Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases

v3.8.0.1
Outstanding Loans and Leases
9 Months Ended
Sep. 30, 2017
Receivables [Abstract]  
Outstanding Loans and Leases
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, 2017 and December 31, 2016.
During the second quarter of 2017, the Corporation sold its non-U.S. consumer credit card business. This business, which at December 31, 2016 included $9.2 billion of non-U.S. credit card loans and the related allowance for loan and lease losses of $243 million, was presented in assets of business held for sale on the Consolidated Balance Sheet. In this Note, all applicable amounts for December 31, 2016 include these balances, unless otherwise noted. For additional information, see Note 1 – Summary of Significant Accounting Principles.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2017
(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
$
1,583

 
$
306

 
$
986

 
$
2,875

 
$
167,782

 
 
 
 
 
$
170,657

Home equity
246

 
111

 
435

 
792

 
44,585

 
 
 
 
 
45,377

Non-core portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage (5)
1,144

 
540

 
3,728

 
5,412

 
14,978

 
$
8,399

 
 
 
28,789

Home equity
269

 
131

 
613

 
1,013

 
10,449

 
2,913

 
 
 
14,375

Credit card and other consumer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
492

 
355

 
810

 
1,657

 
90,945

 
 
 
 
 
92,602

Direct/Indirect consumer (6)
273

 
82

 
33

 
388

 
93,003

 
 
 
 
 
93,391

Other consumer (7)
7

 
1

 
1

 
9

 
2,415

 
 
 
 
 
2,424

Total consumer
4,014

 
1,526

 
6,606

 
12,146

 
424,157

 
11,312

 
 
 
447,615

Consumer loans accounted for under the fair value option (8)
 

 
 

 
 

 
 

 
 

 
 

 
$
978

 
978

Total consumer loans and leases
4,014

 
1,526

 
6,606

 
12,146

 
424,157

 
11,312

 
978

 
448,593

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
459

 
176

 
349

 
984

 
281,693

 
 
 
 
 
282,677

Commercial real estate (9)
13

 
2

 
51

 
66

 
59,562

 
 
 
 
 
59,628

Commercial lease financing
39

 
56

 
45

 
140

 
21,273

 
 
 
 
 
21,413

Non-U.S. commercial
9

 
14

 

 
23

 
95,873

 
 
 
 
 
95,896

U.S. small business commercial
63

 
38

 
80

 
181

 
13,422

 
 
 
 
 
13,603

Total commercial
583

 
286

 
525

 
1,394

 
471,823

 
 
 
 
 
473,217

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

 
 

 
 

 
 

 
 

 
 

 
5,307

 
5,307

Total commercial loans and leases
583

 
286

 
525

 
1,394

 
471,823

 
 
 
5,307

 
478,524

Total loans and leases (10)
$
4,597

 
$
1,812

 
$
7,131

 
$
13,540

 
$
895,980

 
$
11,312

 
$
6,285

 
$
927,117

Percentage of outstandings
0.50
%
 
0.19
%
 
0.77
%
 
1.46
%
 
96.64
%
 
1.22
%
 
0.68
%
 
100.00
%
(1) 
Consumer real estate loans 30-59 days past due includes fully-insured loans of $905 million and nonperforming loans of $282 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $443 million and nonperforming loans of $201 million.
(2) 
Consumer real estate includes fully-insured loans of $3.4 billion.
(3) 
Consumer real estate includes $2.3 billion and direct/indirect consumer includes $39 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 $1.5 billion. The Corporation no longer originates this product.
(6) 
Total outstandings includes auto and specialty lending loans of $50.0 billion, unsecured consumer lending loans of $484 million, U.S. securities-based lending loans of $39.3 billion, non-U.S. consumer loans of $2.9 billion and other consumer loans of $682 million.
(7) 
Total outstandings includes consumer leases of $2.3 billion and consumer overdrafts of $160 million.
(8) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $615 million and home equity loans of $363 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.8 billion and non-U.S. commercial loans of $2.5 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 $55.5 billion and non-U.S. commercial real estate loans of $4.2 billion.
(10) 
The Corporation pledged $152.9 billion of loans to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank (FHLB). 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, 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
$
1,340

 
$
425

 
$
1,213

 
$
2,978

 
$
153,519

 


 
 

 
$
156,497

Home equity
239

 
105

 
451

 
795

 
48,578

 


 
 

 
49,373

Non-core portfolio
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential mortgage (5)
1,338

 
674

 
5,343

 
7,355

 
17,818

 
$
10,127

 
 

 
35,300

Home equity
260

 
136

 
832

 
1,228

 
12,231

 
3,611

 
 

 
17,070

Credit card and other consumer
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. credit card
472

 
341

 
782

 
1,595

 
90,683

 
 
 
 

 
92,278

Non-U.S. credit card
37

 
27

 
66

 
130

 
9,084

 
 
 
 

 
9,214

Direct/Indirect consumer (6)
272

 
79

 
34

 
385

 
93,704

 
 
 
 

 
94,089

Other consumer (7)
26

 
8

 
6

 
40

 
2,459

 
 
 
 

 
2,499

Total consumer
3,984

 
1,795

 
8,727

 
14,506

 
428,076

 
13,738

 
 

456,320

Consumer loans accounted for under the fair value option (8)
 
 
 
 
 
 
 
 
 
 
 
 
$
1,051


1,051

Total consumer loans and leases
3,984

 
1,795

 
8,727

 
14,506

 
428,076

 
13,738

 
1,051

 
457,371

Commercial
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. commercial
952

 
263

 
400

 
1,615

 
268,757

 
 
 
 

 
270,372

Commercial real estate (9)
20

 
10

 
56

 
86

 
57,269

 
 
 
 

 
57,355

Commercial lease financing
167

 
21

 
27

 
215

 
22,160

 
 
 
 

 
22,375

Non-U.S. commercial
348

 
4

 
5

 
357

 
89,040

 
 
 
 

 
89,397

U.S. small business commercial
96

 
49

 
84

 
229

 
12,764

 
 
 
 

 
12,993

Total commercial
1,583

 
347

 
572

 
2,502

 
449,990

 
 
 
 

 
452,492

Commercial loans accounted for under the fair value option (8)
 
 
 
 
 
 
 
 
 
 
 
 
6,034

 
6,034

Total commercial loans and leases
1,583

 
347

 
572

 
2,502

 
449,990

 
 
 
6,034

 
458,526

Total consumer and commercial loans and leases (10) 
$
5,567

 
$
2,142

 
$
9,299

 
$
17,008

 
$
878,066

 
$
13,738

 
$
7,085

 
$
915,897

Less: Loans of business held for sale (10)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(9,214
)
Total loans and leases (11)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
906,683

Percentage of outstandings (10)
0.61
%
 
0.23
%
 
1.02
%
 
1.86
%
 
95.87
%
 
1.50
%
 
0.77
%
 
100.00
%

(1) 
Consumer real estate loans 30-59 days past due includes fully-insured loans of $1.1 billion and nonperforming loans of $266 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $547 million and nonperforming loans of $216 million.
(2) 
Consumer real estate includes fully-insured loans of $4.8 billion.
(3) 
Consumer real estate includes $2.5 billion and direct/indirect consumer includes $27 million of nonperforming loans.
(4) 
PCI loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes pay option loans of $1.8 billion. The Corporation no longer originates this product.
(6) 
Total outstandings includes auto and specialty lending loans of $48.9 billion, unsecured consumer lending loans of $585 million, U.S. securities-based lending loans of $40.1 billion, non-U.S. consumer loans of $3.0 billion, student loans of $497 million and other consumer loans of $1.1 billion.
(7) 
Total outstandings includes consumer finance loans of $465 million, consumer leases of $1.9 billion and consumer overdrafts of $157 million.
(8) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $710 million and home equity loans of $341 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.9 billion and non-U.S. commercial loans of $3.1 billion. For more 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 $3.1 billion.
(10) 
Includes non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet.
(11) 
The Corporation pledged $143.1 billion of loans to secure potential borrowing capacity with the Federal Reserve Bank and FHLB. 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 based on 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 (GSE) 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.
The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $6.5 billion and $6.4 billion at September 30, 2017 and December 31, 2016, 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, 2017 and December 31, 2016, $336 million and $428 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, 2017, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $379 million of which $224 million were current on their contractual payments, while $127 million were 90 days or more past due. Of the contractually current nonperforming loans, approximately 78 percent were discharged in Chapter 7 bankruptcy over 12 months ago, and approximately 68 percent were discharged 24 months or more ago.
During the three and nine months ended September 30, 2017, the Corporation sold nonperforming and other delinquent consumer real estate loans with a carrying value of $700 million and $1.2 billion, including $538 million and $742 million of PCI loans, compared to $360 million and $1.8 billion, including $111 million and $435 million of PCI loans, for the same periods in 2016. The Corporation recorded net recoveries of $88 million and $102 million related to these sales for the three and nine months ended September 30, 2017 compared to net recoveries of $6 million and net charge-offs of $39 million for the same periods in 2016. Gains related to these sales of $38 million and $50 million were recorded in other income in the Consolidated Statement of Income for the three and nine months ended September 30, 2017 compared to gains of $19 million and $63 million for the same periods in 2016. During the nine months ended September 30, 2017, the Corporation transferred nonperforming loans with a net carrying value of $198 million to held-for-sale, which have been subsequently sold during the nine-month period. There were no transfers of nonperforming loans to held-for-sale for the same period in 2016.
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, 2017 and December 31, 2016. Nonperforming loans held-for-sale (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 2016 Annual Report on Form 10-K.
 
 
 
 
 
 
 
 
Credit Quality
 
 
 
 
 
 
 
 
 
 
 
Nonperforming Loans and Leases
 
Accruing Past Due
90 Days or More
(Dollars in millions)
September 30
2017
 
December 31
2016
 
September 30
2017
 
December 31
2016
Consumer real estate
 

 
 

 
 

 
 

Core portfolio
 
 
 
 
 
 
 
Residential mortgage (1)
$
1,076

 
$
1,274

 
$
396

 
$
486

Home equity
1,046

 
969

 

 

Non-core portfolio
 

 
 

 
 

 
 
Residential mortgage (1)
1,442

 
1,782

 
2,976

 
4,307

Home equity
1,645

 
1,949

 

 

Credit card and other consumer
 

 
 

 
 
 
 
U.S. credit card
n/a

 
n/a

 
810

 
782

Non-U.S. credit card
n/a

 
n/a

 

 
66

Direct/Indirect consumer
43

 
28

 
31

 
34

Other consumer

 
2

 
1

 
4

Total consumer
5,252

 
6,004

 
4,214

 
5,679

Commercial
 

 
 

 
 

 
 

U.S. commercial
863

 
1,256

 
82

 
106

Commercial real estate
130

 
72

 

 
7

Commercial lease financing
26

 
36

 
38

 
19

Non-U.S. commercial
244

 
279

 

 
5

U.S. small business commercial
55

 
60

 
68

 
71

Total commercial
1,318

 
1,703

 
188

 
208

Total loans and leases
$
6,570

 
$
7,707

 
$
4,402

 
$
5,887

(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, 2017 and December 31, 2016, residential mortgage includes $2.3 billion and $3.0 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 $1.1 billion and $1.8 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. Within the consumer portfolio segments, 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. 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. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans. For more information on the portfolio segments and credit quality indicators, see Note 1 – Summary of Significant Accounting Principles and Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements of the Corporation's 2016 Annual Report on Form 10-K.

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, 2017 and December 31, 2016.
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Real Estate – Credit Quality Indicators (1)
 
September 30, 2017
(Dollars in millions)
Core Residential
Mortgage (2)
 
Non-core Residential
Mortgage
(2)
 
Residential Mortgage PCI (3)
 
Core Home Equity (2)
 
Non-core Home Equity (2)
 
Home
Equity PCI
Refreshed LTV (4)
 

 
 

 
 

 
 

 
 
 
 
Less than or equal to 90 percent
$
146,679

 
$
12,603

 
$
7,095

 
$
43,942

 
$
8,128

 
$
1,881

Greater than 90 percent but less than or equal to 100 percent
3,288

 
1,016

 
624

 
660

 
1,211

 
420

Greater than 100 percent
1,444

 
1,231

 
680

 
775

 
2,123

 
612

Fully-insured loans (5)
19,246

 
5,540

 

 

 

 

Total consumer real estate
$
170,657

 
$
20,390

 
$
8,399

 
$
45,377

 
$
11,462

 
$
2,913

Refreshed FICO score
 
 
 
 
 
 
 
 
 
 
 
Less than 620
$
2,285

 
$
2,560

 
$
2,102

 
$
1,192

 
$
2,268

 
$
470

Greater than or equal to 620 and less than 680
4,652

 
2,260

 
1,740

 
2,416

 
2,506

 
495

Greater than or equal to 680 and less than 740
22,153

 
3,720

 
2,446

 
8,484

 
2,860

 
862

Greater than or equal to 740
122,321

 
6,310

 
2,111

 
33,285

 
3,828

 
1,086

Fully-insured loans (5)
19,246

 
5,540

 

 

 

 

Total consumer real estate
$
170,657

 
$
20,390

 
$
8,399

 
$
45,377

 
$
11,462

 
$
2,913

(1) 
Excludes $978 million of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $1.3 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, 2017
(Dollars in millions)
U.S. Credit
Card
 
Direct/Indirect
Consumer
 
Other
Consumer
Refreshed FICO score
 

 
 

 
 

Less than 620
$
4,612

 
$
1,578

 
$
42

Greater than or equal to 620 and less than 680
12,195

 
2,003

 
125

Greater than or equal to 680 and less than 740
34,796

 
12,161

 
364

Greater than or equal to 740
40,999

 
34,731

 
1,730

Other internal credit metrics (1, 2)

 
42,918

 
163

Total credit card and other consumer
$
92,602

 
$
93,391

 
$
2,424

(1) 
Other internal credit metrics may include delinquency status, geography or other factors.
(2) 
Direct/indirect consumer includes $42.2 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk.
 
 
 
 
 
 
 
 
 
 
Commercial – Credit Quality Indicators (1)
 
September 30, 2017
(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
$
273,670

 
$
59,001

 
$
20,763

 
$
93,498

 
$
354

Reservable criticized
9,007

 
627

 
650

 
2,398

 
50

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 

Less than 620
 

 
 

 
 

 
 

 
224

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
615

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,842

Greater than or equal to 740
 
 
 
 
 
 
 
 
3,683

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
6,835

Total commercial
$
282,677

 
$
59,628

 
$
21,413

 
$
95,896

 
$
13,603

(1) 
Excludes $5.3 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $825 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, 2017, 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, 2016
(Dollars in millions)
Core Residential
Mortgage (2)
 
Non-core Residential
Mortgage
(2)
 
Residential Mortgage PCI (3)
 
Core Home Equity (2)
 
Non-core Home Equity (2)
 
Home
Equity PCI
Refreshed LTV (4)
 

 
 

 
 

 
 

 
 
 
 
Less than or equal to 90 percent
$
129,737

 
$
14,280

 
$
7,811

 
$
47,171

 
$
8,480

 
$
1,942

Greater than 90 percent but less than or equal to 100 percent
3,634

 
1,446

 
1,021

 
1,006

 
1,668

 
630

Greater than 100 percent
1,872

 
1,972

 
1,295

 
1,196

 
3,311

 
1,039

Fully-insured loans (5)
21,254

 
7,475

 

 

 

 

Total consumer real estate
$
156,497

 
$
25,173

 
$
10,127

 
$
49,373

 
$
13,459

 
$
3,611

Refreshed FICO score
 

 
 

 
 

 
 

 
 

 
 

Less than 620
$
2,479

 
$
3,198

 
$
2,741

 
$
1,254

 
$
2,692

 
$
559

Greater than or equal to 620 and less than 680
5,094

 
2,807

 
2,241

 
2,853

 
3,094

 
636

Greater than or equal to 680 and less than 740
22,629

 
4,512

 
2,916

 
10,069

 
3,176

 
1,069

Greater than or equal to 740
105,041

 
7,181

 
2,229

 
35,197

 
4,497

 
1,347

Fully-insured loans (5)
21,254

 
7,475

 

 

 

 

Total consumer real estate
$
156,497

 
$
25,173

 
$
10,127

 
$
49,373

 
$
13,459

 
$
3,611

(1) 
Excludes $1.1 billion of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $1.6 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, 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
$
4,431

 
$

 
$
1,478

 
$
187

Greater than or equal to 620 and less than 680
12,364

 

 
2,070

 
222

Greater than or equal to 680 and less than 740
34,828

 

 
12,491

 
404

Greater than or equal to 740
40,655

 

 
33,420

 
1,525

Other internal credit metrics (2, 3, 4)

 
9,214

 
44,630

 
161

Total credit card and other consumer
$
92,278

 
$
9,214

 
$
94,089

 
$
2,499

(1) 
At December 31, 2016, 19 percent of the other consumer portfolio was 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 $43.1 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $499 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 was evaluated using internal credit metrics, including delinquency status. At December 31, 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)
 
December 31, 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
$
261,214

 
$
56,957

 
$
21,565

 
$
85,689

 
$
453

Reservable criticized
9,158

 
398

 
810

 
3,708

 
71

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
200

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
591

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,741

Greater than or equal to 740
 
 
 
 
 
 
 
 
3,264

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
6,673

Total commercial
$
270,372

 
$
57,355

 
$
22,375

 
$
89,397

 
$
12,993

(1) 
Excludes $6.0 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $755 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, 2016, 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 97. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2016 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. For more information on impaired consumer real estate loans, see Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements of the Corporation's 2016 Annual Report on Form 10-K.
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 $1.2 billion were included in TDRs at September 30, 2017, of which $379 million were classified as nonperforming and $442 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.
At both September 30, 2017 and December 31, 2016, 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 $259 million and $363 million at September 30, 2017 and December 31, 2016. The carrying value of consumer real estate loans, including fully-insured and PCI loans, for which formal foreclosure proceedings were in process at September 30, 2017 was $3.7 billion. During the three and nine months ended September 30, 2017, the Corporation reclassified $198 million and $624 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 $326 million and $1.1 billion for the same periods in 2016. The reclassifications represent non-cash investing activities and, accordingly, are not reflected in the Consolidated Statement of Cash Flows.
The table below provides the unpaid principal balance, carrying value and related allowance at September 30, 2017 and December 31, 2016, and the average carrying value and interest income recognized for the three and nine months ended September 30, 2017 and 2016 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, 2017
 
December 31, 2016
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 
Residential mortgage
 
 
 
 
$
9,212

 
$
7,172

 
$

 
$
11,151

 
$
8,695

 
$

Home equity
 
 
 
 
3,644

 
1,962

 

 
3,704

 
1,953

 

With an allowance recorded
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
3,167

 
$
3,079

 
$
188

 
$
4,041

 
$
3,936

 
$
219

Home equity
 
 
 
 
990

 
909

 
181

 
910

 
824

 
137

Total
 
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
12,379

 
$
10,251

 
$
188

 
$
15,192

 
$
12,631

 
$
219

Home equity
 
 
 
 
4,634

 
2,871

 
181

 
4,614

 
2,777

 
137

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2017
 
2016
 
2017
 
2016
 
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
$
7,498

 
$
77

 
$
9,673

 
$
83

 
$
7,964

 
$
237

 
$
10,523

 
$
277

Home equity
2,000

 
27

 
1,964

 
37

 
2,001

 
82

 
1,883

 
67

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
3,254

 
$
29

 
$
4,676

 
$
36

 
$
3,565

 
$
97

 
$
5,371

 
$
133

Home equity
873

 
6

 
822

 
7

 
850

 
18

 
863

 
18

Total
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
10,752

 
$
106

 
$
14,349

 
$
119

 
$
11,529

 
$
334

 
$
15,894

 
$
410

Home equity
2,873

 
33

 
2,786

 
44

 
2,851

 
100

 
2,746

 
85

(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, 2017 and 2016 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, 2017 and 2016, 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, 2017 and 2016 (1)
 
 
 
September 30, 2017
 
Three Months Ended September 30, 2017
(Dollars in millions)
Unpaid Principal Balance
 
Carrying
Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate (2)
 
Net
Charge-offs (3)
Residential mortgage
$
294

 
$
263

 
4.42
%
 
4.33
%
 
$
2

Home equity
212

 
172

 
4.01

 
3.96

 
15

Total
$
506

 
$
435

 
4.25

 
4.17

 
$
17

 
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
Three Months Ended September 30, 2016
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

 
 
 
 
 
 
 
 
 
 
Consumer Real Estate – TDRs Entered into During the Nine Months Ended September 30, 2017 and 2016 (1)
 
 
 
September 30, 2017
 
Nine Months Ended September 30, 2017
Residential mortgage
$
738

 
$
657

 
4.49
%
 
4.25
%
 
$
5

Home equity
630

 
491

 
4.16

 
3.52

 
32

Total
$
1,368

 
$
1,148

 
4.33

 
3.90

 
$
37

 
 
 
 
 
 
 
 
 
 
 
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

(1) 
During the three and nine months ended September 30, 2017, there was no forgiveness of principal related to residential mortgage loans in connection with TDRs compared to $1 million and $12 million for the same periods in 2016.
(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, 2017 and 2016 due to sales and other dispositions.
The table below presents the September 30, 2017 and 2016 carrying value for consumer real estate loans that were modified in a TDR during the three and nine months ended September 30, 2017 and 2016 by type of modification.
 
 
 
 
 
 
 
 
Consumer Real Estate – Modification Programs
 
 
 
 
 
 
 
 
TDRs Entered into During the
 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2017
 
2016
 
2017
 
2016
Modifications under government programs
 
 
 
 
 
 
 
Contractual interest rate reduction
$
10

 
$
18

 
$
56

 
$
121

Principal and/or interest forbearance
1

 
2

 
4

 
11

Other modifications (1)
7

 
3

 
22

 
21

Total modifications under government programs
18

 
23

 
82

 
153

Modifications under proprietary programs
 
 
 
 
 
 
 
Contractual interest rate reduction
15

 
20

 
178

 
143

Capitalization of past due amounts
12

 
4

 
47

 
27

Principal and/or interest forbearance
2

 
2

 
28

 
47

Other modifications (1)
1

 
45

 
45

 
72

Total modifications under proprietary programs
30

 
71

 
298

 
289

Trial modifications
329

 
490

 
605

 
853

Loans discharged in Chapter 7 bankruptcy (2)
58

 
84

 
163

 
199

Total modifications
$
435

 
$
668

 
$
1,148

 
$
1,494

(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, 2017 and 2016 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.
 
 
 
 
 
 
 
 
Consumer Real Estate – TDRs Entering Payment Default that were Modified During the Preceding 12 Months
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2017
 
2016
 
2017
 
2016
Modifications under government programs
$
16

 
$
51

 
$
62

 
$
230

Modifications under proprietary programs
32

 
40

 
99

 
145

Loans discharged in Chapter 7 bankruptcy (1)
16

 
42

 
93

 
124

Trial modifications (2)
54

 
161

 
312

 
648

Total modifications
$
118

 
$
294

 
$
566

 
$
1,147

(1) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.
(2) 
Includes trial modification offers 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 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 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.
The table below provides the unpaid principal balance, carrying value and related allowance at September 30, 2017 and December 31, 2016, and the average carrying value and interest income recognized for the three and nine months ended September 30, 2017 and 2016 on TDRs within the Credit Card and Other Consumer portfolio segment.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impaired Loans – Credit Card and Other Consumer
 
 
 
 
 
 
 
September 30, 2017
 
December 31, 2016
(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
 
 
 
 
$
53

 
$
25

 
$

 
$
49

 
$
22

 
$

With an allowance recorded
 
 
 
 
 

 
 

 
 

 
 
 
 
 
 
U.S. credit card
 
 
 
 
$
452

 
$
458

 
$
125

 
$
479

 
$
485

 
$
128

Non-U.S. credit card
 
 
 
 
n/a

 
n/a

 
n/a

 
88

 
100

 
61

Direct/Indirect consumer
 
 
 
 
1

 
2

 

 
3

 
3

 

Total
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 
U.S. credit card
 
 
 
 
$
452

 
$
458

 
$
125

 
$
479

 
$
485

 
$
128

Non-U.S. credit card
 
 
 
 
n/a

 
n/a

 
n/a

 
88

 
100

 
61

Direct/Indirect consumer
 
 
 
 
54

 
27

 

 
52

 
25

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2017
 
2016
 
2017
 
2016
 
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
$
20

 
$

 
$
21

 
$

 
$
19

 
$

 
$
21

 
$

With an allowance recorded
 

 
 

 
 
 
 
 
 

 
 

 
 
 
 
U.S. credit card
$
457

 
$
6

 
$
539

 
$
7

 
$
466

 
$
18

 
$
571

 
$
24

Non-U.S. credit card

 

 
107

 

 
62

 
1

 
115

 
2

Direct/Indirect consumer
2

 

 
7

 

 
2

 

 
12

 

Total
 

 
 

 
 
 
 
 
 

 
 

 
 
 
 
U.S. credit card
$
457

 
$
6

 
$
539

 
$
7

 
$
466

 
$
18

 
$
571

 
$
24

Non-U.S. credit card

 

 
107

 

 
62

 
1

 
115

 
2

Direct/Indirect consumer
22

 

 
28

 

 
21

 

 
33

 

(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.
n/a = not applicable
The table below provides information on the Corporation’s primary modification programs for the Credit Card and Other Consumer TDR portfolio at September 30, 2017 and December 31, 2016.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Card and Other Consumer – 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
2017
 
December 31
2016
 
September 30
2017
 
December 31
2016
 
September 30
2017
 
December 31
2016
 
September 30
2017
 
December 31
2016
 
September 30
2017
 
December 31
2016
U.S. credit card
$
201

 
$
220

 
$
256

 
$
264

 
$
1

 
$
1

 
$
458

 
$
485

 
88.30
%
 
88.99
%
Non-U.S. credit card
n/a

 
11

 
n/a

 
7

 
n/a

 
82

 
n/a

 
100

 
n/a

 
38.47

Direct/Indirect consumer
1

 
2

 
1

 
1

 
25

 
22

 
27

 
25

 
89.05

 
90.49

Total TDRs by program type
$
202

 
$
233

 
$
257

 
$
272

 
$
26

 
$
105

 
$
485

 
$
610

 
88.34

 
80.79

(1) 
Other TDRs for non-U.S. credit card included modifications of accounts that are ineligible for a fixed payment plan.
n/a = not applicable
The table below provides information on the Corporation’s Credit Card and Other Consumer TDR portfolio including the September 30, 2017 and 2016 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, 2017 and 2016, and net charge-offs recorded during the period in which the modification occurred.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Card and Other Consumer – TDRs Entered into During the Three and Nine Months Ended September 30, 2017 and 2016
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2017
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value (1)
 
Pre-Mod Interest Rate
 
Post-Mod Interest Rate
 
Unpaid Principal Balance
 
Carrying Value (1)
 
Pre-Mod Interest Rate
 
Post-Mod Interest Rate
U.S. credit card
$
60

 
$
64

 
17.96
%
 
5.40
%
 
$
152

 
$
161

 
17.88
%
 
5.49
%
Direct/Indirect consumer
22

 
14

 
4.92

 
4.53

 
29

 
18

 
4.99

 
4.37

Total (2)
$
82

 
$
78

 
15.64

 
5.25

 
$
181

 
$
179

 
16.57

 
5.37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
U.S. credit card
$
46

 
$
50

 
17.48
%
 
5.33
%
 
$
126

 
$
134

 
17.42
%
 
5.45
%
Non-U.S. credit card
32

 
36

 
24.11

 
0.38

 
63

 
73

 
23.93

 
0.44

Direct/Indirect consumer
7

 
4

 
4.13

 
4.08

 
16

 
9

 
4.50

 
4.33

Total (2)
$
85

 
$
90

 
19.55

 
3.27

 
$
205

 
$
216

 
19.05

 
3.72

(1) 
Includes accrued interest and fees.
(2) 
Net charge-offs were $14 million and $33 million for the three and nine months ended September 30, 2017 compared to $26 million and $43 million for the same periods in 2016.
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 13 percent of both new U.S. credit card TDRs and 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, 2017 that had been modified in a TDR during the preceding 12 months were $7 million and $19 million for U.S. credit card and $1 million and $3 million for direct/indirect consumer. During the three and nine months ended September 30, 2016, loans that entered into payment default 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.
Commercial Loans
Impaired commercial loans include nonperforming loans and TDRs (both performing and nonperforming). For more information on impaired commercial loans, see Note 4 – Outstanding Loans and Leases to the Consolidated Financial Statements of the Corporation's 2016 Annual Report on Form 10-K.
At September 30, 2017 and December 31, 2016, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were $279 million and $461 million.
Commercial foreclosed properties totaled $40 million and $14 million at September 30, 2017 and December 31, 2016.

The table below provides information on impaired loans in the Commercial loan portfolio segment including the unpaid principal balance, carrying value and related allowance at September 30, 2017 and December 31, 2016, and the average carrying value and interest income recognized for the three and nine months ended September 30, 2017 and 2016. 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, 2017
 
December 31, 2016
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 
U.S. commercial
 
 
 
 
$
683

 
$
675

 
$

 
$
860

 
$
827

 
$

Commercial real estate
 
 
 
 
117

 
106

 

 
77

 
71

 

Non-U.S. commercial
 
 
 
 
44

 
27

 

 
130

 
130

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

U.S. commercial
 
 
 
 
$
1,466

 
$
1,132

 
$
123

 
$
2,018

 
$
1,569

 
$
132

Commercial real estate
 
 
 
 
151

 
39

 
13

 
243

 
96

 
10

Commercial lease financing
 
 
 
 
13

 
12

 
2

 
6

 
4

 

Non-U.S. commercial
 
 
 
 
497

 
437

 
67

 
545

 
432

 
104

U.S. small business commercial (1)
 
 
 
82

 
70

 
27

 
85

 
73

 
27

Total
 
 
 
 
 

 
 

 
 

 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
2,149

 
$
1,807

 
$
123

 
$
2,878

 
$
2,396

 
$
132

Commercial real estate
 
 
 
 
268

 
145

 
13

 
320

 
167

 
10

Commercial lease financing
 
 
 
 
13

 
12

 
2

 
6

 
4

 

Non-U.S. commercial
 
 
 
 
541

 
464

 
67

 
675

 
562

 
104

U.S. small business commercial (1)
 
 
 
82

 
70

 
27

 
85

 
73

 
27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2017
 
2016
 
2017
 
2016
 
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
$
726

 
$
3

 
$
940

 
$
5

 
$
822

 
$
9

 
$
726

 
$
10

Commercial real estate
77

 
1

 
59

 

 
61

 
1

 
67

 

Non-U.S. commercial
14

 

 
32

 

 
55

 

 
18

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
1,166

 
$
9

 
$
1,624

 
$
16

 
$
1,305

 
$
25

 
$
1,570

 
$
46

Commercial real estate
72

 

 
87

 
1

 
85

 
2

 
95

 
3

Commercial lease financing
10

 

 
4

 

 
6

 

 
2

 

Non-U.S. commercial
463

 
3

 
397

 
5

 
466

 
9

 
372

 
11

U.S. small business commercial (1)
72

 

 
81

 
1

 
74

 

 
91

 
1

Total
 

 
 

 
 
 
 
 
 

 
 

 
 
 
 
U.S. commercial
$
1,892

 
$
12

 
$
2,564

 
$
21

 
$
2,127

 
$
34

 
$
2,296

 
$
56

Commercial real estate
149

 
1

 
146

 
1

 
146

 
3

 
162

 
3

Commercial lease financing
10

 

 
4

 

 
6

 

 
2

 

Non-U.S. commercial
477

 
3

 
429

 
5

 
521

 
9

 
390

 
11

U.S. small business commercial (1)
72

 

 
81

 
1

 
74

 

 
91

 
1

(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, 2017 and 2016 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during the three and nine months ended September 30, 2017 and 2016, 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 and Nine Months Ended September 30, 2017 and 2016
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2017
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value
 
Unpaid Principal Balance
 
Carrying Value
U.S. commercial
$
357

 
$
322

 
$
763

 
$
700

Commercial real estate

 

 
16

 
9

Commercial lease financing
12

 
12

 
12

 
12

Non-U.S. commercial
105

 
105

 
105

 
105

U.S. small business commercial (1)
3

 
3

 
11

 
12

Total (2)
$
477

 
$
442

 
$
907

 
$
838

 
 
 
 
 
 
 
 
 
2016
U.S. commercial
$
793

 
$
768

 
$
1,483

 
$
1,447

Commercial real estate
4

 
4

 
11

 
11

Commercial lease financing
2

 
2

 
7

 
4

Non-U.S. commercial
17

 
17

 
265

 
201

U.S. small business commercial (1)
1

 
1

 
4

 
4

Total (2)
$
817

 
$
792

 
$
1,770

 
$
1,667

(1) 
U.S. small business commercial TDRs are comprised of renegotiated small business card loans.
(2) 
Net charge-offs were $27 million and $89 million for the three and nine months ended September 30, 2017 compared to $14 million and $94 million for the same periods in 2016.
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 $57 million and $123 million for U.S. commercial, $32 million and $17 million for commercial real estate and $0 and $2 million for U.S. small business commercial at September 30, 2017 and 2016.
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, 2017 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, 2017
 
Nine Months Ended September 30, 2017
Accretable yield, beginning of period
$
3,288

 
$
3,805

Accretion
(147
)
 
(465
)
Disposals/transfers
(282
)
 
(521
)
Reclassifications from nonaccretable difference
80

 
120

Accretable yield, September 30, 2017
$
2,939

 
$
2,939


During the three and nine months ended September 30, 2017, the Corporation sold PCI loans with a carrying value of $538 million and $742 million, which excludes the related allowance of $45 million and $80 million. 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. For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2016 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 $13.2 billion and $9.1 billion at September 30, 2017 and December 31, 2016. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $28.0 billion and $22.1 billion for the nine months ended September 30, 2017 and 2016. Cash used for originations and purchases of LHFS totaled $31.4 billion and $24.2 billion for the nine months ended September 30, 2017 and 2016.