6. Asset Quality

We assess the credit quality of the loan portfolio by monitoring net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by management.

Nonperforming loans are loans for which we do not accrue interest income, and include commercial and consumer loans and leases, as well as current year TDRs and nonaccruing TDR loans from prior years. Nonperforming assets include nonperforming loans, nonperforming loans held for sale, OREO, and other nonperforming assets. Non-impaired acquired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio. PCI loans cannot be classified as nonperforming loans or TDRs. If an individually accounted for PCI loan is modified in a TDR, it is no longer classified or accounted for as a PCI loan.

Our nonperforming assets and past due loans were as follows:



December 31,
in millions	2016		2015
Total nonperforming loans ^(a)	$	625	$	387
OREO ^(b)	51		14
Other nonperforming assets	—		2
Total nonperforming assets	$	676	$	403
Nonperforming assets from discontinued operations — education lending ^(c)	$	5	$	7
TDRs included in nonperforming loans	141		159
TDRs with an allocated specific allowance ^(d)	59		69
Specifically allocated allowance for TDRs ^(e)	27		30
Accruing loans past due 90 days or more	$	87	$	72
Accruing loans past due 30 through 89 days	404		208


(a)	Loan balances exclude $865 million and $11 million of PCI loans at December 31, 2016, and December 31, 2015, respectively.


(b)	Includes carrying value of foreclosed residential real estate of approximately $29 million and $11 million at December 31, 2016, and December 31, 2015, respectively.


(c)	TDRs of approximately $22 million and $21 million are included in discontinued operations at December 31, 2016, and December 31, 2015, respectively. See Note 14 (“Acquisition, Divestiture, and Discontinued Operations”) for further discussion.


(d)	Included in individually impaired loans allocated a specific allowance.


(e)	Included in allowance for individually evaluated impaired loans.

We evaluate purchased loans for impairment in accordance with the applicable accounting guidance. Purchased loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that all contractually required payments will not be collected are deemed PCI. Several factors were considered when evaluating whether a loan was considered a PCI loan, including the delinquency status of the loan, updated borrower credit status, geographic information, and updated loan-to-values (LTV). In accordance with ASC 310-30, excluded from the purchased impaired loans were leases, revolving credit arrangements, and loans held for sale. Auto, boat and RV loans were also excluded from purchased impaired loans due to Key’s inability to develop a reasonable estimate of the timing and magnitude of cash flows related to these loans.

We estimated the fair value of loans acquired from First Niagara by utilizing the discounted cash flow method within the income approach. See Note 2 ("Business Combination") for further discussion over the fair value methodology. There was no carryover of First Niagara’s allowance for loan losses associated with the loans we acquired. The excess of a PCI loan's contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the nonaccretable difference. The nonaccretable difference, which is not accreted into income, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the PCI loan. The excess of cash flows expected to be collected over the carrying amount of the PCI loans is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the PCI loans or pools using the level yield method.

Over the life of PCI loans, Key evaluates the remaining contractual required payments receivable and estimates cash flows expected to be collected. Contractually required payments receivable may increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on PCI loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the Acquisition Date. Increases in expected cash flows of PCI loans subsequent to acquisition are recognized prospectively through adjustment of the yield on the loans or pools over its remaining life, while decreases in expected cash flows are recognized as impairment through a provision for loan and lease losses and an increase in the ALLL.

The difference between the fair value of a non-impaired acquired loan and contractual amounts due at the Acquisition Date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments.

The following table presents the PCI loans receivable balance at the First Niagara Acquisition Date:



August 1, 2016	PCI
in millions	PCI
Contractual required payments receivable	$	1,378
Nonaccretable difference	189
Expected cash flows	1,189
Accretable yield	205
Fair Value	$	984

At the First Niagara Acquisition Date, the contractual required payments receivable on the purchased non-impaired loans totaled $22.6 billion, with an estimated corresponding fair value of $22.2 billion. The estimated cash flows not expected to be collected at the Acquisition Date were $399 million. These amounts do not include loans held for sale and the loans that were divested as part of the 18 branches that were sold on September 9, 2016.

Key has PCI loans from two separate acquisitions, one in 2012 and one during the third quarter of 2016. At the 2012 acquisition date, the estimated gross contractual amount receivable of all PCI loans totaled $41 million. The estimated cash flows not expected to be collected (the nonaccretable amount) were $11 million, and the accretable amount was approximately $5 million. The following table presents the rollforward of the accretable yield and the beginning and ending outstanding unpaid principal balance and carrying amount of PCI loans for the twelve months ended months ended December 31, 2016, December 31, 2015, and December 31, 2014.

PCI Loans



	Twelve Months Ended December 31,
	2016							2015
in millions	Accretable Yield			Carrying Amount		Outstanding Unpaid Principal Balance		Accretable Yield			Carrying Amount		Outstanding Unpaid Principal Balance
Balance at beginning of period	$	5		$	11	$	17	$	5		$	13	$	20
Additions	205							—
Accretion	(29		)					(1		)
Net reclassifications from non-accretable to accretable	35							1
Payments received, net	(19		)					—
Disposals	—							—
Balance at end of period	$	197		$	865	$	1,002	$	5		$	11	$	17



	Twelve Months Ended December 31,
	2014
in millions	Accretable Yield			Carrying Amount		Outstanding Unpaid Principal Balance
Balance at beginning of period	$	5		$	16	$	24
Additions	—
Accretion	(2		)
Net reclassifications from non-accretable to accretable	2
Payments received, net	—
Disposals	—
Balance at end of period	$	5		$	13	$	20

At December 31, 2016, the approximate carrying amount of our commercial nonperforming loans outstanding represented 78% of their original contractual amount owed, total nonperforming loans outstanding represented 81% of their original contractual amount owed, and nonperforming assets in total were carried at 81% of their original contractual amount owed.

At December 31, 2016, our 20 largest nonperforming loans totaled $253 million, representing 41% of total loans on nonperforming status. At December 31, 2015, our 20 largest nonperforming loans totaled $97 million, representing 25% of total loans on nonperforming status.

Nonperforming loans and loans held for sale reduced expected interest income by $26 million, $16 million, and $16 million for each of the twelve months ended December 31, 2016, December 31, 2015, and December 31, 2014, respectively.

The following tables set forth a further breakdown of individually impaired loans as of December 31, 2016, and December 31, 2015:



December 31, 2016	Recorded Investment ^(a)		Unpaid Principal Balance ^(b)		Specific Allowance
in millions
With no related allowance recorded:
Commercial, financial and agricultural	$	222	$	301	—
Commercial real estate:
Commercial mortgage	2		3		—
Construction	—		—		—
Total commercial real estate loans	2		3		—
Total commercial loans	224		304		—
Real estate — residential mortgage	20		20		—
Home equity loans	61		61		—
Consumer indirect loans	1		1		—
Total consumer loans	82		82		—
Total loans with no related allowance recorded	306		386		—
With an allowance recorded:
Commercial, financial and agricultural	62		73		$	17
Commercial real estate:
Commercial mortgage	4		4		—
Total commercial real estate loans	4		4		—
Total commercial loans	66		77		17
Real estate — residential mortgage	31		31		2
Home equity loans	64		64		18
Consumer direct loans	2		3		—
Credit cards	3		3		—
Consumer indirect loans	29		29		1
Total consumer loans	129		130		21
Total loans with an allowance recorded	195		207		38
Total	$	501	$	593	$	38


(a)	The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on our consolidated balance sheet.


(b)	The Unpaid Principal Balance represents the customer’s legal obligation to us.



December 31, 2015	Recorded Investment ^(a)		Unpaid Principal Balance ^(b)		Specific Allowance
in millions
With no related allowance recorded:
Commercial, financial and agricultural	$	40	$	74	—
Commercial real estate:
Commercial mortgage	5		8		—
Construction	5		5		—
Total commercial real estate loans	10		13		—
Total commercial loans	50		87		—
Real estate — residential mortgage	23		23		—
Home equity loans	61		61		—
Consumer indirect loans	1		1		—
Total consumer loans	85		85		—
Total loans with no related allowance recorded	135		172		—

With an allowance recorded:
Commercial, financial and agricultural	28		43		$	7
Commercial real estate:
Commercial mortgage	5		6		1
Total commercial real estate loans	5		6		1
Total commercial loans	33		49		8
Real estate — residential mortgage	33		33		4
Home equity loans	64		64		20
Consumer direct loans	3		3		—
Credit cards	3		3		—
Consumer indirect loans	37		37		3
Total consumer loans	140		140		27
Total loans with an allowance recorded	173		189		35
Total	$	308	$	361	$	35


(a)	The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on our consolidated balance sheet.


(b)	The Unpaid Principal Balance represents the customer’s legal obligation to us.

The following table sets forth a further breakdown of average individually impaired loans reported by Key:



Average Recorded Investment ^(a)	Twelve Months Ended December 31,
in millions	2016		2015		2014
Commercial, financial and agricultural	$	176	$	56	$	46
Commercial real estate:
Commercial mortgage	8		15		24
Construction	3		7		29
Total commercial real estate loans	11		22		53
Total commercial loans	187		78		99
Real estate — residential mortgage	53		55		55
Home equity loans	125		122		117
Consumer direct loans	3		4		4
Credit cards	3		4		5
Consumer indirect loans	34		42		50
Total consumer loans	218		227		231
Total	$	405	$	305	$	330


(a)	The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on our consolidated balance sheet.

For the twelve months ended December 31, 2016, December 31, 2015, and December 31, 2014, interest income recognized on the outstanding balances of accruing impaired loans totaled $10 million, $6 million, and $7 million, respectively.

At December 31, 2016, aggregate TDR loans (accrual and nonaccrual loans) totaled $280 million, compared to $280 million at December 31, 2015, and $270 million at December 31, 2014. During 2016, we added $107 million in TDRs, which were offset by $107 million in payments and charge-offs. During 2015, we added $99 million in TDR loans, which were partially offset by $89 million in payments and charge-offs. During 2014, we added $93 million in TDR loans, which were offset by $161 million in payments and charge-offs.

A further breakdown of TDRs included in nonperforming loans by loan category as of December 31, 2016, follows:



December 31, 2016	Number of Loans	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
dollars in millions
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural	18	$	91	$	50
Commercial real estate:
Real estate — commercial mortgage	7	2		1
Total commercial real estate loans	7	2		1
Total commercial loans	25	93		51
Real estate — residential mortgage	264	16		16
Home equity loans	1,199	77		69
Consumer direct loans	32	1		—
Credit cards	336	2		2
Consumer indirect loans	124	4		3
Total consumer loans	1,955	100		90
Total nonperforming TDRs	1,980	193		141
Prior-year accruing: ^(a)
Commercial, financial and agricultural	5	30		16
Total commercial loans	5	30		16
Real estate — residential mortgage	477	35		35
Home equity loans	1,231	70		57
Consumer direct loans	35	2		2
Credit cards	410	3		1
Consumer indirect loans	377	56		28
Total consumer loans	2,530	166		123
Total prior-year accruing TDRs	2,535	196		139
Total TDRs	4,515	$	389	$	280


(a)	All TDRs that were restructured prior to January 1, 2016, and are fully accruing.

A further breakdown of TDRs included in nonperforming loans by loan category as of December 31, 2015, follows:



December 31, 2015	Number of Loans	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
dollars in millions
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural	12	$	56	$	45
Commercial real estate:
Real estate — commercial mortgage	12	30		7
Total commercial real estate loans	12	30		7
Total commercial loans	24	86		52
Real estate — residential mortgage	366	23		23
Home equity loans	1,262	85		76
Consumer direct loans	28	1		1
Credit cards	339	2		2
Consumer indirect loans	103	6		5
Total consumer loans	2,098	117		107
Total nonperforming TDRs	2,122	203		159
Prior-year accruing: ^(a)
Commercial, financial and agricultural	7	5		2
Total commercial loans	7	5		2
Real estate — residential mortgage	489	34		34
Home equity loans	1,071	57		49
Consumer direct loans	42	2		2
Credit cards	461	4		2
Consumer indirect loans	430	59		32
Total consumer loans	2,493	156		119
Total prior-year accruing TDRs	2,500	161		121
Total TDRs	4,622	$	364	$	280


(a)	All TDRs that were restructured prior to January 1, 2015, and are fully accruing.

A further breakdown of TDRs included in nonperforming loans by loan category as of December 31, 2014, follows:



December 31, 2014	Number of Loans	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
dollars in millions
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural	14	$	25	$	23
Commercial real estate:
Real estate — commercial mortgage	10	38		13
Real estate — construction	1	5		—
Total commercial real estate loans	11	43		13
Total commercial loans	25	68		36
Real estate — residential mortgage	453	27		27
Home equity loans	1,342	83		76
Consumer direct loans	37	2		1
Credit cards	290	2		2
Consumer indirect loans	244	18		15
Total consumer loans	2,366	132		121
Total nonperforming TDRs	2,391	200		157
Prior-year accruing: ^(a)
Commercial, financial and agricultural	20	6		3
Commercial real estate:
Real estate — commercial mortgage	1	2		1
Total commercial real estate loans	1	2		1
Total commercial loans	21	8		4
Real estate — residential mortgage	381	29		29
Home equity loans	984	50		44
Consumer direct loans	45	2		2
Credit cards	514	4		2
Consumer indirect loans	440	56		32
Total consumer loans	2,364	141		109
Total prior-year accruing TDRs	2,385	149		113
Total TDRs	4,776	$	349	$	270


(a)	All TDRs that were restructured prior to January 1, 2014, and are fully accruing.

We classify loan modifications as TDRs when a borrower is experiencing financial difficulties and we have granted a concession without commensurate financial, structural, or legal consideration. Acquired loans that were previously modified by First Niagara in a TDR are no longer classified as TDRs at the Acquisition Date. An acquired loan may only be classified as a TDR if a modification meeting the above TDR criteria is performed after the Acquisition Date. PCI loans cannot be classified as TDRs. All commercial and consumer loan TDRs, regardless of size, are individually evaluated for impairment to determine the probable loss content and are assigned a specific loan allowance if deemed appropriate. This designation has the effect of moving the loan from the general reserve methodology (i.e., collectively evaluated) to the specific reserve methodology (i.e., individually evaluated) and may impact the ALLL through a charge-off or increased loan loss provision. These components affect the ultimate allowance level. Additional information regarding TDRs for discontinued operations is provided in Note 14 (“Acquisition, Divestiture, and Discontinued Operations”).

Commercial loan TDRs are considered defaulted when principal and interest payments are 90 days past due. Consumer loan TDRs are considered defaulted when principal and interest payments are more than 60 days past due. During the year ended December 31, 2016, there were no commercial loan TDRs and 187 consumer loan TDRs with a combined recorded investment of $9 million that experienced payment defaults after modifications resulting in TDR status during 2015. During the year ended December 31, 2015, there were two commercial loan TDRs with a combined recorded investment of $1 million and 269 consumer loan TDRs with a combined recorded investment of $12 million that experienced payment defaults after modifications resulting in TDR status during 2014. During the year ended December 31, 2014, there were four commercial loan TDRs with a combined recorded investment of $11 million, and 441 consumer loan TDRs with a combined recorded investment of $15 million that experienced payment defaults after modifications resulting in TDR status during 2013. As TDRs are individually evaluated for impairment under the specific reserve methodology, subsequent defaults do not generally have a significant additional impact on the ALLL. Commitments outstanding to lend additional funds to borrowers whose loan terms have been modified in TDRs are $14 million and $9 million at December 31, 2016, and December 31, 2015, respectively.

Our loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. Our concession types are primarily interest rate reductions, forgiveness of principal, and other modifications. The commercial TDR other concession category includes modification of loan terms, covenants, or conditions. The consumer TDR other concession category primarily includes those borrowers’ debts that are discharged through Chapter 7 bankruptcy and have not been formally re-affirmed. At December 31, 2016, and December 31, 2015, the recorded investment of consumer residential mortgage loans in the process of foreclosure was approximately $141 million and $114 million, respectively.

The following table shows the post-modification outstanding recorded investment by concession type for our commercial and consumer accruing and nonaccruing TDRs and other selected financial data.



	Twelve Months Ended December 31,
in millions	2016		2015		2014
Commercial loans:
Interest rate reduction	$	14	$	43	$	2
Forgiveness of principal	—		—		—
Other	23		—		19
Total	$	37	$	43	$	21
Consumer loans:
Interest rate reduction	$	10	$	19	$	29
Forgiveness of principal	3		4		1
Other	21		17		28
Total	$	34	$	40	$	58
Total commercial and consumer TDRs	$	71	$	83	$	79
Total loans	86,038		59,876		57,381

Our policies for determining past due loans, placing loans on nonaccrual, applying payments on nonaccrual loans, and resuming accrual of interest for our commercial and consumer loan portfolios are disclosed in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Nonperforming Loans.”

At December 31, 2016, approximately $84.1 billion, or 97.7%, of our total loans were current, compared to $59.2 billion, or 98.9%, at December 31, 2015. At December 31, 2016, total past due loans and nonperforming loans of $1.1 billion represented approximately 1.3% of total loans, compared to $667 million, or 1.1%, at December 31, 2015.

The following aging analysis of past due and current loans as of December 31, 2016, and December 31, 2015, provides further information regarding Key’s credit exposure.

Aging Analysis of Loan Portfolio ^(a)



December 31, 2016	Current		30-59 Days Past Due ^(b)		60-89 Days Past Due ^(b)		90 and Greater Days Past Due ^(b)		Non-performing Loans		Total Past Due and Non-performing Loans		Purchased Credit Impaired		Total Loans ^{(c), (d)}
in millions
LOAN TYPE
Commercial, financial and agricultural	$	39,242	$	58	$	28	$	31	$	297	$	414	112		$	39,768
Commercial real estate:
Commercial mortgage	14,655		93		9		6		26		134		322		15,111
Construction	2,314		—		—		2		3		5		26		2,345
Total commercial real estate loans	16,969		93		9		8		29		139		348		17,456
Commercial lease financing	4,641		28		3		5		8		44		—		4,685
Total commercial loans	$	60,852	$	179	$	40	$	44	$	334	$	597	460		$	61,909
Real estate — residential mortgage	$	5,098	$	17	$	5	$	3	$	56	$	81	$	368	$	5,547
Home equity loans	12,327		49		29		16		223		317		30		12,674
Consumer direct loans	1,705		44		15		11		6		76		7		1,788
Credit cards	1,082		9		6		12		2		29		—		1,111
Consumer indirect loans	2,993		7		4		1		4		16		—		3,009
Total consumer loans	$	23,205	$	126	$	59	$	43	$	291	$	519	$	405	$	24,129
Total loans	$	84,057	$	305	$	99	$	87	$	625	$	1,116	$	865	$	86,038


(a)	Amounts in table represent recorded investment and exclude loans held for sale. Recorded investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs.


(b)	Past due loan amounts exclude purchased impaired loans, even if contractually past due (or if we do not expect to collect principal or interest in full based on the original contractual terms), as we are currently accreting income over the remaining term of the loans.


(c)	Net of unearned income, net deferred loan fees and costs, and unamortized discounts and premiums.


(d)	Future accretable yield related to purchased credit impaired loans is not included in the analysis of the loan portfolio.



December 31, 2015	Current		30-59 Days Past Due ^(b)		60-89 Days Past Due ^(b)		90 and Greater Days Past Due ^(b)		Non-performing Loans		Total Past Due and Non-performing Loans		Purchased Credit Impaired		Total Loans ^{(c), (d)}
in millions
LOAN TYPE
Commercial, financial and agricultural	$	31,116	$	11	$	11	$	20	$	82	$	124	—		$	31,240
Commercial real estate:
Commercial mortgage	7,917		8		5		10		19		42		—		7,959
Construction	1,042		1		1		—		9		11		—		1,053
Total commercial real estate loans	8,959		9		6		10		28		53		—		9,012
Commercial lease financing	3,952		33		11		11		13		68		—		4,020
Total commercial loans	$	44,027	$	53	$	28	$	41	$	123	$	245	—		$	44,272
Real estate — residential mortgage	$	2,149	$	14	$	3	$	2	$	64	$	83	$	10	$	2,242
Home equity loans	10,056		50		24		14		190		278		1		10,335
Consumer direct loans	1,580		10		3		5		2		20		—		1,600
Credit cards	785		6		4		9		2		21		—		806
Consumer indirect loans	601		9		4		1		6		20		—		621
Total consumer loans	$	15,171	$	89	$	38	$	31	$	264	$	422	$	11	$	15,604
Total loans	$	59,198	$	142	$	66	$	72	$	387	$	667	$	11	$	59,876


(a)	Amounts in table represent recorded investment and exclude loans held for sale. Recorded investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs.


(b)	Past due loan amounts exclude purchased impaired loans, even if contractually past due (or if we do not expect to collect principal or interest in full based on the original contractual terms), as we are currently accreting income over the remaining term of the loans.


(c)	Net of unearned income, net deferred loan fees and costs, and unamortized discounts and premiums.


(d)	Future accretable yield related to purchased credit impaired loans is not included in the analysis of the loan portfolio.

The prevalent risk characteristic for both commercial and consumer loans is the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Evaluation of this risk is stratified and monitored by the loan risk rating grades assigned for the commercial loan portfolios and the regulatory risk ratings assigned for the consumer loan portfolios.

Most extensions of credit are subject to loan grading or scoring. Loan grades are assigned at the time of origination, verified by credit risk management, and periodically re-evaluated thereafter. This risk rating methodology blends our judgment with quantitative modeling. Commercial loans generally are assigned two internal risk ratings. The first rating reflects the probability that the borrower will default on an obligation; the second rating reflects expected recovery rates on the credit facility. Default probability is determined based on, among other factors, the financial strength of the borrower, an assessment of the borrower’s management, the borrower’s competitive position within its industry sector, and our view of industry risk in the context of the general economic outlook. Types of exposure, transaction structure, and collateral, including credit risk mitigants, affect the expected recovery assessment.

Commercial Credit Exposure — Excluding PCI

Credit Risk Profile by Creditworthiness Category ^{(a), (b)}



December 31,
in millions	Commercial, financial and agricultural				RE — Commercial				RE — Construction				Commercial Lease				Total
RATING	2016		2015		2016		2015		2016		2015		2016		2015		2016		2015
Pass	$	37,845	$	29,921	$	14,308	$	7,800	$	2,287	$	1,007	$	4,632	$	3,967	$	59,072	$	42,695
Criticized (Accruing)	1,514		1,236		455		139		30		37		45		38		2,044		1,450
Criticized (Nonaccruing)	297		83		26		20		2		9		8		15		333		127
Total	$	39,656	$	31,240	$	14,789	$	7,959	$	2,319	$	1,053	$	4,685	$	4,020	$	61,449	$	44,272


(a)	Credit quality indicators are updated on an ongoing basis and reflect credit quality information as of the dates indicated.


(b)	The term criticized refers to those loans that are internally classified by Key as special mention or worse, 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 classified as criticized.

Consumer Credit Exposure — Excluding PCI

Non-PCI Loans by Refreshed FICO Score ^(a)



December 31,
	Residential — Prime				Consumer direct loans				Credit cards				Consumer indirect loans				Total
in millions	2016		2015		2016		2015		2016		2015		2016		2015		2016		2015
750 and above	$	9,818	$	6,378	$	498	$	445	$	453	$	322	$	1,266	$	233	$	12,035	$	7,378
660 to 749	5,266		3,822		661		619		525		389		1,195		265		7,647		5,095
Less than 660	1,617		1,291		194		203		132		94		543		120		2,486		1,708
No Score	1,122		1,075		428		333		1		1		5		3		1,556		1,412
Total	$	17,823	$	12,566	$	1,781	$	1,600	$	1,111	$	806	$	3,009	$	621	$	23,724	$	15,593


(a)	Borrower FICO scores provide information about the credit quality of our consumer loan portfolio as they provide an indication as to the likelihood that a debtor will repay their debts. The scores are obtained from a nationally recognized consumer rating agency and are presented in the above table at the dates indicated.

Commercial Credit Exposure — PCI

Credit Risk Profile by Creditworthiness Category ^{(a), (b)}



December 31,
in millions	Commercial, financial and agricultural				RE — Commercial				RE — Construction				Commercial Lease				Total
RATING	2016		2015		2016		2015		2016		2015		2016		2015		2016		2015
Pass	$	12	$	—	$	139	$	—	$	21	$	—	$	—	$	—	$	172	$	—
Criticized	100		—		183		—		5		—		—		—		288		—
Total	$	112	$	—	$	322	$	—	$	26	$	—	$	—	$	—	$	460	$	—


(a)	Credit quality indicators are updated on an ongoing basis and reflect credit quality information as of the dates indicated.


(b)	The term criticized refers to those loans that are internally classified by Key as special mention or worse, 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 classified as criticized.

Consumer Credit Exposure — PCI

PCI Loans by Refreshed FICO Score ^(a)



December 31,
	Residential — Prime				Consumer direct loans			Credit cards		Consumer indirect loans		Total
in millions	2016		2015		2016		2015	2016	2015	2016	2015	2016		2015
750 and above	$	133	$	2	—		—	—	—	—	—	$	133	$	2
660 to 749	127		3		$	2	—	—	—	—	—	129		3
Less than 660	133		5		4		—	—	—	—	—	137		5
No Score	5		1		1		—	—	—	—	—	6		1
Total	$	398	$	11	$	7	—	—	—	—	—	$	405	$	11


(a)	Borrower FICO scores provide information about the credit quality of our consumer loan portfolio as they provide an indication as to the likelihood that a debtor will repay their debts. The scores are obtained from a nationally recognized consumer rating agency and are presented in the above table at the dates indicated.

We determine the appropriate level of the ALLL on at least a quarterly basis. The methodology is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease Losses.” We apply expected loss rates to existing loans with similar risk characteristics as noted in the credit quality indicator table above and exercise judgment to assess the impact of qualitative factors such as changes in economic conditions, changes in credit policies or underwriting standards, and changes in the level of credit risk associated with specific industries and markets.

For all commercial and consumer loan TDRs, regardless of size, as well as impaired commercial loans with an outstanding balance of $2.5 million or greater, we conduct further analysis to determine the probable loss content and assign a specific allowance to the loan if deemed appropriate. We estimate the extent of the individual impairment for commercial loans and TDRs by comparing the recorded investment of the loan with the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan’s observable market price. Secured consumer loan TDRs that are discharged through Chapter 7 bankruptcy and not formally re-affirmed are adjusted to reflect the fair value of the underlying collateral, less costs to sell. Non-Chapter 7 consumer loan TDRs are combined in homogenous pools and assigned a specific allocation based on the estimated present value of future cash flows using the loan’s effective interest rate. A specific allowance also may be assigned — even when sources of repayment appear sufficient — if we remain uncertain about whether the loan will be repaid in full. On at least a quarterly basis, we evaluate the appropriateness of our loss estimation methods to reduce differences between estimated incurred losses and actual losses.

Commercial loans generally are charged off in full or charged down to the fair value of the underlying collateral when the borrower’s payment is 180 days past due. Consumer loans generally are charged off when payments are 120 days past due. Home equity and residential mortgage loans generally are charged down to net realizable value when payment is 180 days past due. Credit card loans, and similar unsecured products, are charged off when payments are 180 days past due.

The ALLL on the acquired non-impaired loan portfolio is estimated using the same methodology as the originated portfolio, however, the estimated ALLL is compared to the remaining accretable yield to determine if an ALLL must be recorded. For PCI loans, Key estimates cash flows expected to be collected quarterly. Decreases in expected cash flows are recognized as impairment through a provision for loan and lease losses and an increase in the ALLL. The ALLL at December 31, 2016, represents our best estimate of the incurred credit losses inherent in the loan portfolio at that date.

At December 31, 2016, the ALLL was $858 million, compared to $796 million, at December 31, 2015.

A summary of the changes in the ALLL for the periods indicated is presented in the table below:



December 31, in millions	2016			2015			2014
Balance at beginning of period — continuing operations	$	796		$	794		$	848
Charge-offs	(261		)	(203		)	(211		)
Recoveries	56			61			98
Net loans and leases charged off	(205		)	(142		)	(113		)
Provision for loan and lease losses from continuing operations	267			145			59
Foreign currency translation adjustment	—			(1		)	—
Balance at end of period — continuing operations	$	858		$	796		$	794

The changes in the ALLL by loan category for the periods indicated are as follows:



in millions	December 31, 2015		Provision			Charge-offs			Recoveries		December 31, 2016
Commercial, financial and agricultural	$	450	$	165		$	(118	)	$	11	$	508
Real estate — commercial mortgage	134		6			(5		)	9		144
Real estate — construction	25		4			(9		)	2		22
Commercial lease financing	47		4			(12		)	3		42
Total commercial loans	656		179			(144		)	25		716
Real estate — residential mortgage	18		2			(4		)	1		17
Home equity loans	57		13			(30		)	14		54
Consumer direct loans	20		26			(27		)	5		24
Credit cards	32		37			(35		)	4		38
Consumer indirect loans	13		10			(21		)	7		9
Total consumer loans	140		88			(117		)	31		142
Total ALLL — continuing operations	796		267		^(a)	(261		)	56		858
Discontinued operations	28		13			(28		)	11		24
Total ALLL — including discontinued operations	$	824	$	280		$	(289	)	$	67	$	882


(a)	Excludes a credit for losses on lending-related commitments of $1 million.



in millions	December 31, 2014		Provision				Charge-offs			Recoveries		December 31, 2015
Commercial, financial and agricultural	$	391	$	120			$	(77	)	$	16	$	450
Real estate — commercial mortgage	148		(16		)		(4		)	6		134
Real estate — construction	28		(3		)		(1		)	1		25
Commercial lease financing	56		(5		)		(11		)	7		47
Total commercial loans	623		96				(93		)	30		656
Real estate — residential mortgage	23		(2		)		(6		)	3		18
Home equity loans	71		7				(32		)	11		57
Consumer direct loans	22		16				(24		)	6		20
Credit cards	33		27				(30		)	2		32
Consumer indirect loans	22		—				(18		)	9		13
Total consumer loans	171		48				(110		)	31		140
Total ALLL — continuing operations	794		144			^(a)	(203		)	61		796
Discontinued operations	29		21				(35		)	13		28
Total ALLL — including discontinued operations	$	823	$	165			$	(238	)	$	74	$	824


(a)	Includes a $1 million foreign currency translation adjustment. Excludes a provision for losses on lending-related commitments of $21 million.



in millions	December 31, 2013		Provision				Charge-offs			Recoveries		December 31, 2014
Commercial, financial and agricultural	$	362	$	41			$	(45	)	$	33	$	391
Real estate — commercial mortgage	165		(15		)		(6		)	4		148
Real estate — construction	32		(16		)		(5		)	17		28
Commercial lease financing	62		(6		)		(10		)	10		56
Total commercial loans	621		4				(66		)	64		623
Real estate — residential mortgage	37		(6		)		(10		)	2		23
Home equity loans	95		8				(46		)	14		71
Consumer direct loans	29		17				(30		)	6		22
Credit cards	34		32				(34		)	1		33
Consumer indirect loans	32		4				(25		)	11		22
Total consumer loans	227		55				(145		)	34		171
Total ALLL — continuing operations	848		59			^(a)	(211		)	98		794
Discontinued operations	39		21				(45		)	14		29
Total ALLL — including discontinued operations	$	887	$	80			$	(256	)	$	112	$	823


(a)	Includes a $2 million foreign currency translation adjustment.

Our ALLL from continuing operations remained relatively stable, increasing by $62 million, or 7.8%, since 2015. Our allowance applies expected loss rates to our existing loans with similar risk characteristics as well as any adjustments to reflect our current assessment of qualitative factors, such as changes in economic conditions, underwriting standards, and concentrations of credit. Our commercial ALLL increased by $60 million, or 9.1%, since 2015 primarily because of loan growth in our commercial, financial and agricultural portfolio and an increase in incurred loss estimates during 2015 and into 2016 primarily due to the continued depressed oil and gas prices since 2014. Our consumer ALLL increased by $2 million, or 1.4%, since 2015. Our consumer ALLL increase was primarily due to the addition of the acquired credit card and consumer direct portfolios, which were acquired at a premium. This increase was partially offset by continued improvement in credit metrics, which have decreased expected loss rates since 2014. The continued improvement in the consumer portfolio credit quality metrics since 2015 was primarily due to benefits of relatively stable economic conditions and improved delinquency rates, average credit bureau scores, and residential LTVs.

For continuing operations, the loans outstanding individually evaluated for impairment totaled $501 million, with a corresponding allowance of $37 million at December 31, 2016. Loans outstanding collectively evaluated for impairment totaled $84.7 billion, with a corresponding allowance of $816 million at December 31, 2016. At December 31, 2016, PCI loans evaluated for impairment totaled $865 million, increasing from $11 million at December 31, 2015. At December 31, 2016, PCI loans had a corresponding allowance of $5 million. There was $11 million of provision for loan and lease losses on these PCI loans during the year ended December 31, 2016. At December 31, 2015, the loans outstanding individually evaluated for impairment totaled $308 million, with a corresponding allowance of $35 million. Loans outstanding collectively evaluated for impairment totaled $59.6 billion, with a corresponding allowance of $760 million at December 31, 2015. At December 31, 2015, PCI loans evaluated for impairment totaled $11 million, decreasing from $13 million at December 31, 2014. At December 31, 2015, PCI loans had a corresponding allowance of $1 million. There was no provision for loan and lease losses on these PCI loans during the year ended December 31, 2015.

A breakdown of the individual and collective ALLL and the corresponding loan balances as of December 31, 2016, follows:



	Allowance						Outstanding
December 31, 2016	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit Impaired		Loans			Individually Evaluated for Impairment		Collectively Evaluated for Impairment			Purchased Credit Impaired
in millions
Commercial, financial and agricultural	$	17	$	486	$	5	$	39,768		$	284	$	39,372		$	112
Commercial real estate:
Commercial mortgage	—		144		—		15,111			5		14,784			322
Construction	—		22		—		2,345			—		2,319			26
Total commercial real estate loans	—		166		—		17,456			5		17,103			348
Commercial lease financing	—		42		—		4,685			—		4,685			—
Total commercial loans	17		694		5		61,909			289		61,160			460
Real estate — residential mortgage	2		15		—		5,547			51		5,128			368
Home equity loans	17		37		—		12,674			125		12,519			30
Consumer direct loans	—		24		—		1,788			3		1,778			7
Credit cards	—		38		—		1,111			3		1,108			—
Consumer indirect loans	1		8		—		3,009			30		2,979			—
Total consumer loans	20		122		—		24,129			212		23,512			405
Total ALLL — continuing operations	37		816		5		86,038			501		84,672			865
Discontinued operations	2		22		—		1,565		^(a)	22		1,543		^(a)	—
Total ALLL — including discontinued operations	$	39	$	838	$	5	$	87,603		$	523	$	86,215		$	865


(a)	Amount includes $3 million of loans carried at fair value that are excluded from ALLL consideration.

A breakdown of the individual and collective ALLL and the corresponding loan balances as of December 31, 2015, follows:



	Allowance						Outstanding
December 31, 2015	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit Impaired		Loans			Individually Evaluated for Impairment		Collectively Evaluated for Impairment			Purchased Credit Impaired
in millions
Commercial, financial and agricultural	$	7	$	443	—		$	31,240		$	68	$	31,172		—
Commercial real estate:
Commercial mortgage	1		133		—		7,959			10		7,949			—
Construction	—		25		—		1,053			5		1,048			—
Total commercial real estate loans	1		158		—		9,012			15		8,997			—
Commercial lease financing	—		47		—		4,020			—		4,020			—
Total commercial loans	8		648		—		44,272			83		44,189			—
Real estate — residential mortgage	4		13		$	1	2,242			56		2,176			$	10
Home equity loans	20		37		—		10,335			125		10,209			1
Consumer direct loans	—		20		—		1,600			3		1,597			—
Credit cards	—		32		—		806			3		803			—
Consumer indirect loans	3		10		—		621			38		583			—
Total consumer loans	27		112		1		15,604			225		15,368			11
Total ALLL — continuing operations	35		760		1		59,876			308		59,557			11
Discontinued operations	2		26		—		1,828		^(a)	21		1,807		^(a)	—
Total ALLL — including discontinued operations	$	37	$	786	$	1	$	61,704		$	329	$	61,364		$	11


(a)	Amount includes $4 million of loans carried at fair value that are excluded from ALLL consideration.

The liability for credit losses inherent in lending-related unfunded commitments, such as letters of credit and unfunded loan commitments, is included in “accrued expense and other liabilities” on the balance sheet. We establish the amount of this reserve by considering both historical trends and current market conditions quarterly, or more often if deemed necessary. Our liability for credit losses on lending-related commitments was $55 million at December 31, 2016.

Changes in the liability for credit losses on unfunded lending-related commitments are summarized as follows:



Year ended December 31, in millions	2016			2015		2014
Balance at beginning of period	$	56		$	35	$	37
Provision (credit) for losses on lending-related commitments	(1		)	21		(2		)
Balance at end of period	$	55		$	56	$	35