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)	June 30, 2017		December 31, 2016

Loans held for sale	$	53	$	172
Commercial:
Commercial and industrial	$	13,850	$	13,452
Leasing	387		423
Owner-occupied	7,095		6,962
Municipal	871		778
Total commercial	22,203		21,615
Commercial real estate:
Construction and land development	2,186		2,019
Term	9,012		9,322
Total commercial real estate	11,198		11,341
Consumer:
Home equity credit line	2,697		2,645
1-4 family residential	6,359		5,891
Construction and other consumer real estate	560		486
Bankcard and other revolving plans	478		481
Other	188		190
Total consumer	10,282		9,693
Total loans	$	43,683	$	42,649

Loan balances are presented net of unearned income and fees, which amounted to $71 million at June 30, 2017 and $77 million at December 31, 2016.

Owner-occupied and commercial real estate (“CRE”) loans include unamortized premiums of approximately $17 million at June 30, 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 $241 million at June 30, 2017 and $290 million at December 31, 2016.

Loans with a carrying value of approximately $24.6 billion at June 30, 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 $234 million and $550 million for the three and six months ended June 30, 2017, and $318 million and $591 million for the three and six months ended June 30, 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 $176 million and $479 million for the three and six months ended June 30, 2017, and $357 million and $593 million for the three and six months ended June 30, 2016, respectively.

The principal balance of sold loans for which we retain servicing was approximately $2.1 billion at June 30, 2017, and $2.0 billion at December 31, 2016. Income from loans sold, excluding servicing, was $4 million and $8 million for the three and six months ended June 30, 2017, and $6 million and $9 million for the three and six months ended June 30, 2016, respectively.

Allowance for Credit Losses

The ACL consists of the allowance for loan and lease losses (“ALLL”) and the reserve for unfunded lending commitments (“RULC”). The ALLL represents our estimate of probable and estimable losses inherent in the loan and lease portfolio as of the balance sheet date. 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.

For additional information regarding our policies and methodologies used to estimate the allowance for credit losses, see Note 6 of our 2016 Annual Report on Form 10-K.

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

	Three Months Ended June 30, 2017
(In millions)	Commercial			Commercial real estate			Consumer			Total
Allowance for loan losses
Balance at beginning of period	$	397		$	114		$	33		$	544
Additions:
Provision for loan losses	9			(5		)	3			7
Deductions:
Gross loan and lease charge-offs	(31		)	(1		)	(3		)	(35		)
Recoveries	18			8			2			28
Net loan and lease (charge-offs) recoveries	(13		)	7			(1		)	(7		)
Balance at end of period	$	393		$	116		$	35		$	544
Reserve for unfunded lending commitments
Balance at beginning of period	$	51		$	9		$	—		$	60
Provision charged to earnings	3			—			—			3
Balance at end of period	$	54		$	9		$	—		$	63
Total allowance for credit losses at end of period
Allowance for loan losses	$	393		$	116		$	35		$	544
Reserve for unfunded lending commitments	54			9			—			63
Total allowance for credit losses	$	447		$	125		$	35		$	607



	Six Months Ended June 30, 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	32			(9		)	7			30
Deductions:
Gross loan and lease charge-offs	(82		)	(2		)	(8		)	(92		)
Recoveries	23			11			5			39
Net loan and lease (charge-offs) recoveries	(59		)	9			(3		)	(53		)
Balance at end of period	$	393		$	116		$	35		$	544
Reserve for unfunded lending commitments
Balance at beginning of period	$	54		$	11		$	—		$	65
Provision credited to earnings	—			(2		)	—			(2		)
Balance at end of period	$	54		$	9		$	—		$	63
Total allowance for credit losses at end of period
Allowance for loan losses	$	393		$	116		$	35		$	544
Reserve for unfunded lending commitments	54			9			—			63
Total allowance for credit losses	$	447		$	125		$	35		$	607



	Three Months Ended June 30, 2016
(In millions)	Commercial			Commercial real estate			Consumer			Total
Allowance for loan losses
Balance at beginning of period	$	464		$	118		$	30		$	612
Additions:
Provision for loan losses	25			10			—			35
Deductions:
Gross loan and lease charge-offs	(47		)	(8		)	(3		)	(58		)
Recoveries	14			2			3			19
Net loan and lease charge-offs	(33		)	(6		)	—			(39		)
Balance at end of period	$	456		$	122		$	30		$	608
Reserve for unfunded lending commitments
Balance at beginning of period	$	56		$	13		$	—		$	69
Provision credited to earnings	(2		)	(2		)	—			(4		)
Balance at end of period	$	54		$	11		$	—		$	65
Total allowance for credit losses at end of period
Allowance for loan losses	$	456		$	122		$	30		$	608
Reserve for unfunded lending commitments	54			11			—			65
Total allowance for credit losses	$	510		$	133		$	30		$	673



	Six Months Ended June 30, 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	71			12			(6		)	77
Deductions:
Gross loan and lease charge-offs	(90		)	(9		)	(7		)	(106		)
Recoveries	21			5			5			31
Net loan and lease charge-offs	(69		)	(4		)	(2		)	(75		)
Balance at end of period	$	456		$	122		$	30		$	608
Reserve for unfunded lending commitments
Balance at beginning of period	$	58		$	16		$	1		$	75
Provision credited to earnings	(4		)	(5		)	(1		)	(10		)
Balance at end of period	$	54		$	11		$	—		$	65
Total allowance for credit losses at end of period
Allowance for loan losses	$	456		$	122		$	30		$	608
Reserve for unfunded lending commitments	54			11			—			65
Total allowance for credit losses	$	510		$	133		$	30		$	673

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

	June 30, 2017
(In millions)	Commercial		Commercial real estate		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	40	$	1	$	5	$	46
Collectively evaluated for impairment	353		115		30		498
Purchased loans with evidence of credit deterioration	—		—		—		—
Total	$	393	$	116	$	35	$	544
Outstanding loan balances:
Individually evaluated for impairment	$	411	$	75	$	77	$	563
Collectively evaluated for impairment	21,765		11,113		10,199		43,077
Purchased loans with evidence of credit deterioration	27		10		6		43
Total	$	22,203	$	11,198	$	10,282	$	43,683



	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. For further discussion of our policies and processes regarding nonaccrual and past due loans, see Note 6 of our 2016 Annual Report on Form 10-K.

Nonaccrual loans are summarized as follows:

(In millions)	June 30, 2017		December 31, 2016

Loans held for sale	$	12	$	40
Commercial:
Commercial and industrial	$	278	$	354
Leasing	10		14
Owner-occupied	86		74
Municipal	1		1
Total commercial	375		443
Commercial real estate:
Construction and land development	6		7
Term	37		29
Total commercial real estate	43		36
Consumer:
Home equity credit line	11		11
1-4 family residential	43		36
Construction and other consumer real estate	1		2
Bankcard and other revolving plans	—		1
Other	1		—
Total consumer loans	56		50
Total	$	474	$	529

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

	June 30, 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	$	50	$	—	$	3	$	3	$	53	$	—	$	9
Commercial:
Commercial and industrial	$	13,735	$	54	$	61	$	115	$	13,850	$	10	$	216
Leasing	387		—		—		—		387		—		10
Owner-occupied	7,035		26		34		60		7,095		3		52
Municipal	871		—		—		—		871		—		1
Total commercial	22,028		80		95		175		22,203		13		279
Commercial real estate:
Construction and land development	2,175		6		5		11		2,186		—		1
Term	8,990		12		10		22		9,012		3		24
Total commercial real estate	11,165		18		15		33		11,198		3		25
Consumer:
Home equity credit line	2,684		6		7		13		2,697		2		4
1-4 family residential	6,328		10		21		31		6,359		—		17
Construction and other consumer real estate	553		6		1		7		560		—		—
Bankcard and other revolving plans	473		3		2		5		478		1		—
Other	187		1		—		1		188		—		—
Total consumer loans	10,225		26		31		57		10,282		3		21
Total	$	43,418	$	124	$	141	$	265	$	43,683	$	19	$	325



	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. For further discussion of our policies and processes regarding credit quality indicators and internal loan risk grading, see Note 6 of our 2016 Annual Report on Form 10-K.

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



	June 30, 2017
(In millions)	Pass		Special Mention		Sub- standard		Doubtful		Total loans		Total allowance
Commercial:
Commercial and industrial	$	12,760	$	336	$	754	$	—	$	13,850
Leasing	364		1		22		—		387
Owner-occupied	6,715		113		267		—		7,095
Municipal	865		—		6		—		871
Total commercial	20,704		450		1,049		—		22,203		$	393
Commercial real estate:
Construction and land development	2,101		28		57		—		2,186
Term	8,763		111		138		—		9,012
Total commercial real estate	10,864		139		195		—		11,198		116
Consumer:
Home equity credit line	2,679		—		18		—		2,697
1-4 family residential	6,309		—		50		—		6,359
Construction and other consumer real estate	559		—		1		—		560
Bankcard and other revolving plans	475		—		3		—		478
Other	187		—		1		—		188
Total consumer loans	10,209		—		73		—		10,282		35
Total	$	41,777	$	589	$	1,317	$	—	$	43,683	$	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. 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 and six months ended June 30, 2017 and 2016 was not significant. For additional information regarding our policies and methodologies used to evaluate impaired loans, see Note 6 of our 2016 Annual Report on Form 10-K.

Information on impaired loans individually evaluated is summarized as follows, including the average recorded investment and interest income recognized for the three months ended June 30, 2017 and 2016:



	June 30, 2017
(In millions)	Unpaid principal balance		Recorded investment				Total recorded investment		Related allowance
			with no allowance		with allowance
Commercial:
Commercial and industrial	$	375	$	80	$	249	$	329	$	36
Owner-occupied	121		65		40		105		4
Municipal	1		1		—		1		—
Total commercial	497		146		289		435		40
Commercial real estate:
Construction and land development	11		5		5		10		—
Term	59		38		15		53		1
Total commercial real estate	70		43		20		63		1
Consumer:
Home equity credit line	24		15		7		22		1
1-4 family residential	60		31		27		58		4
Construction and other consumer real estate	3		1		1		2		—
Other	1		1		—		1		—
Total consumer loans	88		48		35		83		5
Total	$	655	$	237	$	344	$	581	$	46



	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 June 30, 2017				Six Months Ended June 30, 2017
(In millions)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial:
Commercial and industrial	$	398	$	4	$	356	$	4
Owner-occupied	109		1		102		4
Municipal	1		—		1		—
Total commercial	508		5		459		8
Commercial real estate:
Construction and land development	11		—		11		—
Term	59		7		60		9
Total commercial real estate	70		7		71		9
Consumer:
Home equity credit line	21		—		21		—
1-4 family residential	58		1		56		1
Construction and other consumer real estate	2		—		3		—
Other	1		—		1		—
Total consumer loans	82		1		81		1
Total	$	660	$	13	$	611	$	18



	Three Months Ended June 30, 2016				Six Months Ended June 30, 2016
(In millions)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial:
Commercial and industrial	$	430	$	1	$	317	$	2
Owner-occupied	111		3		113		6
Municipal	1		—		1		—
Total commercial	542		4		431		8
Commercial real estate:
Construction and land development	12		1		12		1
Term	98		3		97		7
Total commercial real estate	110		4		109		8
Consumer:
Home equity credit line	25		—		24		1
1-4 family residential	61		1		61		1
Construction and other consumer real estate	3		—		3		—
Other	2		—		2		—
Total consumer loans	91		1		90		2
Total	$	743	$	9	$	630	$	18

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. 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 troubled debt restructurings (“TDRs”). For further discussion of our policies and processes regarding TDRs, see Note 6 of our 2016 Annual Report on Form 10-K.

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:



	June 30, 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	$	12	$	—	$	1	$	11	$	43	$	68
Owner-occupied	1		—		1		1		8		13		24
Total commercial	2		12		1		2		19		56		92
Commercial real estate:
Construction and land development	—		2		—		—		—		3		5
Term	4		—		—		1		2		8		15
Total commercial real estate	4		2		—		1		2		11		20
Consumer:
Home equity credit line	—		2		10		—		—		3		15
1-4 family residential	1		—		7		1		2		27		38
Construction and other consumer real estate	—		1		—		—		—		1		2
Total consumer loans	1		3		17		1		2		31		55
Total accruing	7		17		18		4		23		98		167
Nonaccruing
Commercial:
Commercial and industrial	1		—		18		4		65		14		102
Owner-occupied	1		2		—		1		1		10		15
Municipal	—		1		—		—		—		—		1
Total commercial	2		3		18		5		66		24		118
Commercial real estate:
Construction and land development	—		—		—		—		—		—		—
Term	2		1		—		—		1		4		8
Total commercial real estate	2		1		—		—		1		4		8
Consumer:
Home equity credit line	—		—		1		—		—		—		1
1-4 family residential	—		1		1		—		2		6		10
Construction and other consumer real estate	—		—		—		—		—		—		—
Total consumer loans	—		1		2		—		2		6		11
Total nonaccruing	4		5		20		5		69		34		137
Total	$	11	$	22	$	38	$	9	$	92	$	132	$	304

¹Includes 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.



	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 $21 million at June 30, 2017 and $14 million at December 31, 2016.

The total recorded investment of all TDRs in which interest rates were modified below market was $129 million at June 30, 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 and six months ended June 30, 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 June 30, 2017						Six Months Ended June 30, 2017
(In millions)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing			Total
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	—	$	—	1,291	$	—
Owner-occupied	—		3		3		—		3		5,405	3
Total commercial	—		3		3		—		3			3
Total	$	—	$	3	$	3	$	—	$	3		$	3



	Three Months Ended June 30, 2016						Six Months Ended June 30, 2016
(In millions)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial:
Commercial and industrial	$	—	$	15	$	15	$	—	$	17	$	17
Owner-occupied	—		4		4		—		4		4
Total commercial	—		19		19		—		21		21
Total	$	—	$	19	$	19	$	—	$	21	$	21

Note: Total loans modified as TDRs during the 12 months previous to June 30, 2017 and 2016 were $123 million and $162 million, respectively.

At June 30, 2017 and December 31, 2016, the amount of foreclosed residential real estate property held by the Company was approximately $1 million and $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 $9 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. We perform an ongoing analysis of our loan portfolio to evaluate whether there is any significant exposure to any concentrations of credit risk. See Note 6 of our 2016 Annual Report on Form 10-K for further discussion of our evaluation of credit risk concentrations. See also Note 7 of our 2016 Annual Report on Form 10-K for a discussion of counterparty risk associated with the Company’s derivative transactions.

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. Purchased credit-impaired (“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. 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)	June 30, 2017		December 31, 2016

Commercial	$	40	$	49
Commercial real estate	15		51
Consumer	7		9
Outstanding balance	$	62	$	109
Carrying amount	$	43	$	77
Less ALLL	—		1
Carrying amount, net	$	43	$	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 June 30, 2017 and December 31, 2016.

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



(In millions)	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2017			2016			2017			2016

Balance at beginning of period	$	32		$	43		$	33		$	40
Accretion	(11		)	(7		)	(15		)	(13		)
Reclassification from nonaccretable difference	(3		)	1			(1		)	9
Disposals and other	3			1			4			2
Balance at end of period	$	21		$	38		$	21		$	38

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 the three and six months ended June 30, we adjusted the ALLL for acquired loans by recording a provision for loan losses of an insignificant amount in 2017, and $1 million for both periods in 2016, respectively. 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 and six months ended June 30, 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 and six months ended June 30, the impact of increased cash flow estimates recognized in the statement of income for acquired loans with no ALLL was approximately $10 million and $13 million in 2017, and $6 million and $10 million in 2016, respectively, of additional interest income.