Asset Quality

3 Months Ended

Mar. 31, 2018

Receivables [Abstract]

Asset Quality

4. Asset Quality

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

Credit Quality Indicators

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 refreshed FICO score 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)} 

	Commercial and industrial				RE — Commercial				RE — Construction				Commercial lease				Total
in millions	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
RATING	2018		2017		2018		2017		2018		2017		2018		2017		2018		2017
Pass	$	42,191	$	39,833	$	13,159	$	13,328	$	1,815	$	1,894	$	4,503	$	4,730	$	61,668	$	59,785
Criticized (Accruing)	1,860		1,790		564		482		51		38		90		90		2,565		2,400
Criticized (Nonaccruing)	189		153		33		30		2		2		5		6		229		191
Total	$	44,240	$	41,776	$	13,756	$	13,840	$	1,868	$	1,934	$	4,598	$	4,826	$	64,462	$	62,376

(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) 

	Residential — Prime				Consumer direct loans				Credit cards				Consumer indirect loans				Total
in millions	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
FICO SCORE	2018		2017		2018		2017		2018		2017		2018		2017		2018		2017
750 and above	$	10,046	$	10,226	$	503	$	519	$	451	$	477	$	1,449	$	1,472	$	12,449	$	12,694
660 to 749	5,028		5,181		665		690		499		508		1,172		1,184		7,364		7,563
Less than 660	1,475		1,519		220		225		118		121		515		529		2,328		2,394
No Score	275		208		366		356		—		—		155		76		796		640
Total	$	16,824	$	17,134	$	1,754	$	1,790	$	1,068	$	1,106	$	3,291	$	3,261	$	22,937	$	23,291

(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 its 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)} 

	Commercial and Industrial				RE — Commercial				RE — Construction				Commercial Lease		Total
in millions	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,	December 31,	March 31,		December 31,
RATING	2018		2017		2018		2017		2018		2017		2018	2017	2018		2017
Pass	$	27	$	41	$	163	$	153	$	3	$	26	—	—	$	193	$	220
Criticized	46		42		78		95		—		—		—	—	124		137
Total	$	73	$	83	$	241	$	248	$	3	$	26	—	—	$	317	$	357

(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) 

	Residential — Prime				Consumer direct loans				Credit cards		Consumer indirect loans		Total
in millions	March 31,		December 31,		March 31,		December 31,		March 31,	December 31,	March 31,	December 31,	March 31,		December 31,
FICO SCORE	2018		2017		2018		2017		2018	2017	2018	2017	2018		2017
750 and above	$	139	$	149	—		—		—	—	—	—	$	139	$	149
660 to 749	119		117		$	2	$	2	—	—	—	—	121		119
Less than 660	99		105		2		2		—	—	—	—	101		107
No Score	12		6		—		—		—	—	—	—	12		6
Total	$	369	$	377	$	4	$	4	—	—	—	—	$	373	$	381

(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 its debts. The scores are obtained from a nationally recognized consumer rating agency and are presented in the above table at the dates indicated.

Nonperforming and Past Due Loans

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” beginning on page 101 of our 2017 Form 10-K.

The following aging analysis of past due and current loans as of March 31, 2018, and December 31, 2017, provides further information regarding Key’s credit exposure.

Aging Analysis of Loan Portfolio^(a) 

March 31, 2018	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 and industrial	$	43,905	$	93	$	26	$	27	$	189	$	335	$	73	$	44,313
Commercial real estate:
Commercial mortgage	13,684		17		9		13		33		72		241		13,997
Construction	1,829		26		9		2		2		39		3		1,871
Total commercial real estate loans	15,513		43		18		15		35		111		244		15,868
Commercial lease financing	4,577		4		4		8		5		21		—		4,598
Total commercial loans	$	63,995	$	140	$	48	$	50	$	229	$	467	$	317	$	64,779
Real estate — residential mortgage	$	5,044	$	14	$	5	$	4	$	59	$	82	$	347	$	5,473
Home equity loans	11,424		25		10		10		229		274		22		11,720
Consumer direct loans	1,720		21		4		5		4		34		4		1,758
Credit cards	1,045		6		4		11		2		23		—		1,068
Consumer indirect loans	3,243		22		6		2		18		48		—		3,291
Total consumer loans	$	22,476	$	88	$	29	$	32	$	312	$	461	$	373	$	23,310
Total loans	$	86,471	$	228	$	77	$	82	$	541	$	928	$	690	$	88,089

(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 PCI, 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 PCI loans is not included in the analysis of the loan portfolio.

December 31, 2017	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 and industrial	$	41,444	$	111	$	34	$	34	$	153	$	332	83		$	41,859
Commercial real estate:
Commercial mortgage	13,750		26		13		21		30		90		248		14,088
Construction	1,919		4		9		—		2		15		26		1,960
Total commercial real estate loans	15,669		30		22		21		32		105		274		16,048
Commercial lease financing	4,791		23		4		2		6		35		—		4,826
Total commercial loans	$	61,904	$	164	$	60	$	57	$	191	$	472	357		$	62,733
Real estate — residential mortgage	$	5,043	$	16	$	7	$	4	$	58	$	85	$	355	$	5,483
Home equity loans	11,721		32		15		9		229		285		22		12,028
Consumer direct loans	1,768		9		4		5		4		22		4		1,794
Credit cards	1,081		7		5		11		2		25		—		1,106
Consumer indirect loans	3,199		33		7		3		19		62		—		3,261
Total consumer loans	$	22,812	$	97	$	38	$	32	$	312	$	479	$	381	$	23,672
Total loans	$	84,716	$	261	$	98	$	89	$	503	$	951	$	738	$	86,405

(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 PCI, 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.

At March 31, 2018, the approximate carrying amount of our commercial nonperforming loans outstanding represented 70% of their original contractual amount owed, total nonperforming loans outstanding represented 79% of their original contractual amount owed, and nonperforming assets in total were carried at 79% of their original contractual amount owed.

Nonperforming loans and loans held for sale reduced expected interest income by $7 million for the three months ended March 31, 2018, and $6 million for the three months ended March 31, 2017.

The following tables set forth a further breakdown of individually impaired loans as of March 31, 2018, and December 31, 2017:

March 31, 2018	Recorded Investment(a)		Unpaid Principal Balance (b)		Specific Allowance
in millions
With no related allowance recorded:
Commercial and industrial	$	166	$	206	—
Commercial real estate:
Commercial mortgage	13		18		—
Total commercial real estate loans	13		18		—
Total commercial loans	179		224		—
Real estate — residential mortgage	17		26		—
Home equity loans	58		67		—
Consumer indirect loans	2		4		—
Total consumer loans	77		97		—
Total loans with no related allowance recorded	256		321		—
With an allowance recorded:
Commercial and industrial	4		13		$	1
Total commercial loans	4		13		1
Real estate — residential mortgage	32		49		4
Home equity loans	65		70		9
Consumer direct loans	4		4		—
Credit cards	3		3		—
Consumer indirect loans	33		33		4
Total consumer loans	137		159		17
Total loans with an allowance recorded	141		172		18
Total	$	397	$	493	$	18

(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, 2017	Recorded Investment(a)		Unpaid Principal Balance(b)		Specific Allowance
in millions
With no related allowance recorded:
Commercial and industrial	$	126	$	153	—
Commercial real estate:
Commercial mortgage	12		18		—
Total commercial real estate loans	12		18		—
Total commercial loans	138		171		—
Real estate — residential mortgage	17		17		—
Home equity loans	56		56		—
Consumer indirect loans	2		2		—
Total consumer loans	75		75		—
Total loans with no related allowance recorded	213		246		—
With an allowance recorded:
Commercial and industrial	10		28		$	6
Total commercial loans	10		28		6
Real estate — residential mortgage	32		32		5
Home equity loans	61		61		9
Consumer direct loans	4		4		—
Credit cards	2		2		—
Consumer indirect loans	32		32		3
Total consumer loans	131		131		17
Total loans with an allowance recorded	141		159		23
Total	$	354	$	405	$	23

(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 the average individually impaired loans reported by Key:

Average Recorded Investment (a)	Three Months Ended March 31,
in millions	2018		2017
Commercial and industrial	$	153	$	260
Commercial real estate:
Commercial mortgage	12		10
Construction	—		—
Total commercial real estate loans	12		10
Total commercial loans	165		270
Real estate — residential mortgage	49		51
Home equity loans	120		125
Consumer direct loans	4		3
Credit cards	3		2
Consumer indirect loans	35		33
Total consumer loans	211		214
Total	$	376	$	484

(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 three months ended March 31, 2018 and March 31, 2017, interest income recognized on the outstanding balances of accruing impaired loans totaled $2 million and $3 million, respectively.

TDRs

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. 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.

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 $2 million and $2 million at March 31, 2018 and December 31, 2017, 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. The consumer TDR other concession category primarily includes those borrowers’ debts that are discharged through bankruptcy and have not been formally re-affirmed. At March 31, 2018, and December 31, 2017, the recorded investment of consumer residential mortgage loans in the process of foreclosure was approximately $155 million and $142 million, respectively. At March 31, 2018, and December 31, 2017, we had $28 million and $31 million, respectively, of OREO which included the carrying value of foreclosed residential real estate of approximately $22 million and $26 million, respectively.

The following table shows the post-modification outstanding recorded investment by concession type for our commercial and consumer accruing and nonaccruing TDRs that occurred during the periods indicated:

	Three Months Ended March 31,
in millions	2018		2017
Commercial loans:
Interest rate reduction	—		—
Forgiveness of principal	—		—
Extension of Maturity Date	$	1	$	3
Payment or Covenant Modification/Deferment	—		25
Bankruptcy Plan Modification	—		—
Total	$	1	$	28
Consumer loans:
Interest rate reduction	$	8	$	2
Forgiveness of principal	—		—
Other	12		13
Total	$	20	$	15
Total commercial and consumer TDRs	$	21	$	43

The following table summarizes the change in the post-modification outstanding recorded investment of our accruing and nonaccruing TDRs during the periods indicated:

	Three Months Ended March 31,
in millions	2018			2017
Balance at beginning of the period	$	317		280
Additions	21			47
Payments	(19		)	(14		)
Charge-offs	(2		)	$	(11	)
Balance at end of period (a)	$	317		$	302

A further breakdown of TDRs included in nonperforming loans by loan category for the periods indicated are as follows:

March 31, 2018	Number of Loans	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
dollars in millions
LOAN TYPE
Nonperforming:
Commercial and industrial	30	$	109	$	77
Commercial real estate:
Commercial mortgage	7	14		9
Total commercial real estate loans	7	14		9
Total commercial loans	37	123		86
Real estate — residential mortgage	264	17		17
Home equity loans	1,133	68		61
Consumer direct loans	104	2		2
Credit cards	277	1		1
Consumer indirect loans	868	16		13
Total consumer loans	2,646	104		94
Total nonperforming TDRs	2,683	227		180
Prior-year accruing:(a)
Commercial and industrial	14	30		13
Commercial real estate
Commercial mortgage	2	3		3
Total commercial real estate loans	2	3		3
Total commercial loans	16	33		16
Real estate — residential mortgage	516	32		31
Home equity loans	1,338	78		62
Consumer direct loans	74	4		3
Credit cards	493	2		2
Consumer indirect loans	450	33		23
Total consumer loans	2,871	149		121
Total prior-year accruing TDRs	2,887	182		137
Total TDRs	5,570	$	409	$	317

(a) All TDRs that were restructured prior to January 1, 2018, and are fully accruing.

A further breakdown of TDRs included in nonperforming loans by loan category as of December 31, 2017, follows:

December 31, 2017	Number of Loans	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
dollars in millions
LOAN TYPE
Nonperforming:
Commercial and industrial	20	$	109	$	86
Commercial real estate:
Commercial mortgage	8	16		12
Total commercial real estate loans	8	16		12
Total commercial loans	28	125		98
Real estate — residential mortgage	308	18		18
Home equity loans	1,025	64		57
Consumer direct loans	114	2		2
Credit cards	322	2		1
Consumer indirect loans	825	16		13
Total consumer loans	2,594	102		91
Total nonperforming TDRs	2,622	227		189
Prior-year accruing: (a)
Commercial and Industrial	4	30		13
Total commercial loans	4	30		13
Real estate — residential mortgage	484	31		31
Home equity loans	1,276	75		59
Consumer direct loans	48	3		2
Credit cards	430	1		1
Consumer indirect loans	320	31		22
Total consumer loans	2,558	141		115
Total prior-year accruing TDRs	2,562	171		128
Total TDRs	5,184	$	398	$	317

(a) All TDRs that were restructured prior to January 1, 2017, and are fully accruing.

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 three months ended March 31, 2018, there were no commercial loan TDRs and 41 consumer loan TDRs with a combined recorded investment of $1 million that experienced payment defaults after modifications resulting in TDR status during 2017. During the three months ended March 31, 2017, there were no commercial loan TDRs and 3 consumer loan TDRs with a combined recorded investment of less than $1 million that experienced payment defaults after modifications resulting in TDR status during 2016.

ALLL and Liability for Credit Losses on Unfunded Lending-Related Commitments

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” beginning on page 102 of our 2017 Form 10-K.

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. There was $3 million of provision for loan and lease losses on PCI loans during the three months ended March 31, 2018. There was $3 million of provision for loan and lease losses on PCI loans during the twelve months ended December 31, 2017. There was $4 million of provision for loan and lease losses on PCI loans during the three months ended March 31, 2017.

The ALLL at March 31, 2018, represents our best estimate of the incurred credit losses inherent in the loan portfolio at that date. A summary of the changes in the ALLL for the periods indicated is presented in the table below:

	Three months ended March 31,
in millions	2018			2017
Balance at beginning of period — continuing operations	$	877		$	858
Charge-offs	(72		)	(77		)
Recoveries	18			19
Net loans and leases charged off	(54		)	(58		)
Provision for loan and lease losses from continuing operations	58			70
Balance at end of period — continuing operations	$	881		$	870

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

Three months ended March 31, 2018:

in millions	December 31, 2017		Provision				Charge-offs			Recoveries		March 31, 2018
Commercial and Industrial	$	529	$	35			$	(37	)	$	6	$	533
Commercial real estate:
Real estate — commercial mortgage	133		4				(1		)	—		136
Real estate — construction	30		2				—			1		33
Total commercial real estate loans	163		6				(1		)	1		169
Commercial lease financing	43		(3		)		(1		)	1		40
Total commercial loans	735		38				(39		)	8		742
Real estate — residential mortgage	7		3				(1		)	—		9
Home equity loans	43		(4		)		(4		)	3		38
Consumer direct loans	28		5				(8		)	2		27
Credit cards	44		12				(12		)	1		45
Consumer indirect loans	20		4				(8		)	4		20
Total consumer loans	142		20				(33		)	10		139
Total ALLL — continuing operations	877		58			(a)	(72		)	18		881
Discontinued operations	16		2				(4		)	2		16
Total ALLL — including discontinued operations	$	893	$	60			$	(76	)	$	20	$	897

(a) Excludes a provision for losses on lending-related commitments of $3 million.

Three months ended March 31, 2017:

in millions	December 31, 2016		Provision				Charge-offs			Recoveries		March 31, 2017
Commercial and Industrial	$	508	$	31			$	(32	)	$	5	$	512
Commercial real estate:
Real estate — commercial mortgage	144		2				—			—		146
Real estate — construction	22		6				—			1		29
Total commercial real estate loans	166		8				—			1		175
Commercial lease financing	42		3				(7		)	2		40
Total commercial loans	716		42				(39		)	8		727
Real estate — residential mortgage	17		(3		)		2			2		18
Home equity loans	54		4				(8		)	3		53
Consumer direct loans	24		9				(10		)	1		24
Credit cards	38		10				(11		)	1		38
Consumer indirect loans	9		8				(11		)	4		10
Total consumer loans	142		28				(38		)	11		143
Total ALLL — continuing operations	858		70			(a)	(77		)	19		870
Discontinued operations	24		3				(6		)	2		23
Total ALLL — including discontinued operations	$	882	$	73			$	(83	)	$	21	$	893

(a) Excludes a credit for losses on lending-related commitments of $7 million.

A breakdown of the individual and collective ALLL and the corresponding loan balances as of March 31, 2018, follows:

	Allowance					Outstanding
March 31, 2018	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 and industrial	$	1	$	529	3	$	44,313		$	170	$	44,070		$	73
Commercial real estate:
Commercial mortgage	—		132		4	13,997			13		13,743			241
Construction	—		33		—	1,871			—		1,868			3
Total commercial real estate loans	—		165		4	15,868			13		15,611			244
Commercial lease financing	—		40		—	4,598			—		4,598			—
Total commercial loans	1		734		7	64,779			183		64,279			317
Real estate — residential mortgage	4		3		2	5,473			49		5,077			347
Home equity loans	9		28		1	11,720			123		11,575			22
Consumer direct loans	—		27		—	1,758			4		1,750			4
Credit cards	—		45		—	1,068			3		1,065			—
Consumer indirect loans	4		16		—	3,291			35		3,256			—
Total consumer loans	17		119		3	23,310			214		22,723			373
Total ALLL — continuing operations	18		853		10	88,089			397		87,002			690
Discontinued operations	3		13		—	1,256		(a)	21		1,235		(a)	—
Total ALLL — including discontinued operations	$	21	$	866	10	$	89,345		$	418	$	88,237		$	690

(a) Amount includes $2 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, 2017, follows:

	Allowance						Outstanding
December 31, 2017	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 and Industrial	$	6	$	520	3		$	41,859		$	136	$	41,640		$	83
Commercial real estate:
Commercial mortgage	—		131		2		14,088			12		13,828			248
Construction	—		30		—		1,960			—		1,934			26
Total commercial real estate loans	—		161		2		16,048			12		15,762			274
Commercial lease financing	—		43		—		4,826			—		4,826			—
Total commercial loans	6		724		5		62,733			148		62,228			357
Real estate — residential mortgage	5		2		—		5,483			49		5,079			355
Home equity loans	9		33		1		12,028			117		11,889			22
Consumer direct loans	—		28		—		1,794			4		1,786			4
Credit cards	—		44		—		1,106			2		1,104			—
Consumer indirect loans	3		17		—		3,261			34		3,227			—
Total consumer loans	17		124		1		23,672			206		23,085			381
Total ALLL — continuing operations	23		848		6		86,405			354		85,313			738
Discontinued operations	3		13		—		1,314		(a)	21		1,293		(a)	—
Total ALLL — including discontinued operations	$	26	$	861	$	6	$	87,719		$	375	$	86,606		$	738

(a) Amount includes $2 million of loans carried at fair value that are excluded from ALLL consideration.

The liability for credit losses inherent in unfunded lending-related 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.

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

	Three months ended March 31,
in millions	2018		2017
Balance at beginning of period	$	57	$	55
Provision (credit) for losses on lending-related commitments	3		(7		)
Balance at end of period	$	60	$	48

PCI Loans

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 LTV. In accordance with ASC 310-30, excluded from the purchased impaired loans were leases, revolving credit arrangements, and loans held for sale.

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.

We have PCI loans from two separate acquisitions, one in 2012 and one in 2016. The following tables present the roll-forward of the accretable yield and the beginning and ending outstanding unpaid principal balance and carrying amount of all PCI loans for the three months ended March 31, 2018, and the twelve months ended December 31, 2017.

	Three Months Ended March 31,
	2018
in millions	Accretable Yield			Carrying Amount		Outstanding Unpaid Principal Balance
Balance at beginning of period	$	131		$	738	$	803
Additions	—
Accretion	(12		)
Net reclassifications from nonaccretable to accretable	22
Payments received, net	(9		)
Disposals	—
Balance at end of period	$	132		$	680	$	737

	Twelve Months Ended December 31,
	2017
in millions	Accretable Yield			Carrying Amount		Outstanding Unpaid Principal Balance
Balance at beginning of period	$	197		$	865	$	1,002
Additions	(32		)
Accretion	(44		)
Net reclassifications from nonaccretable to accretable	15
Payments received, net	(4		)
Disposals	(1		)
Balance at end of period	$	131		$	738	$	803