifications under government programs	15		8		23
Modifications under proprietary programs
Contractual interest rate reduction	19		1		20
Capitalization of past due amounts	4		—		4
Principal and/or interest forbearance	2		—		2
Other modifications ⁽¹⁾	1		44		45
Total modifications under proprietary programs	26		45		71
Trial modifications	343		147		490
Loans discharged in Chapter 7 bankruptcy ⁽²⁾	61		23		84
Total modifications	$	445	$	223	$	668

	TDRs Entered into During the Three Months Ended September 30, 2015
Modifications under government programs
Contractual interest rate reduction	$	67	$	2	$	69
Principal and/or interest forbearance	—		1		1
Other modifications ⁽¹⁾	7		—		7
Total modifications under government programs	74		3		77
Modifications under proprietary programs
Contractual interest rate reduction	46		—		46
Capitalization of past due amounts	16		—		16
Principal and/or interest forbearance	4		1		5
Other modifications ⁽¹⁾	5		1		6
Total modifications under proprietary programs	71		2		73
Trial modifications	793		210		1,003
Loans discharged in Chapter 7 bankruptcy ⁽²⁾	92		28		120
Total modifications	$	1,030	$	243	$	1,273


⁽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 Nine Months Ended September 30, 2016
(Dollars in millions)	Residential Mortgage		Home Equity		Total Carrying Value
Modifications under government programs
Contractual interest rate reduction	$	96	$	25	$	121
Principal and/or interest forbearance	2		9		11
Other modifications ⁽¹⁾	20		1		21
Total modifications under government programs	118		35		153
Modifications under proprietary programs
Contractual interest rate reduction	58		85		143
Capitalization of past due amounts	20		7		27
Principal and/or interest forbearance	9		38		47
Other modifications⁽¹⁾	3		69		72
Total modifications under proprietary programs	90		199		289
Trial modifications	593		260		853
Loans discharged in Chapter 7 bankruptcy ⁽²⁾	141		58		199
Total modifications	$	942	$	552	$	1,494

	TDRs Entered into During the Nine Months Ended September 30, 2015
Modifications under government programs
Contractual interest rate reduction	$	453	$	18	$	471
Principal and/or interest forbearance	4		7		11
Other modifications ⁽¹⁾	35		—		35
Total modifications under government programs	492		25		517
Modifications under proprietary programs
Contractual interest rate reduction	179		18		197
Capitalization of past due amounts	67		6		73
Principal and/or interest forbearance	101		32		133
Other modifications ⁽¹⁾	22		52		74
Total modifications under proprietary programs	369		108		477
Trial modifications	1,609		402		2,011
Loans discharged in Chapter 7 bankruptcy ⁽²⁾	237		102		339
Total modifications	$	2,707	$	637	$	3,344


⁽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 nine months ended September 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 September 30, 2016
(Dollars in millions)	Residential Mortgage		Home Equity		Total Carrying Value
Modifications under government programs	$	50	$	1	$	51
Modifications under proprietary programs	29		11		40
Loans discharged in Chapter 7 bankruptcy ⁽¹⁾	36		6		42
Trial modifications	138		23		161
Total modifications	$	253	$	41	$	294

	Three Months Ended September 30, 2015
Modifications under government programs	$	117	$	2	$	119
Modifications under proprietary programs	97		1		98
Loans discharged in Chapter 7 bankruptcy ⁽¹⁾	57		20		77
Trial modifications ⁽²⁾	327		49		376
Total modifications	$	598	$	72	$	670

	Nine Months Ended September 30, 2016
Modifications under government programs	$	228	$	2	$	230
Modifications under proprietary programs	107		38		145
Loans discharged in Chapter 7 bankruptcy ⁽¹⁾	107		17		124
Trial modifications	559		89		648
Total modifications	$	1,001	$	146	$	1,147

	Nine Months Ended September 30, 2015
Modifications under government programs	$	323	$	4	$	327
Modifications under proprietary programs	175		19		194
Loans discharged in Chapter 7 bankruptcy ⁽¹⁾	189		40		229
Trial modifications ⁽²⁾	2,563		100		2,663
Total modifications	$	3,250	$	163	$	3,413


⁽¹⁾	Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.


⁽²⁾	Includes $59 million and $1.6 billion for the three and nine months ended September 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 to as the renegotiated TDR portfolio). The Corporation seeks to assist customers that are experiencing financial difficulty by modifying loans while ensuring compliance with federal, local and international laws and guidelines. Credit card and other consumer loan modifications generally involve reducing the interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, all of which are considered TDRs. In addition, the accounts of non-U.S. credit card customers who do not qualify for a fixed payment plan may have their interest rates reduced, as required by certain local jurisdictions. These modifications, which are also TDRs, tend to experience higher payment default rates given that the borrowers may lack the ability to repay even with the interest rate reduction. In substantially all cases, the customer's available line of credit is canceled. The Corporation makes loan modifications directly with borrowers for debt held only by the Corporation (internal programs). Additionally, the Corporation makes loan modifications for borrowers working with third-party renegotiation agencies that provide solutions to customers' entire unsecured debt structures (external programs). The Corporation classifies other secured consumer loans that have been discharged in Chapter 7 bankruptcy as TDRs which are written down to collateral value and placed on nonaccrual status no later than the time of discharge. For more information on the regulatory guidance on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.

All credit card and substantially all other consumer loans that have been modified in TDRs remain on accrual status until the loan is either paid in full or charged off, which occurs no later than the end of the month in which the loan becomes 180 days past due or generally at 120 days past due for a loan that has been placed on a fixed payment plan.

The allowance for impaired credit card and substantially all other consumer loans is based on the present value of projected cash flows, which incorporates the Corporation's historical payment default and loss experience on modified loans, discounted using the portfolio's average contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. Credit card and other consumer loans are included in homogeneous pools which are collectively evaluated for impairment. For these portfolios, loss forecast models are utilized that consider a variety of factors including, but not limited to, historical loss experience, delinquency status, economic trends and credit scores.



Impaired Loans – Credit Card and Other Consumer – Renegotiated TDRs
					September 30, 2016						December 31, 2015
(Dollars in millions)					Unpaid Principal Balance		Carrying Value ⁽¹⁾		Related Allowance		Unpaid Principal Balance		Carrying Value ⁽¹⁾		Related Allowance
With no recorded allowance
Direct/Indirect consumer					$	47	$	20	$	—	$	50	$	21	$	—
With an allowance recorded
U.S. credit card					$	500	$	507	$	123	$	598	$	611	$	176
Non-U.S. credit card					91		104		62		109		126		70
Direct/Indirect consumer					5		6		1		17		21		4
Total
U.S. credit card					$	500	$	507	$	123	$	598	$	611	$	176
Non-U.S. credit card					91		104		62		109		126		70
Direct/Indirect consumer					52		26		1		67		42		4

	Three Months Ended September 30								Nine Months Ended September 30
	2016				2015				2016				2015
	Average Carrying Value		Interest Income Recognized ⁽²⁾		Average Carrying Value		Interest Income Recognized ⁽²⁾		Average Carrying Value		Interest Income Recognized ⁽²⁾		Average Carrying Value		Interest Income Recognized ⁽²⁾
With no recorded allowance
Direct/Indirect consumer	$	21	$	—	$	22	$	—	$	21	$	—	$	23	$	—
With an allowance recorded
U.S. credit card	$	539	$	7	$	714	$	10	$	571	$	24	$	779	$	34
Non-U.S. credit card	107		—		142		1		115		2		150		3
Direct/Indirect consumer	7		—		40		1		12		—		60		3
Total
U.S. credit card	$	539	$	7	$	714	$	10	$	571	$	24	$	779	$	34
Non-U.S. credit card	107		—		142		1		115		2		150		3
Direct/Indirect consumer	28		—		62		1		33		—		83		3


⁽¹⁾	Includes accrued interest and fees.


⁽²⁾	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 provides information on the Corporation's primary modification programs for the renegotiated TDR portfolio at September 30, 2016 and December 31, 2015.



Credit Card and Other Consumer – Renegotiated TDRs by Program Type
	Internal Programs				External Programs				Other ⁽¹⁾				Total				Percent of Balances Current or Less Than 30 Days Past Due
(Dollars in millions)	September 30 2016		December 31 2015		September 30 2016		December 31 2015		September 30 2016		December 31 2015		September 30 2016		December 31 2015		September 30 2016		December 31 2015
U.S. credit card	$	237	$	313	$	269	$	296	$	1	$	2	$	507	$	611	89.08	%	88.74	%
Non-U.S. credit card	12		21		8		10		84		95		104		126		42.84		44.25
Direct/Indirect consumer	3		11		2		7		21		24		26		42		91.75		89.12
Total renegotiated TDRs	$	252	$	345	$	279	$	313	$	106	$	121	$	637	$	779	81.65		81.55


⁽¹⁾	Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan.

The table below provides information on the Corporation's renegotiated TDR portfolio including the September 30, 2016 and 2015 unpaid principal balance, carrying value and average pre- and post-modification interest rates of loans that were modified in TDRs during the three and nine months ended September 30, 2016 and 2015, and net charge-offs recorded during the period in which the modification occurred.



Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Three Months Ended September 30, 2016 and 2015
	September 30, 2016								Three Months Ended September 30, 2016
(Dollars in millions)	Unpaid Principal Balance		Carrying Value ⁽¹⁾		Pre-Modification Interest Rate		Post-Modification Interest Rate		Net Charge-offs
U.S. credit card	$	46	$	50	17.48	%	5.33	%	$	4
Non-U.S. credit card	32		36		24.11		0.38		20
Direct/Indirect consumer	7		4		4.13		4.08		2
Total	$	85	$	90	19.55		3.27		$	26

	September 30, 2015								Three Months Ended September 30, 2015
U.S. credit card	$	59	$	65	17.10	%	4.97	%	$	8
Non-U.S. credit card	32		38		24.04		0.43		23
Direct/Indirect consumer	7		4		5.58		5.10		2
Total	$	98	$	107	19.12		3.37		$	33

Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Nine Months Ended September 30, 2016 and 2015
	September 30, 2016								Nine Months Ended September 30, 2016
U.S. credit card	$	126	$	134	17.42	%	5.45	%	$	8
Non-U.S. credit card	63		73		23.93		0.44		28
Direct/Indirect consumer	16		9		4.50		4.33		7
Total	$	205	$	216	19.05		3.72		$	43

	September 30, 2015								Nine Months Ended September 30, 2015
U.S. credit card	$	172	$	184	16.98	%	5.02	%	$	16
Non-U.S. credit card	72		84		24.01		0.45		35
Direct/Indirect consumer	16		10		6.28		5.29		7
Total	$	260	$	278	18.72		3.65		$	58


⁽¹⁾	Includes accrued interest and fees.

The table below provides information on the Corporation's primary modification programs for the renegotiated TDR portfolio for loans that were modified in TDRs during the three and nine months ended September 30, 2016 and 2015.



Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Period by Program Type
	Three Months Ended September 30, 2016
(Dollars in millions)	Internal Programs		External Programs		Other ⁽¹⁾		Total
U.S. credit card	$	27	$	23	$	—	$	50
Non-U.S. credit card	1		1		34		36
Direct/Indirect consumer	—		—		4		4
Total renegotiated TDRs	$	28	$	24	$	38	$	90

	Three Months Ended September 30, 2015
U.S. credit card	$	41	$	24	$	—	$	65
Non-U.S. credit card	1		1		36		38
Direct/Indirect consumer	—		—		4		4
Total renegotiated TDRs	$	42	$	25	$	40	$	107

	Nine Months Ended September 30, 2016
U.S. credit card	$	71	$	63	$	—	$	134
Non-U.S. credit card	2		3		68		73
Direct/Indirect consumer	—		—		9		9
Total renegotiated TDRs	$	73	$	66	$	77	$	216

	Nine Months Ended September 30, 2015
U.S. credit card	$	118	$	66	$	—	$	184
Non-U.S. credit card	3		3		78		84
Direct/Indirect consumer	1		—		9		10
Total renegotiated TDRs	$	122	$	69	$	87	$	278

⁽¹⁾ Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan.

Credit card and other consumer loans are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows in the calculation of the allowance for loan and lease losses for impaired credit card and other consumer loans. Based on historical experience, the Corporation estimates that 14 percent of new U.S. credit card TDRs, 90 percent of new non-U.S. credit card TDRs and 14 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during the three and nine months ended September 30, 2016 that had been modified in a TDR during the preceding 12 months were $7 million and $23 million for U.S. credit card, $31 million and $95 million for non-U.S. credit card, and $0 and $2 million for direct/indirect consumer. During the three and nine months ended September 30, 2015, loans that entered into payment default that had been modified in a TDR during the preceding 12 months were $11 million and $33 million for U.S. credit card, $37 million and $117 million for non-U.S. credit card, and $1 million and $3 million for direct/indirect consumer.

Commercial Loans

Impaired commercial loans, which include nonperforming loans and TDRs (both performing and nonperforming), are primarily measured based on the present value of payments expected to be received, discounted at the loan's original effective interest rate. Commercial impaired loans may also be measured based on observable market prices or, for loans that are solely dependent on the collateral for repayment, the estimated fair value of collateral, less costs to sell. If the carrying value of a loan exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses.

Modifications of loans to commercial borrowers that are experiencing financial difficulty are designed to reduce the Corporation's loss exposure while providing the borrower with an opportunity to work through financial difficulties, often to avoid foreclosure or bankruptcy. Each modification is unique and reflects the individual circumstances of the borrower. Modifications that result in a TDR may include extensions of maturity at a concessionary (below market) rate of interest, payment forbearances or other actions designed to benefit the customer while mitigating the Corporation's risk exposure. Reductions in interest rates are rare. Instead, the interest rates are typically increased, although the increased rate may not represent a market rate of interest. Infrequently, concessions may also include principal forgiveness in connection with foreclosure, short sale or other settlement agreements leading to termination or sale of the loan.

At the time of restructuring, the loans are remeasured to reflect the impact, if any, on projected cash flows resulting from the modified terms. If there was no forgiveness of principal and the interest rate was not decreased, the modification may have little or no impact on the allowance established for the loan. If a portion of the loan is deemed to be uncollectible, a charge-off may be recorded at the time of restructuring. Alternatively, a charge-off may have already been recorded in a previous period such that no charge-off is required at the time of modification. For more information on modifications for the U.S. small business commercial portfolio, see Credit Card and Other Consumer in this Note.

Remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were $487 million and $187 million at September 30, 2016 and December 31, 2015. Commercial foreclosed properties totaled $16 million and $15 million at September 30, 2016 and December 31, 2015.

The table below provides the unpaid principal balance, carrying value and related allowance at September 30, 2016 and December 31, 2015, and the average carrying value and interest income recognized for the three and nine months ended September 30, 2016 and 2015 for impaired loans in the Corporation's Commercial loan portfolio segment. Certain impaired commercial loans do not have a related allowance as the valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.



Impaired Loans – Commercial

					September 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
U.S. commercial					$	1,146	$	1,109	$	—	$	566	$	541	$	—
Commercial real estate					72		65		—		82		77		—
Non-U.S. commercial					35		35		—		4		4		—
With an allowance recorded
U.S. commercial					$	1,970	$	1,553	$	149	$	1,350	$	1,157	$	115
Commercial real estate					233		70		7		328		107		11
Commercial lease financing					7		4		—		—		—		—
Non-U.S. commercial					715		575		72		531		381		56
U.S. small business commercial ⁽¹⁾					92		79		30		105		101		35
Total
U.S. commercial					$	3,116	$	2,662	$	149	$	1,916	$	1,698	$	115
Commercial real estate					305		135		7		410		184		11
Commercial lease financing					7		4		—		—		—		—
Non-U.S. commercial					750		610		72		535		385		56
U.S. small business commercial ⁽¹⁾					92		79		30		105		101		35

	Three Months Ended September 30								Nine Months Ended September 30
	2016				2015				2016				2015
	Average Carrying Value		Interest Income Recognized ⁽²⁾		Average Carrying Value		Interest Income Recognized ⁽²⁾		Average Carrying Value		Interest Income Recognized ⁽²⁾		Average Carrying Value		Interest Income Recognized ⁽²⁾
With no recorded allowance
U.S. commercial	$	940	$	5	$	776	$	4	$	726	$	10	$	704	$	12
Commercial real estate	59		—		73		—		67		—		75		1
Non-U.S. commercial	32		—		53		—		18		—		30		1
With an allowance recorded
U.S. commercial	$	1,624	$	16	$	981	$	11	$	1,570	$	46	$	902	$	36
Commercial real estate	87		1		179		1		95		3		248		6
Commercial lease financing	4		—		—		—		2		—		—		—
Non-U.S. commercial	397		5		102		1		372		11		96		2
U.S. small business commercial ⁽¹⁾	81		1		110		—		91		1		112		—
Total
U.S. commercial	$	2,564	$	21	$	1,757	$	15	$	2,296	$	56	$	1,606	$	48
Commercial real estate	146		1		252		1		162		3		323		7
Commercial lease financing	4		—		—		—		2		—		—		—
Non-U.S. commercial	429		5		155		1		390		11		126		3
U.S. small business commercial ⁽¹⁾	81		1		110		—		91		1		112		—


⁽¹⁾	Includes U.S. small business commercial renegotiated TDR loans and related allowance.


⁽²⁾	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 September 30, 2016 and 2015 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during the three and nine months ended September 30, 2016 and 2015, and net charge-offs that were recorded during the period in which the modification occurred. The table below includes 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.



Commercial – TDRs Entered into During the Three Months Ended September 30, 2016 and 2015
	September 30, 2016				Three Months Ended September 30, 2016
(Dollars in millions)	Unpaid Principal Balance		Carrying Value		Net Charge-offs
U.S. commercial	$	793	$	768	$	14
Commercial real estate	4		4		—
Commercial lease financing	2		2		—
Non-U.S. commercial	17		17		—
U.S. small business commercial ⁽¹⁾	1		1		—
Total	$	817	$	792	$	14

	September 30, 2015				Three Months Ended September 30, 2015
U.S. commercial	$	347	$	324	$	12
Commercial real estate	17		17		—
Non-U.S. commercial	10		10		—
U.S. small business commercial ⁽¹⁾	2		2		—
Total	$	376	$	353	$	12

Commercial – TDRs Entered into During the Nine Months Ended September 30, 2016 and 2015
	September 30, 2016				Nine Months Ended September 30, 2016
U.S. commercial	$	1,483	$	1,447	$	43
Commercial real estate	11		11		1
Commercial lease financing	7		4		2
Non-U.S. commercial	265		201		48
U.S. small business commercial ⁽¹⁾	4		4		—
Total	$	1,770	$	1,667	$	94

	September 30, 2015				Nine Months Ended September 30, 2015
U.S. commercial	$	977	$	900	$	18
Commercial real estate	47		47		—
Non-U.S. commercial	45		45		—
U.S. small business commercial ⁽¹⁾	5		5		—
Total	$	1,074	$	997	$	18


⁽¹⁾	U.S. small business commercial TDRs are comprised of renegotiated small business card loans.

A commercial TDR is generally deemed to be in payment default when the loan is 90 days or more past due, including delinquencies that were not resolved as part of the modification. U.S. small business commercial TDRs are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows, along with observable market prices or fair value of collateral when measuring the allowance for loan and lease losses. TDRs that were in payment default had a carrying value of $123 million and $85 million for U.S. commercial, $17 million and $26 million for commercial real estate, and $2 million and $0 for U.S. small business commercial at September 30, 2016 and 2015.

Purchased Credit-impaired Loans

The table below shows activity for the accretable yield on PCI loans, which include the Countrywide Financial Corporation (Countrywide) portfolio and loans repurchased in connection with the 2013 settlement with FNMA. The amount of accretable yield is affected by changes in credit outlooks, including metrics such as default rates and loss severities, prepayment speeds, which can change the amount and period of time over which interest payments are expected to be received, and the interest rates on variable rate loans. The reclassifications from nonaccretable difference in the three and nine months ended September 30, 2016 were primarily due to an increase in the expected principal and interest cash flows due to lower default estimates.



Rollforward of Accretable Yield
(Dollars in millions)	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016
Accretable yield, beginning of period	$	4,042		$	4,569
Accretion	(176		)	(553		)
Disposals/transfers	(129		)	(364		)
Reclassifications from nonaccretable difference	34			119
Accretable yield, September 30, 2016	$	3,771		$	3,771

During the three and nine months ended September 30, 2016, the Corporation sold PCI loans with a carrying value of $111 million and $435 million, which excludes the related allowance of $11 million and $50 million. During the three and nine months ended September 30, 2015, the Corporation sold PCI loans with a carrying value of $220 million and $1.2 billion, which excludes the related allowance of $38 million and $213 million. For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2015 Annual Report on Form 10-K, and for the carrying value and valuation allowance for PCI loans, see Note 5 – Allowance for Credit Losses.

Loans Held-for-sale

The Corporation had LHFS of $10.6 billion and $7.5 billion at September 30, 2016 and December 31, 2015. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $22.1 billion and $31.7 billion for the nine months ended September 30, 2016 and 2015. Cash used for originations and purchases of LHFS totaled $24.2 billion and $29.7 billion for the nine months ended September 30, 2016 and 2015.