4. Asset Quality

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

Nonperforming loans are loans for which we do not accrue interest income, and include commercial and consumer loans and leases, as well as current year TDRs and nonaccruing TDR loans from prior years. Nonperforming loans do not include loans held for sale or PCI loans. Nonperforming assets include nonperforming loans, nonperforming loans held for sale, OREO, and other nonperforming assets.

Our nonperforming assets and past due loans were as follows:


in millions	September 30, 2015		December 31, 2014		September 30, 2014
Total nonperforming loans^{(a), (b)}	$	400	$	418	$	401
Nonperforming loans held for sale		—		—		—
OREO^(c)		17		18		16
Other nonperforming assets		—		—		1

Total nonperforming assets	$	417	$	436	$	418

Nonperforming assets from discontinued operations—education lending^(d)	$	8	$	11	$	9

Restructured loans included in nonperforming loans	$	159	$	157	$	137
Restructured loans with an allocated specific allowance^(e)		71		82		115
Specifically allocated allowance for restructured loans^(f)		29		34		30

Accruing loans past due 90 days or more	$	54	$	96	$	71
Accruing loans past due 30 through 89 days		271		235		340

(a)	Loan balances exclude $12 million, $13 million, and $14 million of PCI loans at September 30, 2015, December 31, 2014, and September 30, 2014, respectively.

(b)	Includes carrying value of consumer residential mortgage loans in the process of foreclosure of approximately $114 million at September 30, 2015.

(c)	Includes carrying value of foreclosed residential real estate of approximately $13 million at September 30, 2015.

(d)	Restructured loans of approximately $20 million, $17 million, and $16 million are included in discontinued operations at September 30, 2015, December 31, 2014, and September 30, 2014, respectively. See Note 11 (“Acquisitions and Discontinued Operations”) for further discussion.

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

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

We evaluate purchased loans for impairment in accordance with the applicable accounting guidance. Purchased loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that all contractually required payments will not be collected are deemed PCI and initially recorded at fair value without recording an allowance for loan losses. At the 2012 acquisition date, the estimated gross contractual amount receivable of all PCI loans totaled $41 million. The estimated cash flows not expected to be collected (the nonaccretable amount) were $11 million, and the accretable amount was approximately $5 million. The difference between the fair value and the cash flows expected to be collected from the purchased loans is accreted to interest income over the remaining term of the loans.

At September 30, 2015, the outstanding unpaid principal balance and carrying value of all PCI loans was $18 million and $12 million, respectively. Changes in the accretable yield during the first nine months of 2015 included accretion and net reclassifications of less than $1 million, resulting in an ending balance of $5 million at September 30, 2015.

At September 30, 2015, the approximate carrying amount of our commercial nonperforming loans outstanding represented 74% 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.

At September 30, 2015, our 20 largest nonperforming loans totaled $112 million, representing 28% of total loans on nonperforming status. At September 30, 2014, our 20 largest nonperforming loans totaled $72 million, representing 18% of total loans on nonperforming status.

Nonperforming loans and loans held for sale reduced expected interest income by $12 million for the nine months ended September 30, 2015, and $16 million for the year ended December 31, 2014.

The following tables set forth a further breakdown of individually impaired loans as of September 30, 2015, December 31, 2014, and September 30, 2014:


			Unpaid				Average
September 30, 2015	Recorded		Principal		Specific		Recorded
in millions	Investment ^(a)		Balance ^(b)		Allowance		Investment
With no related allowance recorded:
Commercial, financial and agricultural	$	30	$	54		—	$	19
Commercial real estate:
Commercial mortgage		9		12		—		10
Construction		5		5		—		6

Total commercial real estate loans		14		17		—		16

Total commercial loans		44		71		—		35

Real estate — residential mortgage		22		22		—		22
Home equity:
Key Community Bank		58		58		—		59
Other		2		2		—		2

Total home equity loans		60		60		—		61
Consumer other:
Marine		1		1		—		1

Total consumer other		1		1		—		1

Total consumer loans		83		83		—		84

Total loans with no related allowance recorded		127		154		—		119
With an allowance recorded:
Commercial, financial and agricultural		43		56	$	9		58
Commercial real estate:
Commercial mortgage		5		6		1		6

Total commercial real estate loans		5		6		1		6

Total commercial loans		48		62		10		64

Real estate — residential mortgage		33		33		5		33
Home equity:
Key Community Bank		54		54		17		53
Other		10		10		1		10

Total home equity loans		64		64		18		63
Consumer other — Key Community Bank		3		3		—		3
Credit cards		3		3		1		3
Consumer other:
Marine		38		38		2		39
Other		2		2		—		2

Total consumer other		40		40		2		41

Total consumer loans		143		143		26		143

Total loans with an allowance recorded		191		205		36		207

Total	$	318	$	359	$	36	$	326

(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.


			Unpaid				Average
December 31, 2014	Recorded		Principal		Specific		Recorded
in millions	Investment ^(a)		Balance ^(b)		Allowance		Investment
With no related allowance recorded:
Commercial, financial and agricultural	$	6	$	17		—	$	8
Commercial real estate:
Commercial mortgage		15		20		—		19
Construction		5		6		—		7

Total commercial real estate loans		20		26		—		26

Total commercial loans		26		43		—		34

Real estate — residential mortgage		24		24		—		30
Home equity:
Key Community Bank		62		63		—		63
Other		1		1		—		2

Total home equity loans		63		64		—		65
Consumer other:
Marine		2		2		—		2

Total consumer other		2		2		—		2

Total consumer loans		89		90		—		97

Total loans with no related allowance recorded		115		133		—		131
With an allowance recorded:
Commercial, financial and agricultural		37		37	$	9		28
Commercial real estate:
Commercial mortgage		6		6		2		6
Construction		3		3		1		2

Total commercial real estate loans		9		9		3		8

Total commercial loans		46		46		12		36

Real estate — residential mortgage		31		31		5		25
Home equity:
Key Community Bank		46		46		16		43
Other		11		11		2		11

Total home equity loans		57		57		18		54
Consumer other — Key Community Bank		4		4		—		3
Credit cards		4		4		—		4
Consumer other:
Marine		43		43		5		45
Other		2		2		—		2

Total consumer other		45		45		5		47

Total consumer loans		141		141		28		133

Total loans with an allowance recorded		187		187		40		169

Total	$	302	$	320	$	40	$	300

(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.


			Unpaid				Average
September 30, 2014	Recorded		Principal		Specific		Recorded
in millions	Investment ^(a)		Balance ^(b)		Allowance		Investment
With no related allowance recorded:
Commercial, financial and agricultural	$	11	$	20		—	$	12
Commercial real estate:
Commercial mortgage		22		27		—		23
Construction		9		20		—		7

Total commercial real estate loans		31		47		—		30

Total commercial loans		42		67		—		42

Real estate — residential mortgage		36		36		—		30
Home equity:
Key Community Bank		64		64		—		65
Other		2		2		—		2

Total home equity loans		66		66		—		67
Consumer other:
Marine		2		2		—		2

Total consumer other		2		2		—		2

Total consumer loans		104		104		—		99

Total loans with no related allowance recorded		146		171		—		141
With an allowance recorded:
Commercial, financial and agricultural		20		21	$	7		12
Commercial real estate:
Commercial mortgage		7		7		2		5

Total commercial real estate loans		7		7		2		5

Total commercial loans		27		28		9		17

Real estate — residential mortgage		19		19		4		24
Home equity:
Key Community Bank		41		41		16		39
Other		11		11		2		11

Total home equity loans		52		52		18		50
Consumer other — Key Community Bank		3		3		—		3
Credit cards		3		3		1		3
Consumer other:
Marine		46		46		5		47
Other		2		2		1		2

Total consumer other		48		48		6		49

Total consumer loans		125		125		29		129

Total loans with an allowance recorded		152		153		38		146

Total	$	298	$	324	$	38	$	287

(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.

For each of the nine months ended September 30, 2015, and September 30, 2014, interest income recognized on the outstanding balances of accruing impaired loans totaled $5 million.

At September 30, 2015, aggregate restructured loans (accrual and nonaccrual loans) totaled $287 million, compared to $270 million at December 31, 2014, and $264 million at September 30, 2014. We added $87 million in restructured loans during the first nine months of 2015, which were partially offset by $70 million in payments and charge-offs.

A further breakdown of TDRs included in nonperforming loans by loan category as of September 30, 2015, follows:


			Pre-modification		Post-modification
			Outstanding		Outstanding
September 30, 2015	Number		Recorded		Recorded
dollars in millions	of Loans		Investment		Investment
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural		12	$	56	$	50
Commercial real estate:
Real estate — commercial mortgage		11		30		7

Total commercial real estate loans		11		30		7

Total commercial loans		23		86		57
Real estate — residential mortgage		356		21		21
Home equity:
Key Community Bank		1,093		79		70
Other		122		3		3

Total home equity loans		1,215		82		73
Consumer other — Key Community Bank		26		1		1
Credit cards		314		2		2
Consumer other:
Marine		92		6		5
Other		16		—		—

Total consumer other		108		6		5

Total consumer loans		2,019		112		102

Total nonperforming TDRs		2,042		198		159
Prior-year accruing:^(a)
Commercial, financial and agricultural		12		6		3
Commercial real estate:
Real estate — commercial mortgage		1		2		1

Total commercial real estate loans		1		2		1

Total commercial loans		13		8		4
Real estate — residential mortgage		499		36		36
Home equity:
Key Community Bank		794		49		42
Other		327		10		8

Total home equity loans		1,121		59		50
Consumer other — Key Community Bank		45		2		1
Credit cards		473		2		2
Consumer other:
Marine		398		59		33
Other		68		2		2

Total consumer other		466		61		35

Total consumer loans		2,604		160		124

Total prior-year accruing TDRs		2,617		168		128

Total TDRs		4,659	$	366	$	287

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

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


			Pre-modification		Post-modification
			Outstanding		Outstanding
December 31, 2014	Number		Recorded		Recorded
dollars in millions	of Loans		Investment		Investment
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural		14	$	25	$	23
Commercial real estate:
Real estate — commercial mortgage		10		38		13
Real estate — construction		1		5		—

Total commercial real estate loans		11		43		13

Total commercial loans		25		68		36
Real estate — residential mortgage		453		27		27
Home equity:
Key Community Bank		1,184		79		72
Other		158		4		4

Total home equity loans		1,342		83		76
Consumer other — Key Community Bank		37		2		1
Credit cards		290		2		2
Consumer other:
Marine		206		17		14
Other		38		1		1

Total consumer other		244		18		15

Total consumer loans		2,366		132		121

Total nonperforming TDRs		2,391		200		157
Prior-year accruing:^(a)
Commercial, financial and agricultural		20		6		3
Commercial real estate:
Real estate — commercial mortgage		1		2		1

Total commercial real estate loans		1		2		1

Total commercial loans		21		8		4
Real estate — residential mortgage		381		29		29
Home equity:
Key Community Bank		674		41		36
Other		310		9		8

Total home equity loans		984		50		44
Consumer other — Key Community Bank		45		2		2
Credit cards		514		4		2
Consumer other:
Marine		373		54		31
Other		67		2		1

Total consumer other		440		56		32

Total consumer loans		2,364		141		109

Total prior-year accruing TDRs		2,385		149		113

Total TDRs		4,776	$	349	$	270

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

A further breakdown of TDRs included in nonperforming loans by loan category as of September 30, 2014, follows:


			Pre-modification		Post-modification
			Outstanding		Outstanding
September 30, 2014	Number		Recorded		Recorded
dollars in millions	of Loans		Investment		Investment
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural		20	$	16	$	9
Commercial real estate:
Real estate — commercial mortgage		12		39		14
Real estate — construction		3		15		1

Total commercial real estate loans		15		54		15

Total commercial loans		35		70		24
Real estate — residential mortgage		464		28		28
Home equity:
Key Community Bank		1,125		70		64
Other		133		4		4

Total home equity loans		1,258		74		68
Consumer other — Key Community Bank		31		1		1
Credit cards		156		1		1
Consumer other:
Marine		211		16		14
Other		40		1		1

Total consumer other		251		17		15

Total consumer loans		2,160		121		113

Total nonperforming TDRs		2,195		191		137
Prior-year accruing:^(a)
Commercial, financial and agricultural		25		6		3
Commercial real estate:
Real estate — commercial mortgage		4		18		8

Total commercial real estate loans		4		18		8

Total commercial loans		29		24		11
Real estate — residential mortgage		359		28		28
Home equity:
Key Community Bank		731		45		40
Other		325		10		8

Total home equity loans		1,056		55		48
Consumer other — Key Community Bank		53		2		2
Credit cards		564		4		3
Consumer other:
Marine		402		58		34
Other		72		2		1

Total consumer other		474		60		35

Total consumer loans		2,506		149		116

Total prior-year accruing TDRs		2,535		173		127

Total TDRs		4,730	$	364	$	264

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

We classify loan modifications as TDRs when a borrower is experiencing financial difficulties and we have granted a concession without commensurate financial, structural, or legal consideration. All commercial and consumer loan TDRs, regardless of size, are individually evaluated for impairment to determine the probable loss content and are assigned a specific loan allowance if deemed appropriate. This designation has the effect of moving the loan from the general reserve methodology (i.e., collectively evaluated) to the specific reserve methodology (i.e., individually evaluated) and may impact the ALLL through a charge-off or increased loan loss provision. These components affect the ultimate allowance level. Additional information regarding TDRs for discontinued operations is provided in Note 11.

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 September 30, 2015, there were no significant commercial loan TDRs, and 61 consumer loan TDRs with a combined recorded investment of $3 million that experienced payment defaults from modifications resulting in TDR status during 2014. During the three months ended September 30, 2014, there were no significant commercial loan TDRs, and 93 consumer loan TDRs with a combined recorded investment of $4 million that experienced payment defaults from modifications resulting in TDR status during 2013. As TDRs are individually evaluated for impairment under the specific reserve methodology, subsequent defaults do not generally have a significant additional impact on the ALLL.

Our loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. Our concession types are primarily interest rate reductions, forgiveness of principal, and other modifications. The commercial TDR other concession category includes modification of loan terms, covenants, or conditions. The consumer TDR other concession category primarily includes those borrowers’ debts that are discharged through Chapter 7 bankruptcy and have not been formally re-affirmed.

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


in millions	September 30, 2015		December 31, 2014		September 30, 2014
Commercial loans:
Interest rate reduction	$	58	$	13	$	24
Forgiveness of principal		2		2		5
Other		1		25		6

Total	$	61	$	40	$	35

Consumer loans:
Interest rate reduction	$	139	$	140	$	140
Forgiveness of principal		4		4		4
Other		83		86		85

Total	$	226	$	230	$	229

Total commercial and consumer TDRs^(a)	$	287	$	270	$	264
Total loans		60,085		57,381		56,155

(a)	Commitments outstanding to lend additional funds to borrowers whose loan terms have been modified in TDRs are $8 million, $5 million, and $1 million at September 30, 2015, December 31, 2014, and September 30, 2014, respectively.

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 116 of our 2014 Form 10-K.

At September 30, 2015, approximately $59.3 billion, or 98.8%, of our total loans were current, compared to $56.6 billion, or 98.7%, at December 31, 2014, and $55.3 billion, or 98.5%, at September 30, 2014. At September 30, 2015, total past due loans and nonperforming loans of $724 million represented approximately 1.2% of total loans, compared to $749 million, or 1.3%, at December 31, 2014, and $813 million, or 1.5% at September 30, 2014.

The following aging analysis of past due and current loans as of September 30, 2015, December 31, 2014, and September 30, 2014, provides further information regarding Key’s credit exposure.


							90 and				Total Past
			30-59		60-89		Greater				Due and		Purchased
September 30, 2015			Days Past		Days Past		Days Past		Nonperforming		Nonperforming		Credit		Total
in millions	Current		Due		Due		Due		Loans		Loans		Impaired		Loans
LOAN TYPE
Commercial, financial and agricultural	$	30,901	$	58	$	30	$	17	$	89	$	194		—	$	31,095
Commercial real estate:
Commercial mortgage		8,127		18		7		5		23		53		—		8,180
Construction		1,060		1		—		—		9		10		—		1,070

Total commercial real estate loans		9,187		19		7		5		32		63		—		9,250
Commercial lease financing		3,875		29		3		1		21		54		—		3,929

Total commercial loans	$	43,963	$	106	$	40	$	23	$	142	$	311		—	$	44,274

Real estate — residential mortgage	$	2,171	$	11	$	4	$	3	$	67	$	85	$	11	$	2,267
Home equity:
Key Community Bank		10,027		49		20		11		174		254		1		10,282
Other		208		4		2		1		7		14		—		222

Total home equity loans		10,235		53		22		12		181		268		1		10,504
Consumer other — Key Community Bank		1,595		7		4		5		1		17		—		1,612
Credit cards		750		6		4		8		2		20		—		770
Consumer other:
Marine		601		10		2		1		6		19		—		620
Other		34		1		1		1		1		4		—		38

Total consumer other		635		11		3		2		7		23		—		658

Total consumer loans	$	15,386	$	88	$	37	$	30	$	258	$	413	$	12	$	15,811

Total loans	$	59,349	$	194	$	77	$	53	$	400	$	724	$	12	$	60,085


							90 and				Total Past
			30-59		60-89		Greater				Due and		Purchased
December 31, 2014			Days Past		Days Past		Days Past		Nonperforming		Nonperforming		Credit		Total
in millions	Current		Due		Due		Due		Loans		Loans		Impaired		Loans
LOAN TYPE
Commercial, financial and agricultural	$	27,858	$	19	$	14	$	32	$	59	$	124		—	$	27,982
Commercial real estate:
Commercial mortgage		7,981		6		10		16		34		66		—		8,047
Construction		1,084		2		—		1		13		16		—		1,100

Total commercial real estate loans		9,065		8		10		17		47		82		—		9,147
Commercial lease financing		4,172		30		21		11		18		80		—		4,252

Total commercial loans	$	41,095	$	57	$	45	$	60	$	124	$	286		—	$	41,381

Real estate — residential mortgage	$	2,111	$	12	$	7	$	4	$	79	$	102	$	12	$	2,225
Home equity:
Key Community Bank		10,098		46		22		14		185		267		1		10,366
Other		249		5		2		1		10		18		—		267

Total home equity loans		10,347		51		24		15		195		285		1		10,633
Consumer other — Key Community Bank		1,541		9		3		5		2		19		—		1,560
Credit cards		733		6		4		9		2		21		—		754
Consumer other:
Marine		746		11		5		2		15		33		—		779
Other		46		1		—		1		1		3		—		49

Total consumer other		792		12		5		3		16		36		—		828

Total consumer loans	$	15,524	$	90	$	43	$	36	$	294	$	463	$	13	$	16,000

Total loans	$	56,619	$	147	$	88	$	96	$	418	$	749	$	13	$	57,381


							90 and				Total Past
			30-59		60-89		Greater				Due and		Purchased
September 30, 2014			Days Past		Days Past		Days Past		Nonperforming		Nonperforming		Credit		Total
in millions	Current		Due		Due		Due		Loans		Loans		Impaired		Loans
LOAN TYPE
Commercial, financial and agricultural	$	26,534	$	50	$	34	$	18	$	47	$	149		—	$	26,683
Commercial real estate:
Commercial mortgage		8,201		17		7		9		41		74	$	1		8,276
Construction		1,017		3		2		—		14		19		—		1,036

Total commercial real estate loans		9,218		20		9		9		55		93		1		9,312
Commercial lease financing		4,017		74		24		6		14		118		—		4,135

Total commercial loans	$	39,769	$	144	$	67	$	33	$	116	$	360	$	1	$	40,130

Real estate — residential mortgage	$	2,091	$	17	$	7	$	5	$	81	$	110	$	12	$	2,213
Home equity:
Key Community Bank		10,124		46		19		16		174		255		1		10,380
Other		266		4		2		1		10		17		—		283

Total home equity loans		10,390		50		21		17		184		272		1		10,663
Consumer other — Key Community Bank		1,528		7		3		6		2		18		—		1,546
Credit cards		705		5		4		9		1		19		—		724
Consumer other:
Marine		796		11		4		1		16		32		—		828
Other		49		1		—		—		1		2		—		51

Total consumer other		845		12		4		1		17		34		—		879

Total consumer loans	$	15,559	$	91	$	39	$	38	$	285	$	453	$	13	$	16,025

Total loans	$	55,328	$	235	$	106	$	71	$	401	$	813	$	14	$	56,155

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

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

Credit quality indicators for loans are updated on an ongoing basis. Bond rating classifications are indicative of the credit quality of our commercial loan portfolios and are determined by converting our internally assigned risk rating grades to bond rating categories. Payment activity and the regulatory classifications of pass and substandard are indicators of the credit quality of our consumer loan portfolios.

Credit quality indicators for our commercial and consumer loan portfolios, excluding $12 million and $14 million of PCI loans at September 30, 2015, and September 30, 2014, respectively, based on bond rating, regulatory classification, and payment activity as of September 30, 2015, and September 30, 2014, are as follows:

Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category^(a)


September 30,
in millions
	Commercial, financial and agricultural				RE — Commercial				RE — Construction				Commercial Lease				Total
RATING^{(b), (c)}	2015		2014		2015		2014		2015		2014		2015		2014		2015		2014
AAA — AA	$	384	$	342	$	3	$	2		—	$	1	$	501	$	528	$	888	$	873
A		1,439		1,147		4		2		—		—		478		596		1,921		1,745
BBB — BB		27,438		23,822		7,690		7,736	$	935		895		2,808		2,848		38,871		35,301
B		639		594		272		298		89		100		88		75		1,088		1,067
CCC — C		1,195		778		211		238		46		40		54		88		1,506		1,144

Total	$	31,095	$	26,683	$	8,180	$	8,276	$	1,070	$	1,036	$	3,929	$	4,135	$	44,274	$	40,130

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

(b)	Our bond rating to internal loan grade conversion system is as follows: AAA - AA = 1, A = 2, BBB - BB = 3 - 13, B = 14 - 16, and CCC - C = 17 - 20.

(c)	Our internal loan grade to regulatory-defined classification is as follows: Pass = 1-16, Special Mention = 17, Substandard = 18, Doubtful = 19, and Loss = 20.

Consumer Credit Exposure

Credit Risk Profile by Regulatory Classifications^{(a), (b)}


September 30,
in millions
	Residential — Prime
GRADE	2015		2014
Pass	$	12,496	$	12,576
Substandard		263		287

Total	$	12,759	$	12,863

Credit Risk Profile Based on Payment Activity^(a)


September 30,	Consumer — Key Community Bank				Credit cards				Consumer — Marine				Consumer — Other				Total
in millions	2015		2014		2015		2014		2015		2014		2015		2014		2015		2014
Performing	$	1,611	$	1,544	$	768	$	723	$	614	$	812	$	37	$	50	$	3,030	$	3,129
Nonperforming		1		2		2		1		6		16		1		1		10		20

Total	$	1,612	$	1,546	$	770	$	724	$	620	$	828	$	38	$	51	$	3,040	$	3,149

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

(b)	Our past due payment activity to regulatory classification conversion is as follows: pass = less than 90 days; and substandard = 90 days and greater plus nonperforming loans.

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 117 of our 2014 Form 10-K. We apply expected loss rates to existing loans with similar risk characteristics as noted in the credit quality indicator table above and exercise judgment to assess the impact of qualitative factors such as changes in economic conditions, changes in credit policies or underwriting standards, and changes in the level of credit risk associated with specific industries and markets.

In the third quarter of 2015, we enhanced the approach used to determine the commercial reserve factors used in estimating the commercial ALLL, which had the effect of capturing certain elements in the commercial quantitative reserve component that had formerly been included in the commercial qualitative component. Under the enhanced methodology, we began utilizing more refined commercial estimated loss rates that represent cumulative losses over the estimated average time period from the onset of credit deterioration to the initial loss recorded for an individual loan. In addition, we began utilizing an enhanced framework to quantify commercial ALLL adjustments resulting from qualitative factors that may not be fully captured within the statistical analysis of incurred loss. The impact of these changes was largely neutral to the total ALLL at September 30, 2015. However, because the quantitative reserve is allocated to the business segments at a loan level, while the qualitative portion is allocated at the portfolio level, the impact of the methodology enhancements on the allowance for each portfolio caused the commercial portfolio ALLL to increase or decrease accordingly. The impact of the increases and decreases on the commercial portfolio ALLL was not significant.

For all commercial and consumer loan TDRs, regardless of size, as well as impaired commercial loans with an outstanding balance of $2.5 million or greater, we conduct further analysis to determine the probable loss content and assign a specific allowance to the loan if deemed appropriate. We estimate the extent of the individual impairment for commercial loans and TDRs by comparing the recorded investment of the loan with the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan’s observable market price. Secured consumer loan TDRs that are discharged through Chapter 7 bankruptcy and not formally re-affirmed are adjusted to reflect the fair value of the underlying collateral, less costs to sell. Non-Chapter 7 consumer loan TDRs are combined in homogenous pools and assigned a specific allocation based on the estimated present value of future cash flows using the loan’s effective interest rate. A specific allowance also may be assigned — even when sources of repayment appear sufficient — if we remain uncertain about whether the loan will be repaid in full. On at least a quarterly basis, we evaluate the appropriateness of our loss estimation methods to reduce differences between estimated incurred losses and actual losses. The ALLL at September 30, 2015, represents our best estimate of the probable credit losses inherent in the loan portfolio at that date.

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

At September 30, 2015, the ALLL was $790 million, or 1.31% of loans, compared to $804 million, or 1.43% of loans, at September 30, 2014. At September 30, 2015, the ALLL was 197.5% of nonperforming loans, compared to 200.5% at September 30, 2014.

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


	Three months ended September 30,						Nine months ended September 30,
in millions	2015			2014			2015			2014
Balance at beginning of period — continuing operations	$	796		$	814		$	794		$	848
Charge-offs		(53	)		(49	)		(152	)		(162	)
Recoveries		12			18			47			81

Net loans and leases charged off		(41	)		(31	)		(105	)		(81	)
Provision for loan and lease losses from continuing operations		36			21			102			37
Foreign currency translation adjustment		(1	)		—			(1	)		—

Balance at end of period — continuing operations	$	790		$	804		$	790		$	804

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


in millions	December 31, 2014		Provision			Charge-offs			Recoveries		September 30, 2015
Commercial, financial and agricultural	$	391	$	93		$	(59	)	$	13	$	438
Real estate — commercial mortgage		148		(9	)		(2	)		2		139
Real estate — construction		28		(3	)		(1	)		1		25
Commercial lease financing		56		(13	)		(5	)		7		45

Total commercial loans		623		68			(67	)		23		647
Real estate — residential mortgage		23		(1	)		(4	)		1		19
Home equity:
Key Community Bank		66		4			(21	)		5		54
Other		5		(1	)		(4	)		4		4

Total home equity loans		71		3			(25	)		9		58
Consumer other — Key Community Bank		22		11			(18	)		5		20
Credit cards		33		20			(23	)		2		32
Consumer other:
Marine		21		—			(14	)		6		13
Other		1		—			(1	)		1		1

Total consumer other:		22		—			(15	)		7		14

Total consumer loans		171		33			(85	)		24		143

Total ALLL — continuing operations		794		101	^(a)		(152	)		47		790
Discontinued operations		29		9			(25	)		10		23

Total ALLL — including discontinued operations	$	823	$	110		$	(177	)	$	57	$	813

(a)	Includes a $1 million foreign currency translation adjustment. Excludes a provision for losses on lending-related commitments of $19 million.


in millions	December 31, 2013		Provision			Charge-offs			Recoveries		September 30, 2014
Commercial, financial and agricultural	$	362	$	32		$	(35	)	$	27	$	386
Real estate — commercial mortgage		165		(7	)		(3	)		4		159
Real estate — construction		32		(16	)		(4	)		16		28
Commercial lease financing		62		(9	)		(6	)		8		55

Total commercial loans		621		—			(48	)		55		628
Real estate — residential mortgage		37		(10	)		(7	)		2		22
Home equity:
Key Community Bank		84		9			(29	)		7		71
Other		11		(1	)		(8	)		4		6

Total home equity loans		95		8			(37	)		11		77
Consumer other — Key Community Bank		29		14			(23	)		4		24
Credit cards		34		24			(27	)		1		32
Consumer other:
Marine		29		1			(18	)		7		19
Other		3		—			(2	)		1		2

Total consumer other:		32		1			(20	)		8		21

Total consumer loans		227		37			(114	)		26		176

Total ALLL — continuing operations		848		37	^(a)		(162	)		81		804
Discontinued operations		39		15			(34	)		11		31

Total ALLL — including discontinued operations	$	887	$	52		$	(196	)	$	92	$	835

(a)	Excludes a credit for losses on lending-related commitments of $2 million.

Our ALLL from continuing operations decreased by $14 million, or 1.7%, from the third quarter of 2014 primarily because of the improvement in the credit quality of our loan portfolios. The quality of new loan originations as well as decreasing levels of classified and nonperforming loans also resulted in a reduction in our general allowance. Our general allowance applies expected loss rates to our existing loans with similar risk characteristics as well as any adjustments to reflect our current assessment of qualitative factors such as changes in economic conditions, underwriting standards, and concentrations of credit. Our delinquency trends declined during 2014 and into 2015 due to continued improved credit quality, relatively stable economic conditions, and continued run-off in our exit loan portfolio, reflecting our effort to maintain a moderate enterprise risk tolerance.

For continuing operations, the loans outstanding individually evaluated for impairment totaled $318 million, with a corresponding allowance of $36 million at September 30, 2015. Loans outstanding collectively evaluated for impairment totaled $59.8 billion, with a corresponding allowance of $753 million at September 30, 2015. At September 30, 2015, PCI loans evaluated for impairment totaled $12 million, with a corresponding allowance of $1 million. There was no provision for loan and lease losses on these PCI loans during the nine months ended September 30, 2015. At September 30, 2014, the loans outstanding individually evaluated for impairment totaled $299 million, with a corresponding allowance of $38 million. Loans outstanding collectively evaluated for impairment totaled $55.8 billion, with a corresponding allowance of $765 million at September 30, 2014. At September 30, 2014, PCI loans evaluated for impairment totaled $14 million, with a corresponding allowance of $1 million. There was no provision for loan and lease losses on these PCI loans during the nine months ended September 30, 2014.

A breakdown of the individual and collective ALLL and the corresponding loan balances as of September 30, 2015, follows:


	Allowance						Outstanding
	Individually		Collectively		Purchased				Individually		Collectively		Purchased
September 30, 2015	Evaluated for		Evaluated for		Credit				Evaluated for		Evaluated for		Credit
in millions	Impairment		Impairment		Impaired		Loans		Impairment		Impairment		Impaired
Commercial, financial and agricultural	$	9	$	429		—	$	31,095	$	72	$	31,023		—
Commercial real estate:
Commercial mortgage		1		138		—		8,180		15		8,165		—
Construction		—		25		—		1,070		5		1,065		—

Total commercial real estate loans		1		163		—		9,250		20		9,230		—
Commercial lease financing		—		45		—		3,929		—		3,929		—

Total commercial loans		10		637		—		44,274		92		44,182		—
Real estate — residential mortgage		5		13	$	1		2,267		56		2,200	$	11
Home equity:
Key Community Bank		17		37		—		10,282		113		10,168		1
Other		2		2		—		222		11		211		—

Total home equity loans		19		39		—		10,504		124		10,379		1
Consumer other — Key Community Bank		—		20		—		1,612		3		1,609		—
Credit cards		—		32		—		770		3		767		—
Consumer other:
Marine		2		11		—		620		38		582		—
Other		—		1		—		38		2		36		—

Total consumer other		2		12		—		658		40		618		—

Total consumer loans		26		116		1		15,811		226		15,573		12

Total ALLL — continuing operations		36		753		1		60,085		318		59,755		12
Discontinued operations		2		21		—		1,891		20		1,871		—

Total ALLL — including discontinued operations	$	38	$	774	$	1	$	61,976	$	338	$	61,626	$	12

A breakdown of the individual and collective ALLL and the corresponding loan balances as of December 31, 2014, follows:


	Allowance						Outstanding
	Individually		Collectively		Purchased					Individually		Collectively			Purchased
December 31, 2014	Evaluated for		Evaluated for		Credit					Evaluated for		Evaluated for			Credit
in millions	Impairment		Impairment		Impaired		Loans			Impairment		Impairment			Impaired
Commercial, financial and agricultural	$	9	$	382		—	$	27,982		$	43	$	27,939			—
Commercial real estate:
Commercial mortgage		2		146		—		8,047			21		8,025		$	1
Construction		1		27		—		1,100			8		1,092			—

Total commercial real estate loans		3		173		—		9,147			29		9,117			1
Commercial lease financing		—		56		—		4,252			—		4,252			—

Total commercial loans		12		611		—		41,381			72		41,308			1
Real estate — residential mortgage		5		17	$	1		2,225			55		2,159			11
Home equity:
Key Community Bank		16		50		—		10,366			108		10,257			1
Other		2		3		—		267			12		255			—

Total home equity loans		18		53		—		10,633			120		10,512			1
Consumer other — Key Community Bank		—		22		—		1,560			4		1,556			—
Credit cards		—		33		—		754			4		750			—
Consumer other:
Marine		5		16		—		779			45		734			—
Other		—		1		—		49			2		47			—

Total consumer other		5		17		—		828			47		781			—

Total consumer loans		28		142		1		16,000			230		15,758			12

Total ALLL — continuing operations		40		753		1		57,381			302		57,066			13
Discontinued operations		1		28		—		2,295	^(a)		17		2,278	^(a)		—

Total ALLL — including discontinued operations	$	41	$	781	$	1	$	59,676		$	319	$	59,344		$	13

(a)	Amount includes $191 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 September 30, 2014, follows:


	Allowance						Outstanding
	Individually		Collectively		Purchased					Individually		Collectively			Purchased
September 30, 2014	Evaluated for		Evaluated for		Credit					Evaluated for		Evaluated for			Credit
in millions	Impairment		Impairment		Impaired		Loans			Impairment		Impairment			Impaired
Commercial, financial and agricultural	$	7	$	379		—	$	26,683		$	31	$	26,652			—
Commercial real estate:
Commercial mortgage		2		157		—		8,276			29		8,246		$	1
Construction		—		28		—		1,036			10		1,026			—

Total commercial real estate loans		2		185		—		9,312			39		9,272			1
Commercial lease financing		—		55		—		4,135			—		4,135			—

Total commercial loans		9		619		—		40,130			70		40,059			1
Real estate — residential mortgage		4		17	$	1		2,213			55		2,146			12
Home equity:
Key Community Bank		16		55		—		10,380			105		10,274			1
Other		2		4		—		283			12		271			—

Total home equity loans		18		59		—		10,663			117		10,545			1
Consumer other — Key Community Bank		—		24		—		1,546			4		1,542			—
Credit cards		1		31		—		724			3		721			—
Consumer other:
Marine		5		14		—		828			48		780			—
Other		1		1		—		51			2		49			—

Total consumer other		6		15		—		879			50		829			—

Total consumer loans		29		146		1		16,025			229		15,783			13

Total ALLL — continuing operations		38		765		1		56,155			299		55,842			14
Discontinued operations		1		30		—		2,392	^(a)		16		2,376	^(a)		—

Total ALLL — including discontinued operations	$	39	$	795	$	1	$	58,547		$	315	$	58,218		$	14

(a)	Amount includes $201 million of loans carried at fair value that are excluded from ALLL consideration.

The liability for credit losses inherent in lending-related unfunded commitments, such as letters of credit and unfunded loan commitments, is included in “accrued expense and other liabilities” on the balance sheet. We establish the amount of this reserve by considering both historical trends and current market conditions quarterly, or more often if deemed necessary. Our liability for credit losses on lending-related commitments was $54 million at September 30, 2015. When combined with our ALLL, our total allowance for credit losses represented 1.40% of loans at September 30, 2015, compared to 1.49% at September 30, 2014.

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


	Three months ended September 30,					Nine months ended September 30,
in millions	2015		2014			2015		2014
Balance at beginning of period	$	45	$	37		$	35	$	37
Provision (credit) for losses on lending-related commitments		9		(2	)		19		(2	)

Balance at end of period	$	54	$	35		$	54	$	35