Bank of America Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Outstanding Loans and Leases

Outstanding Loans and Leases

12 Months Ended

Dec. 31, 2017

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 December 31, 2017 and 2016.

In 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 more information, see Note 1 – Summary of Significant Accounting Principles.




	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
(Dollars in millions)	December 31, 2017
Consumer real estate
Core portfolio
Residential mortgage	$	1,242		$	321		$	1,040		$	2,603		$	174,015								$	176,618
Home equity	215			108			473			796			43,449									44,245
Non-core portfolio
Residential mortgage ⁽⁵⁾	1,028			468			3,535			5,031			14,161			$	8,001					27,193
Home equity	224			121			572			917			9,866			2,716						13,499
Credit card and other consumer
U.S. credit card	542			405			900			1,847			94,438									96,285
Direct/Indirect consumer ⁽⁶⁾	320			102			43			465			93,365									93,830
Other consumer ⁽⁷⁾	10			2			1			13			2,665									2,678
Total consumer	3,581			1,527			6,564			11,672			431,959			10,717						454,348
Consumer loans accounted for under the fair value option ⁽⁸⁾																			$	928		928
Total consumer loans and leases	3,581			1,527			6,564			11,672			431,959			10,717			928			455,276
Commercial
U.S. commercial	547			244			425			1,216			283,620									284,836
Non-U.S. commercial	52			1			3			56			97,736									97,792
Commercial real estate ⁽⁹⁾	48			10			29			87			58,211									58,298
Commercial lease financing	110			68			26			204			21,912									22,116
U.S. small business commercial	95			45			88			228			13,421									13,649
Total commercial	852			368			571			1,791			474,900									476,691
Commercial loans accounted for under the fair value option ⁽⁸⁾																			4,782			4,782
Total commercial loans and leases	852			368			571			1,791			474,900						4,782			481,473
Total loans and leases ⁽¹⁰⁾	$	4,433		$	1,895		$	7,135		$	13,463		$	906,859		$	10,717		$	5,710		$	936,749
Percentage of outstandings	0.48		%	0.20		%	0.76		%	1.44		%	96.81		%	1.14		%	0.61		%	100.00		%


⁽¹⁾	Consumer real estate loans 30-59 days past due includes fully-insured loans of $850 million and nonperforming loans of $253 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $386 million and nonperforming loans of $195 million.


⁽²⁾	Consumer real estate includes fully-insured loans of $3.2 billion.


⁽³⁾	Consumer real estate includes $2.3 billion and direct/indirect consumer includes $43 million of nonperforming loans.


⁽⁴⁾	PCI loan amounts are shown gross of the valuation allowance.


⁽⁵⁾	Total outstandings includes pay option loans of $1.4 billion. The Corporation no longer originates this product.


⁽⁶⁾	Total outstandings includes auto and specialty lending loans of $49.9 billion, unsecured consumer lending loans of $469 million, U.S. securities-based lending loans of $39.8 billion, non-U.S. consumer loans of $3.0 billion and other consumer loans of $684 million.


⁽⁷⁾	Total outstandings includes consumer leases of $2.5 billion and consumer overdrafts of $163 million.


⁽⁸⁾	Consumer loans accounted for under the fair value option includes residential mortgage loans of $567 million and home equity loans of $361 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $2.6 billion and non-U.S. commercial loans of $2.2 billion. For more information, see Note 20 – Fair Value Measurements and Note 21 – Fair Value Option.


⁽⁹⁾	Total outstandings includes U.S. commercial real estate loans of $54.8 billion and non-U.S. commercial real estate loans of $3.5 billion.


⁽¹⁰⁾	The Corporation pledged $160.3 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.




	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
(Dollars in millions)	December 31, 2016
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
Non-U.S. commercial	348			4			5			357			89,040									89,397
Commercial real estate ⁽⁹⁾	20			10			56			86			57,269									57,355
Commercial lease financing	167			21			27			215			22,160									22,375
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 includes residential mortgage loans of $710 million and home equity loans of $341 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $2.9 billion and non-U.S. commercial loans of $3.1 billion. For more information, see Note 20 – Fair Value Measurements and Note 21 – 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 underwriting guidelines, or otherwise met the Corporation’s underwriting guidelines in place in 2015 are characterized as core loans. All other loans are generally characterized as non-core loans and represent run-off portfolios.

The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $6.3 billion and $6.4 billion at December 31, 2017 and 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 December 31, 2017 and 2016, $330 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 December 31, 2017, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $358 million of which $209 million were current on their contractual payments, while $124 million were 90 days or more past due. Of the contractually current nonperforming loans, 66 percent were discharged in Chapter 7 bankruptcy over 12 months ago, and 57 percent were discharged 24 months or more ago.

During 2017, the Corporation sold nonperforming and other delinquent consumer real estate loans with a carrying value of $1.3 billion, including $803 million of PCI loans, compared to $2.2 billion, including $549 million of PCI loans, in 2016. The Corporation recorded net recoveries of $105 million related to these sales during 2017 and net charge-offs of $30 million during 2016. Gains related to these sales of $57 million and $75 million were recorded in other income in the Consolidated Statement of Income during 2017 and 2016. In 2017 and 2016, the Corporation transferred consumer nonperforming loans with a net carrying value of $198 million and $55 million to held-for-sale.

The table below presents the Corporation’s nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at December 31, 2017 and 2016. 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.




Credit Quality

	Nonperforming Loans and Leases				Accruing Past Due 90 Days or More
	December 31 2017
(Dollars in millions)	2017		2016		2017		2016
Consumer real estate
Core portfolio
Residential mortgage ⁽¹⁾	$	1,087	$	1,274	$	417	$	486
Home equity	1,079		969		—		—
Non-core portfolio
Residential mortgage⁽¹⁾	1,389		1,782		2,813		4,307
Home equity	1,565		1,949		—		—
Credit card and other consumer
U.S. credit card	n/a		n/a		900		782
Non-U.S. credit card	n/a		n/a		—		66
Direct/Indirect consumer	46		28		40		34
Other consumer	—		2		—		4
Total consumer	5,166		6,004		4,170		5,679
Commercial
U.S. commercial	814		1,256		144		106
Non-U.S. commercial	299		279		3		5
Commercial real estate	112		72		4		7
Commercial lease financing	24		36		19		19
U.S. small business commercial	55		60		75		71
Total commercial	1,304		1,703		245		208
Total loans and leases	$	6,470	$	7,707	$	4,415	$	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 December 31, 2017 and 2016, residential mortgage includes $2.2 billion and $3.0 billion of loans on which interest has been curtailed by the FHA, and therefore are no longer accruing interest, although principal is still insured, and $1.0 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. For more information on the portfolio segments, see Note 1 – Summary of Significant Accounting Principles. 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 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 December 31, 2017 and 2016.




Consumer Real Estate – Credit Quality Indicators ⁽¹⁾

	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
(Dollars in millions)	December 31, 2017
Refreshed LTV⁽⁴⁾
Less than or equal to 90 percent	$	153,669	$	12,135	$	6,872	$	43,048	$	7,944	$	1,781
Greater than 90 percent but less than or equal to 100 percent	3,082		850		559		549		1,053		412
Greater than 100 percent	1,322		1,011		570		648		1,786		523
Fully-insured loans ⁽⁵⁾	18,545		5,196		—		—		—		—
Total consumer real estate	$	176,618	$	19,192	$	8,001	$	44,245	$	10,783	$	2,716
Refreshed FICO score
Less than 620	$	2,234	$	2,390	$	1,941	$	1,169	$	2,098	$	452
Greater than or equal to 620 and less than 680	4,531		2,086		1,657		2,371		2,393		466
Greater than or equal to 680 and less than 740	22,934		3,519		2,396		8,115		2,723		786
Greater than or equal to 740	128,374		6,001		2,007		32,590		3,569		1,012
Fully-insured loans ⁽⁵⁾	18,545		5,196		—		—		—		—
Total consumer real estate	$	176,618	$	19,192	$	8,001	$	44,245	$	10,783	$	2,716


⁽¹⁾	Excludes $928 million of loans accounted for under the fair value option.


⁽²⁾	Excludes PCI loans.


⁽³⁾	Includes $1.2 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

	U.S. Credit Card		Direct/Indirect Consumer		Other Consumer
(Dollars in millions)	December 31, 2017
Refreshed FICO score
Less than 620	$	4,730	$	1,630	$	49
Greater than or equal to 620 and less than 680	12,422		2,000		143
Greater than or equal to 680 and less than 740	35,656		11,906		398
Greater than or equal to 740	43,477		34,838		1,921
Other internal credit metrics ^{(1, 2)}	—		43,456		167
Total credit card and other consumer	$	96,285	$	93,830	$	2,678


⁽¹⁾	Other internal credit metrics may include delinquency status, geography or other factors.


⁽²⁾	Direct/indirect consumer includes $42.8 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk.




Commercial – Credit Quality Indicators ⁽¹⁾

	U.S. Commercial		Non-U.S. Commercial		Commercial Real Estate		Commercial Lease Financing		U.S. Small Business Commercial ⁽²⁾
(Dollars in millions)	December 31, 2017
Risk ratings
Pass rated	$	275,904	$	96,199	$	57,732	$	21,535	$	322
Reservable criticized	8,932		1,593		566		581		50
Refreshed FICO score ⁽³⁾
Less than 620									223
Greater than or equal to 620 and less than 680									625
Greater than or equal to 680 and less than 740									1,875
Greater than or equal to 740									3,713
Other internal credit metrics ^{(3, 4)}									6,841
Total commercial	$	284,836	$	97,792	$	58,298	$	22,116	$	13,649


⁽¹⁾	Excludes $4.8 billion of loans accounted for under the fair value option.


⁽²⁾	U.S. small business commercial includes $709 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, 2017, 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.




Consumer Real Estate – Credit Quality Indicators ⁽¹⁾

	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
(Dollars in millions)	December 31, 2016
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

	U.S. Credit Card		Non-U.S. Credit Card		Direct/Indirect Consumer		Other Consumer ⁽¹⁾
(Dollars in millions)	December 31, 2016
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⁾

	U.S. Commercial		Non-U.S. Commercial		Commercial Real Estate		Commercial Lease Financing		U.S. Small Business Commercial ⁽²⁾
(Dollars in millions)	December 31, 2016
Risk ratings
Pass rated	$	261,214	$	85,689	$	56,957	$	21,565	$	453
Reservable criticized	9,158		3,708		398		810		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	$	89,397	$	57,355	$	22,375	$	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 137. For more information, see Note 1 – Summary of Significant Accounting Principles.

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 government programs or the Corporation’s 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 $1.2 billion were included in TDRs at December 31, 2017, of which $358 million were classified as nonperforming and $419 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.

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. 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.

At December 31, 2017 and 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 $236 million and $363 million at December 31, 2017 and 2016. The carrying value of consumer real estate loans, including fully-insured and PCI loans, for which formal foreclosure proceedings were in process at December 31, 2017 was $3.6 billion. During 2017 and 2016, the Corporation reclassified $815 million and $1.4 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. The reclassifications represent non-cash investing activities and, accordingly, are not reflected in the Consolidated Statement of Cash Flows.

The following table provides the unpaid principal balance, carrying value and related allowance at December 31, 2017 and 2016, and the average carrying value and interest income recognized for 2017, 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

	Unpaid Principal Balance		Carrying Value		Related Allowance		Unpaid Principal Balance		Carrying Value		Related Allowance
(Dollars in millions)	December 31, 2017						December 31, 2016
With no recorded allowance
Residential mortgage	$	8,856	$	6,870	$	—	$	11,151	$	8,695	$	—
Home equity	3,622		1,956		—		3,704		1,953		—
With an allowance recorded
Residential mortgage	$	2,908	$	2,828	$	174	$	4,041	$	3,936	$	219
Home equity	972		900		174		910		824		137
Total
Residential mortgage	$	11,764	$	9,698	$	174	$	15,192	$	12,631	$	219
Home equity	4,594		2,856		174		4,614		2,777		137

	Average Carrying Value		Interest Income Recognized ⁽¹⁾		Average Carrying Value		Interest Income Recognized ⁽¹⁾		Average Carrying Value		Interest Income Recognized ⁽¹⁾
	2017				2016				2015
With no recorded allowance
Residential mortgage	$	7,737	$	311	$	10,178	$	360	$	13,867	$	403
Home equity	1,997		109		1,906		90		1,777		89
With an allowance recorded
Residential mortgage	$	3,414	$	123	$	5,067	$	167	$	7,290	$	236
Home equity	858		24		852		24		785		24
Total
Residential mortgage	$	11,151	$	434	$	15,245	$	527	$	21,157	$	639
Home equity	2,855		133		2,758		114		2,562		113


⁽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 December 31, 2017, 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 2017, 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 2017, 2016 and 2015 ⁽¹⁾

	Unpaid Principal Balance		Carrying Value		Pre-Modification Interest Rate		Post-Modification Interest Rate ⁽²⁾		Net Charge-offs ⁽³⁾
(Dollars in millions)	December 31, 2017								2017
Residential mortgage	$	824	$	712	4.43	%	4.16	%	$	6
Home equity	764		590		4.22		3.49		42
Total	$	1,588	$	1,302	4.33		3.83		$	48

	December 31, 2016								2016
Residential mortgage	$	1,130	$	1,017	4.73	%	4.16	%	$	11
Home equity	849		649		3.95		2.72		61
Total	$	1,979	$	1,666	4.40		3.54		$	72

	December 31, 2015								2015
Residential mortgage	$	2,986	$	2,655	4.98	%	4.43	%	$	97
Home equity	1,019		775		3.54		3.17		84
Total	$	4,005	$	3,430	4.61		4.11		$	181


⁽¹⁾	During 2017, there was no forgiveness of principal related to residential mortgage loans in connection with TDRs compared to $13 million and $396 million during 2016 and 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 December 31, 2017, 2016 and 2015 due to sales and other dispositions.

The table below presents the December 31, 2017, 2016 and 2015 carrying value for consumer real estate loans that were modified in a TDR during 2017, 2016 and 2015, by type of modification.




Consumer Real Estate – Modification Programs

	TDRs Entered into During
(Dollars in millions)	2017		2016		2015
Modifications under government programs
Contractual interest rate reduction	$	59	$	151	$	431
Principal and/or interest forbearance	4		13		11
Other modifications ⁽¹⁾	22		23		46
Total modifications under government programs	85		187		488
Modifications under proprietary programs
Contractual interest rate reduction	281		235		219
Capitalization of past due amounts	63		40		79
Principal and/or interest forbearance	38		72		168
Other modifications⁽¹⁾	55		75		129
Total modifications under proprietary programs	437		422		595
Trial modifications	569		831		1,968
Loans discharged in Chapter 7 bankruptcy ⁽²⁾	211		226		379
Total modifications	$	1,302	$	1,666	$	3,430


⁽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 2017, 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.




Consumer Real Estate – TDRs Entering Payment Default that were Modified During the Preceding 12 Months

(Dollars in millions)	2017		2016		2015
Modifications under government programs	$	81	$	262	$	457
Modifications under proprietary programs	138		196		287
Loans discharged in Chapter 7 bankruptcy ⁽¹⁾	116		158		285
Trial modifications ⁽²⁾	391		824		3,178
Total modifications	$	726	$	1,440	$	4,207


⁽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.




Impaired Loans – Credit Card and Other Consumer

	Unpaid Principal Balance		Carrying Value ⁽¹⁾		Related Allowance		Unpaid Principal Balance		Carrying Value ⁽¹⁾		Related Allowance
(Dollars in millions)	December 31, 2017						December 31, 2016
With no recorded allowance
Direct/Indirect consumer	$	58	$	28	$	—	$	49	$	22	$	—
With an allowance recorded
U.S. credit card	$	454	$	461	$	125	$	479	$	485	$	128
Non-U.S. credit card	n/a		n/a		n/a		88		100		61
Direct/Indirect consumer	1		1		—		3		3		—
Total
U.S. credit card	$	454	$	461	$	125	$	479	$	485	$	128
Non-U.S. credit card	n/a		n/a		n/a		88		100		61
Direct/Indirect consumer	59		29		—		52		25		—

	Average Carrying Value		Interest Income Recognized ⁽²⁾		Average Carrying Value		Interest Income Recognized ⁽²⁾		Average Carrying Value		Interest Income Recognized ⁽²⁾
	2017				2016				2015
With no recorded allowance
Direct/Indirect consumer	$	21	$	2	$	20	$	—	$	22	$	—
With an allowance recorded
U.S. credit card	$	464	$	25	$	556	$	31	$	749	$	43
Non-U.S. credit card	47		1		111		3		145		4
Direct/Indirect consumer	2		—		10		1		51		3
Total
U.S. credit card	$	464	$	25	$	556	$	31	$	749	$	43
Non-U.S. credit card	47		1		111		3		145		4
Direct/Indirect consumer	23		2		30		1		73		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.

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 December 31, 2017 and 2016.




Credit Card and Other Consumer – TDRs by Program Type at December 31

	Internal Programs				External Programs				Other ⁽¹⁾				Total				Percent of Balances Current or Less Than 30 Days Past Due
(Dollars in millions)	2017		2016		2017		2016		2017		2016		2017		2016		2017		2016
U.S. credit card	$	203	$	220	$	257	$	264	$	1	$	1	$	461	$	485	86.92	%	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		28		22		29		25		88.16		90.49
Total TDRs by program type	$	204	$	233	$	257	$	272	$	29	$	105	$	490	$	610	87.00		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 December 31, 2017, 2016 and 2015 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that were modified in TDRs during 2017, 2016 and 2015, and net charge-offs recorded during the period in which the modification occurred.




Credit Card and Other Consumer – TDRs Entered into During 2017, 2016 and 2015

	Unpaid Principal Balance		Carrying Value ⁽¹⁾		Pre- Modification Interest Rate		Post- Modification Interest Rate
(Dollars in millions)	December 31, 2017
U.S. credit card	$	203	$	213	18.47	%	5.32	%
Direct/Indirect consumer	37		22		4.81		4.30
Total ⁽²⁾	$	240	$	235	17.17		5.22

	December 31, 2016
U.S. credit card	$	163	$	172	17.54	%	5.47	%
Non-U.S. credit card	66		75		23.99		0.52
Direct/Indirect consumer	21		13		3.44		3.29
Total ⁽²⁾	$	250	$	260	18.73		3.93

	December 31, 2015
U.S. credit card	$	205	$	218	17.07	%	5.08	%
Non-U.S. credit card	74		86		24.05		0.53
Direct/Indirect consumer	19		12		5.95		5.19
Total⁽²⁾	$	298	$	316	18.58		3.84


⁽¹⁾	Includes accrued interest and fees.


⁽²⁾	Net charge-offs were $52 million, $74 million and $98 million in 2017, 2016 and 2015, respectively.

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 new U.S. credit card TDRs and 15 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during 2017, 2016 and 2015 that had been modified in a TDR during the preceding 12 months were $28 million, $30 million and $43 million for U.S. credit card, $0, $127 million and $152 million for non-U.S. credit card, and $4 million, $2 million and $3 million for direct/indirect consumer.

Commercial Loans

Impaired commercial loans include nonperforming loans and TDRs (both performing and nonperforming). 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.

At December 31, 2017 and 2016, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were $205 million and $461 million.

Commercial foreclosed properties totaled $52 million and $14 million at December 31, 2017 and 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 December 31, 2017 and 2016, and the average carrying value and interest income recognized for 2017, 2016 and 2015. 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

	Unpaid Principal Balance		Carrying Value		Related Allowance		Unpaid Principal Balance		Carrying Value		Related Allowance
(Dollars in millions)	December 31, 2017						December 31, 2016
With no recorded allowance
U.S. commercial	$	576	$	571	$	—	$	860	$	827	$	—
Non-U.S. commercial	14		11		—		130		130		—
Commercial real estate	83		80		—		77		71		—
With an allowance recorded
U.S. commercial	$	1,393	$	1,109	$	98	$	2,018	$	1,569	$	132
Non-U.S. commercial	528		507		58		545		432		104
Commercial real estate	133		41		4		243		96		10
Commercial lease financing	20		18		3		6		4		—
U.S. small business commercial ⁽¹⁾	84		70		27		85		73		27
Total
U.S. commercial	$	1,969	$	1,680	$	98	$	2,878	$	2,396	$	132
Non-U.S. commercial	542		518		58		675		562		104
Commercial real estate	216		121		4		320		167		10
Commercial lease financing	20		18		3		6		4		—
U.S. small business commercial ⁽¹⁾	84		70		27		85		73		27

	Average Carrying Value		Interest Income Recognized ⁽²⁾		Average Carrying Value		Interest Income Recognized ⁽²⁾		Average Carrying Value		Interest Income Recognized ⁽²⁾
	2017				2016				2015
With no recorded allowance
U.S. commercial	$	772	$	12	$	787	$	14	$	688	$	14
Non-U.S. commercial	46		—		34		1		29		1
Commercial real estate	69		1		67		—		75		1
With an allowance recorded
U.S. commercial	$	1,260	$	33	$	1,569	$	59	$	953	$	48
Non-U.S. commercial	463		13		409		14		125		7
Commercial real estate	73		2		92		4		216		7
Commercial lease financing	8		—		2		—		—		—
U.S. small business commercial⁽¹⁾	73		—		87		1		109		1
Total
U.S. commercial	$	2,032	$	45	$	2,356	$	73	$	1,641	$	62
Non-U.S. commercial	509		13		443		15		154		8
Commercial real estate	142		3		159		4		291		8
Commercial lease financing	8		—		2		—		—		—
U.S. small business commercial ⁽¹⁾	73		—		87		1		109		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 December 31, 2017, 2016 and 2015 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during 2017, 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 2017, 2016 and 2015

	Unpaid Principal Balance		Carrying Value
(Dollars in millions)	December 31, 2017
U.S. commercial	$	1,033	$	922
Non-U.S. commercial	105		105
Commercial real estate	35		24
Commercial lease financing	20		17
U.S. small business commercial ⁽¹⁾	13		13
Total ⁽²⁾	$	1,206	$	1,081

	December 31, 2016
U.S. commercial	$	1,556	$	1,482
Non-U.S. commercial	255		253
Commercial real estate	77		77
Commercial lease financing	6		4
U.S. small business commercial ⁽¹⁾	1		1
Total⁽²⁾	$	1,895	$	1,817

	December 31, 2015
U.S. commercial	$	853	$	779
Non-U.S. commercial	329		326
Commercial real estate	42		42
U.S. small business commercial ⁽¹⁾	14		11
Total ⁽²⁾	$	1,238	$	1,158


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


⁽²⁾	Net charge-offs were $138 million, $137 million and $31 million in 2017, 2016 and 2015, respectively.

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 $64 million, $140 million and $105 million for U.S. commercial and $19 million, $34 million and $25 million for commercial real estate at December 31, 2017, 2016 and 2015, respectively.

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 during 2017 and 2016 were primarily due to an increase in the expected principal and interest cash flows due to lower default estimates and rising interest rate environment.




Rollforward of Accretable Yield

(Dollars in millions)
Accretable yield, January 1, 2016	$	4,569
Accretion	(722		)
Disposals/transfers	(486		)
Reclassifications from nonaccretable difference	444
Accretable yield, December 31, 2016	3,805
Accretion	(601		)
Disposals/transfers	(634		)
Reclassifications from nonaccretable difference	219
Accretable yield, December 31, 2017	$	2,789

During 2017 and 2016, the Corporation sold PCI loans with a carrying value of $803 million and $549 million. For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles 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 $11.4 billion and $9.1 billion at December 31, 2017 and 2016. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $41.3 billion, $32.6 billion and $41.2 billion for 2017, 2016 and 2015, respectively. Cash used for originations and purchases of LHFS totaled $43.5 billion, $33.1 billion and $37.9 billion for 2017, 2016 and 2015, respectively.