Annual report pursuant to Section 13 and 15(d)

Outstanding Loans and Leases

v3.8.0.1
Outstanding Loans and Leases
12 Months Ended
Dec. 31, 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 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.
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 on TDRs within the Credit Card and Other Consumer portfolio segment.
 
 
 
 
 
 
 
 
 
 
 
 
 
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.