LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans and Loans Held for Sale

Loans are summarized as follows according to major portfolio segment and specific loan class:



(In millions)	March 31, 2017		December 31, 2016

Loans held for sale	$	128	$	172

Commercial:
Commercial and industrial	$	13,368	$	13,452
Leasing	404		423
Owner-occupied	6,973		6,962
Municipal	811		778
Total commercial	21,556		21,615
Commercial real estate:
Construction and land development	2,123		2,019
Term	9,083		9,322
Total commercial real estate	11,206		11,341
Consumer:
Home equity credit line	2,638		2,645
1-4 family residential	6,185		5,891
Construction and other consumer real estate	517		486
Bankcard and other revolving plans	459		481
Other	181		190
Total consumer	9,980		9,693
Total loans	$	42,742	$	42,649

Loan balances are presented net of unearned income and fees, which amounted to $69 million at March 31, 2017 and $77 million at December 31, 2016.

Owner-occupied and commercial real estate (“CRE”) loans include unamortized premiums of approximately $18 million at March 31, 2017 and $20 million at December 31, 2016.

Municipal loans generally include loans to municipalities with the debt service being repaid from general funds or pledged revenues of the municipal entity, or to private commercial entities or 501(c)(3) not-for-profit entities utilizing a pass-through municipal entity to achieve favorable tax treatment.

Land development loans included in the construction and land development loan class were $283 million at March 31, 2017 and $290 million at December 31, 2016.

Loans with a carrying value of approximately $22.2 billion at March 31, 2017 and $24.0 billion at December 31, 2016 have been pledged at the Federal Reserve and the FHLB of Des Moines as collateral for current and potential borrowings.

We sold loans totaling $316 million and $273 million for the three months ended March 31, 2017 and 2016, respectively, that were classified as loans held for sale. The sold loans were derecognized from the balance sheet. Loans classified as loans held for sale primarily consist of conforming residential mortgages and the guaranteed portion of SBA loans. The loans are mainly sold to U.S. government agencies or participated to third parties. We generally have continuing involvement with the transferred loans, typically in the form of servicing rights or securities that are backed by the transferred loans in addition to a guarantee from the respective agency. The securities we receive in a loan transfer are not restricted from being pledged or exchanged. Amounts added to loans held for sale during these same periods were $303 million and $236 million, respectively.

The principal balance of sold loans for which we retain servicing was approximately $2.0 billion at both March 31, 2017 and December 31, 2016. Income from loans sold, excluding servicing, was $4 million and $3 million for the three months ended March 31, 2017 and 2016, respectively.

Allowance for Credit Losses

The ACL consists of the ALLL and the reserve for unfunded lending commitments (“RULC”).

Allowance for Loan and Lease Losses

The ALLL represents our estimate of probable and estimable losses inherent in the loan and lease portfolio as of the balance sheet date. Losses are charged to the ALLL when recognized. Generally, commercial and CRE loans are charged off or charged down when they are determined to be uncollectible in whole or in part, or when 180 days past due unless the loan is well secured and in process of collection. Consumer loans are either charged off or charged down to net realizable value no later than the month in which they become 180 days past due. Closed-end consumer loans that are not secured by residential real estate are either charged off or charged down to net realizable value no later than the month in which they become 120 days past due. We establish the amount of the ALLL by analyzing the portfolio at least quarterly, and we adjust the provision for loan losses so the ALLL is at an appropriate level at the balance sheet date.

We determine our ALLL as the best estimate within a range of estimated losses. The methodologies we use to estimate the ALLL depend upon the impairment status and loan portfolio. The methodology for impaired loans is discussed subsequently. For commercial and CRE loans with commitments equal to or greater than $750,000, we assign internal risk grades using a comprehensive loan grading system based on financial and statistical models, individual credit analysis, and loan officer experience and judgment. The credit quality indicators discussed subsequently are based on this grading system. Estimated losses for these commercial and CRE loans are derived from a statistical analysis of our historical default and loss given default experience over the period of January 2008 through the most recent full quarter.

For consumer and small commercial and CRE loans with commitments less than $750,000, we primarily use roll rate models to forecast probable inherent losses. Roll rate models measure the rate at which these loans migrate from one delinquency category to the next worse delinquency category, and eventually to loss. We estimate roll rates for these loans using recent delinquency and loss experience by segmenting our loan portfolios into separate pools based on common risk characteristics and separately calculating historical delinquency and loss experience for each pool. These roll rates are then applied to current delinquency levels to estimate probable inherent losses.

The current status and historical changes in qualitative and environmental factors may not be reflected in our quantitative models. Thus, after applying historical loss experience, as described above, we review the quantitatively derived level of ALLL for each segment using qualitative criteria and use those criteria to determine our estimate within the range. We track various risk factors that influence our judgment regarding the level of the ALLL across the portfolio segments. These factors primarily include:


•	Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices


•	Changes in international, national, regional, and local economic and business conditions


•	Changes in the nature and volume of the portfolio and in the terms of loans


•	Changes in the experience, ability, and depth of lending management and other relevant staff


•	Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans


•	Changes in the quality of the loan review system


•	Changes in the value of underlying collateral for collateral-dependent loans


•	The existence and effect of any concentration of credit, and changes in the level of such concentrations


•	The effect of other external factors such as competition and legal and regulatory requirements

The magnitude of the impact of these factors on our qualitative assessment of the ALLL changes from quarter to quarter according to changes made by management in its assessment of these factors, the extent these factors are already reflected in historic loss rates, and the extent changes in these factors diverge from one to another. We also consider the uncertainty inherent in the estimation process when evaluating the ALLL.

Reserve for Unfunded Lending Commitments

We also estimate a reserve for potential losses associated with off-balance sheet commitments, including standby letters of credit. We determine the RULC using the same procedures and methodologies that we use for the ALLL. The loss factors used in the RULC are the same as the loss factors used in the ALLL, and the qualitative adjustments used in the RULC are the same as the qualitative adjustments used in the ALLL. We adjust the Company’s unfunded lending commitments that are not unconditionally cancelable to an outstanding amount equivalent using credit conversion factors, and we apply the loss factors to the outstanding equivalents.

Changes in the allowance for credit losses are summarized as follows:

	Three Months Ended March 31, 2017
(In millions)	Commercial			Commercial real estate			Consumer			Total
Allowance for loan losses
Balance at beginning of period	$	420		$	116		$	31		$	567
Additions:
Provision for loan losses	22			(3		)	4			23
Deductions:
Gross loan and lease charge-offs	(51		)	(1		)	(5		)	(57		)
Recoveries	6			2			3			11
Net loan and lease (charge-offs) recoveries	(45		)	1			(2		)	(46		)
Balance at end of period	$	397		$	114		$	33		$	544
Reserve for unfunded lending commitments
Balance at beginning of period	$	54		$	11		$	—		$	65
Provision credited to earnings	(4		)	(1		)	—			(5		)
Balance at end of period	$	50		$	10		$	—		$	60
Total allowance for credit losses at end of period
Allowance for loan losses	$	397		$	114		$	33		$	544
Reserve for unfunded lending commitments	50			10			—			60
Total allowance for credit losses	$	447		$	124		$	33		$	604



	Three Months Ended March 31, 2016
(In millions)	Commercial			Commercial real estate			Consumer			Total
Allowance for loan losses
Balance at beginning of period	$	454		$	114		$	38		$	606
Additions:
Provision for loan losses	46			2			(6		)	42
Deductions:
Gross loan and lease charge-offs	(43		)	(1		)	(4		)	(48		)
Recoveries	7			3			2			12
Net loan and lease (charge-offs) recoveries	(36		)	2			(2		)	(36		)
Balance at end of period	$	464		$	118		$	30		$	612
Reserve for unfunded lending commitments
Balance at beginning of period	$	58		$	17		$	—		$	75
Provision credited to earnings	(2		)	(4		)	—			(6		)
Balance at end of period	$	56		$	13		$	—		$	69
Total allowance for credit losses at end of period
Allowance for loan losses	$	464		$	118		$	30		$	612
Reserve for unfunded lending commitments	56			13			—			69
Total allowance for credit losses	$	520		$	131		$	30		$	681

The ALLL and outstanding loan balances according to the Company’s impairment method are summarized as follows:

	March 31, 2017
(In millions)	Commercial		Commercial real estate		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	43	$	3	$	5	$	51
Collectively evaluated for impairment	354		111		27		492
Purchased loans with evidence of credit deterioration	—		—		1		1
Total	$	397	$	114	$	33	$	544
Outstanding loan balances:
Individually evaluated for impairment	$	490	$	82	$	73	$	645
Collectively evaluated for impairment	21,033		11,093		9,900		42,026
Purchased loans with evidence of credit deterioration	33		31		7		71
Total	$	21,556	$	11,206	$	9,980	$	42,742



	December 31, 2016
(In millions)	Commercial		Commercial real estate		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	56	$	3	$	6	$	65
Collectively evaluated for impairment	364		113		25		502
Purchased loans with evidence of credit deterioration	—		—		—		—
Total	$	420	$	116	$	31	$	567
Outstanding loan balances:
Individually evaluated for impairment	$	466	$	78	$	75	$	619
Collectively evaluated for impairment	21,111		11,231		9,611		41,953
Purchased loans with evidence of credit deterioration	38		32		7		77
Total	$	21,615	$	11,341	$	9,693	$	42,649

Nonaccrual and Past Due Loans

Loans are generally placed on nonaccrual status when payment in full of principal and interest is not expected, or the loan is 90 days or more past due as to principal or interest, unless the loan is both well secured and in the process of collection. Factors we consider in determining whether a loan is placed on nonaccrual include delinquency status, collateral value, borrower or guarantor financial statement information, bankruptcy status, and other information which would indicate that the full and timely collection of interest and principal is uncertain.

A nonaccrual loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement; the loan, if secured, is well secured; the borrower has paid according to the contractual terms for a minimum of six months; and analysis of the borrower indicates a reasonable assurance of the ability and willingness to maintain payments. Payments received on nonaccrual loans are applied as a reduction to the principal outstanding.

Closed-end loans with payments scheduled monthly are reported as past due when the borrower is in arrears for two or more monthly payments. Similarly, open-end credit such as charge-card plans and other revolving credit plans are reported as past due when the minimum payment has not been made for two or more billing cycles. Other multi-payment obligations (i.e., quarterly, semiannual, etc.), single payment, and demand notes are reported as past due when either principal or interest is due and unpaid for a period of 30 days or more.

Nonaccrual loans are summarized as follows:

(In millions)	March 31, 2017		December 31, 2016
Loans held for sale	$	34	$	40
Commercial:
Commercial and industrial	$	358	$	354
Leasing	13		14
Owner-occupied	89		74
Municipal	1		1
Total commercial	461		443
Commercial real estate:
Construction and land development	7		7
Term	38		29
Total commercial real estate	45		36
Consumer:
Home equity credit line	9		11
1-4 family residential	35		36
Construction and other consumer real estate	1		2
Bankcard and other revolving plans	—		1
Total consumer loans	45		50
Total	$	551	$	529

Past due loans (accruing and nonaccruing) are summarized as follows:

	March 31, 2017
(In millions)	Current		30-89 days past due		90+ days past due		Total past due		Total loans		Accruing loans 90+ days past due		Nonaccrual loans that are current ¹
Loans held for sale	$	113	$	15	$	—	$	15	$	128	$	—	$	19
Commercial:
Commercial and industrial	$	13,176	$	94	$	98	$	192	$	13,368	$	9	$	245
Leasing	401		2		1		3		404		—		11
Owner-occupied	6,880		59		34		93		6,973		3		35
Municipal	811		—		—		—		811		—		1
Total commercial	21,268		155		133		288		21,556		12		292
Commercial real estate:
Construction and land development	2,113		3		7		10		2,123		—		—
Term	9,047		11		25		36		9,083		14		24
Total commercial real estate	11,160		14		32		46		11,206		14		24
Consumer:
Home equity credit line	2,626		7		5		12		2,638		2		4
1-4 family residential	6,156		11		18		29		6,185		—		11
Construction and other consumer real estate	509		6		2		8		517		1		—
Bankcard and other revolving plans	454		3		2		5		459		1		—
Other	180		1		—		1		181		—		—
Total consumer loans	9,925		28		27		55		9,980		4		15
Total	$	42,353	$	197	$	192	$	389	$	42,742	$	30	$	331



	December 31, 2016
(In millions)	Current		30-89 days past due		90+ days past due		Total past due		Total loans		Accruing loans 90+ days past due		Nonaccrual loans that are current ¹
Loans held for sale	$	172	$	—	$	—	$	—	$	172	$	—	$	40
Commercial:
Commercial and industrial	$	13,306	$	72	$	74	$	146	$	13,452	$	10	$	287
Leasing	423		—		—		—		423		—		14
Owner-occupied	6,894		40		28		68		6,962		8		43
Municipal	778		—		—		—		778		—		1
Total commercial	21,401		112		102		214		21,615		18		345
Commercial real estate:
Construction and land development	2,010		7		2		9		2,019		1		1
Term	9,291		9		22		31		9,322		12		18
Total commercial real estate	11,301		16		24		40		11,341		13		19
Consumer:
Home equity credit line	2,635		4		6		10		2,645		1		5
1-4 family residential	5,857		12		22		34		5,891		—		11
Construction and other consumer real estate	479		3		4		7		486		3		—
Bankcard and other revolving plans	478		2		1		3		481		1		1
Other	189		1		—		1		190		—		—
Total consumer loans	9,638		22		33		55		9,693		5		17
Total	$	42,340	$	150	$	159	$	309	$	42,649	$	36	$	381


¹	Represents nonaccrual loans that are not past due more than 30 days; however, full payment of principal and interest is still not expected.

Credit Quality Indicators

In addition to the past due and nonaccrual criteria, we also analyze loans using loan risk-grading systems, which vary based on the size and type of credit risk exposure. The internal risk grades assigned to loans follow our definitions of Pass, Special Mention, Substandard, and Doubtful, which are consistent with published definitions of regulatory risk classifications.

Definitions of Pass, Special Mention, Substandard, and Doubtful are summarized as follows:

Pass – A Pass asset is higher quality and does not fit any of the other categories described below. The likelihood of loss is considered low.

Special Mention – A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.

Substandard – A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have well-defined weaknesses and are characterized by the distinct possibility that the Bank may sustain some loss if deficiencies are not corrected.

Doubtful – A Doubtful asset has all the weaknesses inherent in a Substandard asset with the added characteristics that the weaknesses make collection or liquidation in full highly questionable and improbable.

We generally assign internal risk grades to commercial and CRE loans with commitments equal to or greater than $750,000 based on financial and statistical models, individual credit analysis, and loan officer experience and judgment. For these larger loans, we assign one of multiple grades within the Pass classification or one of the following four grades: Special Mention, Substandard, Doubtful, and Loss. Loss indicates that the outstanding balance has been charged off. We confirm our internal risk grades quarterly, or as soon as we identify information that affects the credit risk of the loan.

For consumer loans and certain small commercial and CRE loans with commitments less than $750,000, we generally assign internal risk grades similar to those described previously based on automated rules that depend on refreshed credit scores, payment performance, and other risk indicators. These are generally assigned either a Pass or Substandard grade and are reviewed as we identify information that might warrant a grade change.

Outstanding loan balances (accruing and nonaccruing) categorized by these credit quality indicators are summarized as follows:



	March 31, 2017
(In millions)	Pass		Special Mention		Sub- standard		Doubtful		Total loans		Total allowance
Commercial:
Commercial and industrial	$	12,175	$	305	$	887	$	1	$	13,368
Leasing	376		5		23		—		404
Owner-occupied	6,573		104		296		—		6,973
Municipal	805		—		6		—		811
Total commercial	19,929		414		1,212		1		21,556		$	397
Commercial real estate:
Construction and land development	2,043		23		57		—		2,123
Term	8,843		111		129		—		9,083
Total commercial real estate	10,886		134		186		—		11,206		114
Consumer:
Home equity credit line	2,620		—		18		—		2,638
1-4 family residential	6,143		—		42		—		6,185
Construction and other consumer real estate	515		—		2		—		517
Bankcard and other revolving plans	457		—		2		—		459
Other	180		—		1		—		181
Total consumer loans	9,915		—		65		—		9,980		33
Total	$	40,730	$	548	$	1,463	$	1	$	42,742	$	544



	December 31, 2016
(In millions)	Pass		Special Mention		Sub- standard		Doubtful		Total loans		Total allowance
Commercial:
Commercial and industrial	$	12,185	$	266	$	998	$	3	$	13,452
Leasing	387		5		30		1		423
Owner-occupied	6,560		96		306		—		6,962
Municipal	765		7		6		—		778
Total commercial	19,897		374		1,340		4		21,615		$	420
Commercial real estate:
Construction and land development	1,942		52		25		—		2,019
Term	9,096		82		144		—		9,322
Total commercial real estate	11,038		134		169		—		11,341		116
Consumer:
Home equity credit line	2,629		—		16		—		2,645
1-4 family residential	5,851		—		40		—		5,891
Construction and other consumer real estate	482		—		4		—		486
Bankcard and other revolving plans	478		—		3		—		481
Other	189		—		1		—		190
Total consumer loans	9,629		—		64		—		9,693		31
Total	$	40,564	$	508	$	1,573	$	4	$	42,649	$	567

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled interest payments. For our non-purchased credit-impaired loans, if a nonaccrual loan has a balance greater than $1 million, or if a loan is a troubled debt restructuring (“TDR”), including TDRs that subsequently default, or if the loan is no longer reported as a TDR, we individually evaluate the loan for impairment and estimate a specific reserve for the loan for all portfolio segments under applicable accounting guidance. Smaller nonaccrual loans are pooled for ALLL estimation purposes. Purchase credit-impaired (“PCI”) loans are included in impaired loans and are accounted for under separate accounting guidance. See subsequent discussion under Purchased Loans.

When a loan is impaired, we estimate a specific reserve for the loan based on the projected present value of the loan’s future cash flows discounted at the loan’s effective interest rate, the observable market price of the loan, or the fair value of the loan’s underlying collateral. The process of estimating future cash flows also incorporates the same determining factors discussed previously under nonaccrual loans. When we base the impairment amount on the fair value of the loan’s underlying collateral, we generally charge off the portion of the balance that is impaired, such that these loans do not have a specific reserve in the ALLL. Payments received on impaired loans that are accruing are recognized in interest income, according to the contractual loan agreement. Payments received on impaired loans that are on nonaccrual are not recognized in interest income, but are applied as a reduction to the principal outstanding. The amount of interest income recognized on a cash basis during the time the loans were impaired within the three months ended March 31, 2017 and 2016 was not significant.

Information on impaired loans individually evaluated is summarized as follows, including the average recorded investment and interest income recognized for the three months ended March 31, 2017 and 2016:



	March 31, 2017
(In millions)	Unpaid principal balance		Recorded investment				Total recorded investment		Related allowance
			with no allowance		with allowance

Commercial:
Commercial and industrial	$	460	$	122	$	285	$	407	$	40
Owner-occupied	126		55		57		112		3
Municipal	1		1		—		1		—
Total commercial	587		178		342		520		43
Commercial real estate:
Construction and land development	20		2		10		12		—
Term	98		52		25		77		2
Total commercial real estate	118		54		35		89		2
Consumer:
Home equity credit line	23		15		6		21		—
1-4 family residential	57		27		27		54		5
Construction and other consumer real estate	3		2		1		3		—
Other	2		1		—		1		—
Total consumer loans	85		45		34		79		5
Total	$	790	$	277	$	411	$	688	$	50



	December 31, 2016
(In millions)	Unpaid principal balance		Recorded investment				Total recorded investment		Related allowance
			with no allowance		with allowance

Commercial:
Commercial and industrial	$	470	$	82	$	311	$	393	$	52
Owner-occupied	115		71		30		101		3
Municipal	1		1		—		1		—
Total commercial	586		154		341		495		55
Commercial real estate:
Construction and land development	22		7		6		13		—
Term	92		53		17		70		2
Total commercial real estate	114		60		23		83		2
Consumer:
Home equity credit line	24		16		7		23		—
1-4 family residential	59		27		28		55		6
Construction and other consumer real estate	3		1		2		3		—
Other	2		1		—		1		—
Total consumer loans	88		45		37		82		6
Total	$	788	$	259	$	401	$	660	$	63



	Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
(In millions)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized

Commercial:
Commercial and industrial	$	393	$	1	$	282	$	2
Owner-occupied	101		2		122		2
Municipal	1		—		1		—
Total commercial	495		3		405		4
Commercial real estate:
Construction and land development	13		—		15		1
Term	68		2		106		3
Total commercial real estate	81		2		121		4
Consumer:
Home equity credit line	21		—		25		—
1-4 family residential	54		1		63		1
Construction and other consumer real estate	3		—		3		—
Bankcard and other revolving plans	—		—		—		—
Other	1		—		2		—
Total consumer loans	79		1		93		1
Total	$	655	$	6	$	619	$	9

Modified and Restructured Loans

Loans may be modified in the normal course of business for competitive reasons or to strengthen the Company’s position. Loan modifications and restructurings may also occur when the borrower experiences financial difficulty and needs temporary or permanent relief from the original contractual terms of the loan. These modifications are structured on a loan-by-loan basis and, depending on the circumstances, may include extended payment terms, a modified interest rate, forgiveness of principal, or other concessions. Loans that have been modified to accommodate a borrower who is experiencing financial difficulties, and for which the Company has granted a concession that it would not otherwise consider, are considered TDRs.

We consider many factors in determining whether to agree to a loan modification involving concessions, and seek a solution that will both minimize potential loss to the Company and attempt to help the borrower. We evaluate borrowers’ current and forecasted future cash flows, their ability and willingness to make current contractual or proposed modified payments, the value of the underlying collateral (if applicable), the possibility of obtaining additional security or guarantees, and the potential costs related to a repossession or foreclosure and the subsequent sale of the collateral.

TDRs are classified as either accrual or nonaccrual loans. A loan on nonaccrual and restructured as a TDR will remain on nonaccrual status until the borrower has proven the ability to perform under the modified structure for a minimum of six months, and there is evidence that such payments can and are likely to continue as agreed. Performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual at the time of restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. A TDR loan that specifies an interest rate that at the time of the restructuring is greater than or equal to the rate the bank is willing to accept for a new loan with comparable risk may not be reported as a TDR or an impaired loan in the calendar years subsequent to the restructuring if it is in compliance with its modified terms.

Selected information on TDRs that includes the recorded investment on an accruing and nonaccruing basis by loan class and modification type is summarized in the following schedules:



	March 31, 2017
	Recorded investment resulting from the following modification types:
(In millions)	Interest rate below market		Maturity or term extension		Principal forgiveness		Payment deferral		Other¹		Multiple modification types²		Total
Accruing
Commercial:
Commercial and industrial	$	1	$	29	$	—	$	—	$	—	$	36	$	66
Owner-occupied	1		—		1		—		8		11		21
Total commercial	2		29		1		—		8		47		87
Commercial real estate:
Construction and land development	—		3		—		—		—		2		5
Term	5		—		—		1		2		10		18
Total commercial real estate	5		3		—		1		2		12		23
Consumer:
Home equity credit line	—		2		10		—		—		3		15
1-4 family residential	1		1		7		—		2		29		40
Construction and other consumer real estate	—		1		—		—		—		1		2
Total consumer loans	1		4		17		—		2		33		57
Total accruing	8		36		18		1		12		92		167
Nonaccruing
Commercial:
Commercial and industrial	4		—		14		1		53		19		91
Owner-occupied	1		2		—		1		2		12		18
Municipal	—		1		—		—		—		—		1
Total commercial	5		3		14		2		55		31		110
Commercial real estate:
Construction and land development	—		—		—		—		2		—		2
Term	2		1		—		—		2		3		8
Total commercial real estate	2		1		—		—		4		3		10
Consumer:
Home equity credit line	—		—		1		—		—		—		1
1-4 family residential	—		1		2		—		1		5		9
Construction and other consumer real estate	—		—		—		1		—		—		1
Total consumer loans	—		1		3		1		1		5		11
Total nonaccruing	7		5		17		3		60		39		131
Total	$	15	$	41	$	35	$	4	$	72	$	131	$	298



	December 31, 2016
	Recorded investment resulting from the following modification types:
(In millions)	Interest rate below market		Maturity or term extension		Principal forgiveness		Payment deferral		Other¹		Multiple modification types²		Total
Accruing
Commercial:
Commercial and industrial	$	—	$	19	$	—	$	—	$	—	$	28	$	47
Owner-occupied	3		—		1		—		8		10		22
Total commercial	3		19		1		—		8		38		69
Commercial real estate:
Construction and land development	—		4		—		—		—		4		8
Term	4		—		—		1		2		10		17
Total commercial real estate	4		4		—		1		2		14		25
Consumer:
Home equity credit line	—		1		10		—		—		3		14
1-4 family residential	3		1		6		—		2		30		42
Construction and other consumer real estate	—		—		—		—		—		1		1
Total consumer loans	3		2		16		—		2		34		57
Total accruing	10		25		17		1		12		86		151
Nonaccruing
Commercial:
Commercial and industrial	1		—		—		1		33		25		60
Owner-occupied	—		1		—		3		1		12		17
Municipal	—		1		—		—		—		—		1
Total commercial	1		2		—		4		34		37		78
Commercial real estate:
Construction and land development	—		—		—		—		2		—		2
Term	2		1		—		—		2		3		8
Total commercial real estate	2		1		—		—		4		3		10
Consumer:
Home equity credit line	—		—		1		—		—		1		2
1-4 family residential	—		—		2		—		1		5		8
Construction and other consumer real estate	—		—		—		2		—		—		2
Total consumer loans	—		—		3		2		1		6		12
Total nonaccruing	3		3		3		6		39		46		100
Total	$	13	$	28	$	20	$	7	$	51	$	132	$	251


¹	Includes TDRs that resulted from other modification types including, but not limited to, a legal judgment awarded on different terms, a bankruptcy plan confirmed on different terms, a settlement that includes the delivery of collateral in exchange for debt reduction, etc.


²	Includes TDRs that resulted from a combination of any of the previous modification types.

Unfunded lending commitments on TDRs amounted to approximately $19 million at March 31, 2017 and $14 million at December 31, 2016.

The total recorded investment of all TDRs in which interest rates were modified below market was $133 million at March 31, 2017 and $128 million at December 31, 2016. These loans are included in the previous schedule in the columns for interest rate below market and multiple modification types.

The net financial impact on interest income due to interest rate modifications below market for accruing TDRs for the three months ended March 31, 2017 and 2016 was not significant.

On an ongoing basis, we monitor the performance of all TDRs according to their restructured terms. Subsequent payment default is defined in terms of delinquency, when principal or interest payments are past due 90 days or more for commercial loans, or 60 days or more for consumer loans.

The recorded investment of accruing and nonaccruing TDRs that had a payment default during the period listed below (and are still in default at period end) and are within 12 months or less of being modified as TDRs is as follows:



	Three Months Ended March 31, 2017						Three Months Ended March 31, 2016
(In millions)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial:
Commercial and industrial	$	—	$	14	$	14	$	—	$	3	$	3
Owner-occupied	—		2		2		4		—		4
Total commercial	—		16		16		4		3		7
Commercial real estate:
Term	—		2		2		—		—		—
Total commercial real estate	—		2		2		—		—		—
Total	$	—	$	18	$	18	$	4	$	3	$	7

Note: Total loans modified as TDRs during the 12 months previous to March 31, 2017 and 2016 were $129 million and $180 million, respectively.

At March 31, 2017 and December 31, 2016, the amount of foreclosed residential real estate property held by the Company was approximately $2 million, and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was approximately $13 million and $10 million, respectively.

Concentrations of Credit Risk

Credit risk is the possibility of loss from the failure of a borrower, guarantor, or another obligor to fully perform under the terms of a credit-related contract. Credit risks (whether on- or off-balance sheet) may occur when individual borrowers, groups of borrowers, or counterparties have similar economic characteristics, including industries, geographies, collateral types, sponsors, etc., and are similarly affected by changes in economic or other conditions. Credit risk also includes the loss that would be recognized subsequent to the reporting date if counterparties failed to perform as contracted. See Note 7 for a discussion of counterparty risk associated with the Company’s derivative transactions.

We perform an ongoing analysis of our loan portfolio to evaluate whether there is any significant exposure to any concentrations of credit risk. Based on this analysis, we believe that the loan portfolio is generally well diversified; however, there are certain significant concentrations in CRE and oil and gas-related lending. Further, we cannot guarantee that we have fully understood or mitigated all risk concentrations or correlated risks. We have adopted and adhere to concentration limits on various types of CRE lending, particularly construction and land development lending, leveraged and enterprise value lending, municipal lending, and oil and gas-related lending. All of these limits are continually monitored and revised as necessary.

Purchased Loans

Background and Accounting

We purchase loans in the ordinary course of business and account for them and the related interest income based on their performing status at the time of acquisition. PCI loans have evidence of credit deterioration at the time of acquisition and it is probable that not all contractual payments will be collected. Interest income for PCI loans is accounted for on an expected cash flow basis. Certain other loans acquired by the Company that are not credit-impaired include loans with revolving privileges and are excluded from the PCI tabular disclosures following. Interest income for these loans is accounted for on a contractual cash flow basis. Upon acquisition, in accordance with applicable accounting guidance, the acquired loans were recorded at their fair value without a corresponding ALLL. Certain acquired loans with similar characteristics such as risk exposure, type, size, etc., are grouped and accounted for in loan pools.

Outstanding Balances and Accretable Yield

The outstanding balances of all required payments and the related carrying amounts for PCI loans are as follows:



(In millions)	March 31, 2017		December 31, 2016

Commercial	$	44	$	49
Commercial real estate	47		51
Consumer	8		9
Outstanding balance	$	99	$	109
Carrying amount	$	70	$	77
Less ALLL	1		1
Carrying amount, net	$	69	$	76

At the time of acquisition of PCI loans, we determine the loan’s contractually required payments in excess of all cash flows expected to be collected as an amount that should not be accreted (nonaccretable difference). With respect to the cash flows expected to be collected, the portion representing the excess of the loan’s expected cash flows over our initial investment (accretable yield) is accreted into interest income on a level yield basis over the remaining expected life of the loan or pool of loans. The effects of estimated prepayments are considered in estimating the expected cash flows.

Certain PCI loans are not accounted for as previously described because the estimation of cash flows to be collected involves a high degree of uncertainty. Under these circumstances, the accounting guidance provides that interest income is recognized on a cash basis similar to the cost recovery methodology for nonaccrual loans. The net carrying amounts in the preceding schedule also include the amounts for these loans. There were no loans of this type at March 31, 2017 and December 31, 2016.

Changes in the accretable yield for PCI loans were as follows:



(In millions)	Three Months Ended March 31,
(In millions)	2017			2016

Balance at beginning of period	$	33		$	40
Accretion	(4		)	(6		)
Reclassification from nonaccretable difference	2			8
Disposals and other	1			1
Balance at end of period	$	32		$	43

Note: Amounts have been adjusted based on refinements to the original estimates of the accretable yield.

The primary drivers of reclassification to accretable yield from nonaccretable difference and increases in disposals and other resulted primarily from (1) changes in estimated cash flows, (2) unexpected payments on nonaccrual loans, and (3) recoveries on zero balance loans pools. See subsequent discussion under changes in cash flow estimates.

ALLL Determination

For all acquired loans, the ALLL is only established for credit deterioration subsequent to the date of acquisition and represents our estimate of the inherent losses in excess of the book value of acquired loans. The ALLL for acquired loans is included in the overall ALLL in the balance sheet.

During both the three months ended March 31, 2017 and 2016, we adjusted the ALLL for acquired loans by recording a provision for loan losses of an insignificant amount. The provision is net of the ALLL reversals resulting from changes in cash flow estimates, which are discussed subsequently.

Changes in the provision for loan losses and related ALLL are driven in large part by the same factors that affect the changes in reclassification from nonaccretable difference to accretable yield, as discussed under changes in cash flow estimates.

Changes in Cash Flow Estimates

Over the life of the loan or loan pool, we continue to estimate cash flows expected to be collected. We evaluate quarterly at the balance sheet date whether the estimated present values of these loans using the effective interest rates have decreased below their carrying values. If so, we record a provision for loan losses.

For increases in carrying values that resulted from better-than-expected cash flows, we use such increases first to reverse any existing ALLL. During the three months ended March 31, 2017 and 2016 total reversals to the ALLL, including the impact of increases in estimated cash flows, were insignificant. When there is no current ALLL, we increase the amount of accretable yield on a prospective basis over the remaining life of the loan and recognize this increase in interest income.

For the three months ended March 31, the impact of increased cash flow estimates recognized in the statement of income for acquired loans with no ALLL was approximately $3 million in 2017, and $4 million in 2016, respectively, of additional interest income.