Asset Quality | 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: June 30, December 31, June 30, in millions 2015 2014 2014 Total nonperforming loans (a), (b) $ 419 $ 418 $ 396 Nonperforming loans held for sale — — 1 OREO (c) 20 18 12 Other nonperforming assets 1 — 1 Total nonperforming assets $ 440 $ 436 $ 410 Nonperforming assets from discontinued operations — education lending (d) $ 6 $ 11 $ 19 Restructured loans included in nonperforming loans $ 170 $ 157 $ 142 Restructured loans with an allocated specific allowance (e) 79 82 59 Specifically allocated allowance for restructured loans (f) 36 34 30 Accruing loans past due 90 days or more $ 66 $ 96 $ 83 Accruing loans past due 30 through 89 days 181 235 274 (a) Loan balances exclude $12 million, $13 million, and $15 million of PCI loans at June 30, 2015, December 31, 2014, and June 30, 2014, respectively. (b) Includes carrying value of consumer residential mortgage loans in the process of foreclosure of approximately $116 million at June 30, 2015. (c) Includes carrying value of foreclosed residential real estate of approximately $15 million at June 30, 2015. (d) Restructured loans of approximately $19 million, $17 million, and $18 million are included in discontinued operations at June 30, 2015, December 31, 2014, and June 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 June 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 six months of 2015 included accretion and net reclassifications of less than $1 million, resulting in an ending balance of $5 million at June 30, 2015. At June 30, 2015, the approximate carrying amount of our commercial nonperforming loans outstanding represented 76% of their original contractual amount owed, total nonperforming loans outstanding represented 80% of their original contractual amount owed, and nonperforming assets in total were carried at 80% of their original contractual amount owed. At June 30, 2015, our 20 largest nonperforming loans totaled $120 million, representing 29% of total loans on nonperforming status. At June 30, 2014, our 20 largest nonperforming loans totaled $55 million, representing 14% of total loans on nonperforming status. Nonperforming loans and loans held for sale reduced expected interest income by $8 million for the six months ended June 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 June 30, 2015, December 31, 2014, and June 30, 2014: June 30, 2015 in millions Recorded Unpaid Principal Specific Average Recorded Investment (a) Balance (b) Allowance Investment With no related allowance recorded: Commercial, financial and agricultural $ 9 $ 56 — $ 15 Commercial real estate: Commercial mortgage 10 14 — 12 Construction 7 7 — 7 Total commercial real estate loans 17 21 — 19 Total commercial loans 26 77 — 34 Real estate — residential mortgage 22 22 — 22 Home equity: Key Community Bank 60 60 — 61 Other 2 2 — 2 Total home equity loans 62 62 — 63 Consumer other: Marine 1 1 — 1 Total consumer other 1 1 — 1 Total consumer loans 85 85 — 86 Total loans with no related allowance recorded 111 162 — 120 With an allowance recorded: Commercial, financial and agricultural 73 86 $ 24 67 Commercial real estate: Commercial mortgage 6 7 1 6 Total commercial real estate loans 6 7 1 6 Total commercial loans 79 93 25 73 Real estate — residential mortgage 33 33 5 33 Home equity: Key Community Bank 53 53 17 51 Other 10 10 2 11 Total home equity loans 63 63 19 62 Consumer other — Key Community Bank 3 3 — 3 Credit cards 3 3 — 3 Consumer other: Marine 40 40 3 40 Other 2 2 — 2 Total consumer other 42 42 3 42 Total consumer loans 144 144 27 143 Total loans with an allowance recorded 223 237 52 216 Total $ 334 $ 399 $ 52 $ 336 (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 in millions Recorded Principal Specific Recorded 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 June 30, 2014 in millions Recorded Principal Specific Recorded Investment (a) Balance (b) Allowance Investment With no related allowance recorded: Commercial, financial and agricultural $ 12 $ 18 — $ 23 Commercial real estate: Commercial mortgage 23 28 — 23 Construction 6 17 — 6 Total commercial real estate loans 29 45 — 29 Total commercial loans 41 63 — 52 Real estate — residential mortgage 25 25 — 26 Home equity: Key Community Bank 66 66 — 68 Other 2 2 — 2 Total home equity loans 68 68 — 70 Consumer other: Marine 2 2 — 2 Total consumer other 2 2 — 2 Total consumer loans 95 95 — 98 Total loans with no related allowance recorded 136 158 — 150 With an allowance recorded: Commercial, financial and agricultural 5 7 $ 3 6 Commercial real estate: Commercial mortgage 2 3 1 2 Construction — — — — Total commercial real estate loans 2 3 1 2 Total commercial loans 7 10 4 8 Real estate — residential mortgage 29 29 5 28 Home equity: Key Community Bank 37 37 15 36 Other 11 11 3 11 Total home equity loans 48 48 18 47 Consumer other — Key Community Bank 3 3 — 3 Credit cards 4 4 — 4 Consumer other: Marine 48 48 5 49 Other 1 1 — 1 Total consumer other 49 49 5 50 Total consumer loans 133 133 28 132 Total loans with an allowance recorded 140 143 32 140 Total $ 276 $ 301 $ 32 $ 290 (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 the six months ended June 30, 2015, and June 30, 2014, interest income recognized on the outstanding balances of accruing impaired loans totaled $3 million and $4 million, respectively. At June 30, 2015, aggregate restructured loans (accrual and nonaccrual loans) totaled $300 million, compared to $270 million at December 31, 2014, and $266 million at June 30, 2014. We added $73 million in restructured loans during the first six months of 2015, which were offset by $43 million in payments and charge-offs. A further breakdown of TDRs included in nonperforming loans by loan category as of June 30, 2015, follows: Pre-modification Post-modification Outstanding Outstanding June 30, 2015 Number Recorded Recorded dollars in millions of Loans Investment Investment LOAN TYPE Nonperforming: Commercial, financial and agricultural 12 $ 74 $ 58 Commercial real estate: Real estate — commercial mortgage 12 32 8 Total commercial real estate loans 12 32 8 Total commercial loans 24 106 66 Real estate — residential mortgage 352 21 21 Home equity: Key Community Bank 1,076 77 70 Other 117 3 3 Total home equity loans 1,193 80 73 Consumer other — Key Community Bank 28 1 1 Credit cards 289 2 2 Consumer other: Marine 104 8 7 Other 21 1 — Total consumer other 125 9 7 Total consumer loans 1,987 113 104 Total nonperforming TDRs 2,011 219 170 Prior-year accruing: (a) Commercial, financial and agricultural 14 6 3 Commercial real estate: Real estate — commercial mortgage 1 2 1 Total commercial real estate loans 1 2 1 Total commercial loans 15 8 4 Real estate — residential mortgage 491 36 36 Home equity: Key Community Bank 807 48 42 Other 331 10 8 Total home equity loans 1,138 58 50 Consumer other — Key Community Bank 48 2 2 Credit cards 489 3 2 Consumer other: Marine 419 60 34 Other 73 2 2 Total consumer other 492 62 36 Total consumer loans 2,658 161 126 Total prior-year accruing TDRs 2,673 169 130 Total TDRs 4,684 $ 388 $ 300 (a) All TDRs that were restructured prior to January 1, 2015, and are fully accruing. A further breakdown of TDRs included in nonperforming loans by loan category as of December 31, 2014, follows: December 31, 2014 dollars in millions Number Pre-modification Post-modification 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 June 30, 2014, follows: June 30, 2014 dollars in millions Number Pre-modification Post-modification LOAN TYPE Nonperforming: Commercial, financial and agricultural 24 $ 20 $ 10 Commercial real estate: Real estate — commercial mortgage 11 40 14 Real estate — construction 3 15 2 Total commercial real estate loans 14 55 16 Total commercial loans 38 75 26 Real estate — residential mortgage 521 34 34 Home equity: Key Community Bank 1,086 68 64 Other 126 4 3 Total home equity loans 1,212 72 67 Consumer other — Key Community Bank 33 1 1 Credit cards 60 — — Consumer other: Marine 207 15 13 Other 36 1 1 Total consumer other 243 16 14 Total consumer loans 2,069 123 116 Total nonperforming TDRs 2,107 198 142 Prior-year accruing: (a) Commercial, financial and agricultural 32 7 3 Commercial real estate: Real estate — commercial mortgage 4 17 9 Total commercial real estate loans 4 17 9 Total commercial loans 36 24 12 Real estate — residential mortgage 287 21 21 Home equity: Key Community Bank 759 43 39 Other 322 10 8 Total home equity loans 1,081 53 47 Consumer other — Key Community Bank 54 2 2 Credit cards 653 5 3 Consumer other: Marine 428 60 37 Other 73 2 2 Total consumer other 501 62 39 Total consumer loans 2,576 143 112 Total prior-year accruing TDRs 2,612 167 124 Total TDRs 4,719 $ 365 $ 266 (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 June 30, 2015, there were no significant commercial loan TDRs, and 65 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 June 30, 2014, there were no significant commercial loan TDRs, and 107 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 June 30, December 31, June 30, Commercial loans: Interest rate reduction $ 60 $ 13 $ 27 Forgiveness of principal 2 2 5 Other 8 25 6 Total $ 70 $ 40 $ 38 Consumer loans: Interest rate reduction $ 142 $ 140 $ 139 Forgiveness of principal 4 4 4 Other 84 86 85 Total $ 230 $ 230 $ 228 Total commercial and consumer TDRs (a) $ 300 $ 270 $ 266 Total loans 58,264 57,381 55,600 (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 June 30, 2015, December 31, 2014, and June 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 June 30, 2015, approximately $57.6 billion, or 98.8%, of our total loans were current, compared to $56.6 billion, or 98.7%, at December 31, 2014, and $54.8 billion, or 98.6%, at June 30, 2014. At June 30, 2015, total past due loans and nonperforming loans of $666 million represented approximately 1.2% of total loans, compared to $749 million, or 1.3%, at December 31, 2014, and $753 million, or 1.4% at June 30, 2014. The following aging analysis of past due and current loans as of June 30, 2015, December 31, 2014, and June 30, 2014, provides further information regarding Key’s credit exposure. June 30, 2015 in millions Current 30-59 60-89 90 and Nonperforming Total Past Due and Nonperforming Purchased Total LOAN TYPE Commercial, financial and agricultural $ 29,137 $ 26 $ 5 $ 17 $ 100 $ 148 — $ 29,285 Commercial real estate: Commercial mortgage 7,823 6 2 17 26 51 — 7,874 Construction 1,242 — — — 12 12 — 1,254 Total commercial real estate loans 9,065 6 2 17 38 63 — 9,128 Commercial lease financing 3,967 20 3 2 18 43 — 4,010 Total commercial loans $ 42,169 $ 52 $ 10 $ 36 $ 156 $ 254 — $ 42,423 Real estate — residential mortgage $ 2,155 $ 13 $ 3 $ 3 $ 67 $ 86 $ 11 $ 2,252 Home equity: Key Community Bank 10,043 43 22 11 176 252 1 10,296 Other 221 4 2 1 8 15 — 236 Total home equity loans 10,264 47 24 12 184 267 1 10,532 Consumer other — Key Community Bank 1,577 8 3 6 1 18 — 1,595 Credit cards 735 5 3 8 2 18 — 753 Consumer other: Marine 651 10 3 1 8 22 — 673 Other 35 — — — 1 1 — 36 Total consumer other 686 10 3 1 9 23 — 709 Total consumer loans $ 15,417 $ 83 $ 36 $ 30 $ 263 $ 412 $ 12 $ 15,841 Total loans $ 57,586 $ 135 $ 46 $ 66 $ 419 $ 666 $ 12 $ 58,264 December 31, 2014 in millions Current 30-59 60-89 90 and Nonperforming Total Past Due and Purchased Total 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 June 30, 2014 in millions Current 30-59 60-89 90 and Nonperforming Total Past Due and Purchased Total LOAN TYPE Commercial, financial and agricultural $ 26,212 $ 52 $ 11 $ 15 $ 37 $ 115 — $ 26,327 Commercial real estate: Commercial mortgage 7,855 18 15 19 38 90 $ 1 7,946 Construction 1,029 2 2 5 9 18 — 1,047 Total commercial real estate loans 8,884 20 17 24 47 108 1 8,993 Commercial lease financing 4,186 32 4 4 15 55 — 4,241 Total commercial loans $ 39,282 $ 104 $ 32 $ 43 $ 99 $ 278 $ 1 $ 39,561 Real estate — residential mortgage $ 2,061 $ 16 $ 6 $ 4 $ 89 $ 115 $ 13 $ 2,189 Home equity: Key Community Bank 10,115 46 22 17 178 263 1 10,379 Other 281 5 2 1 11 19 — 300 Total home equity loans 10,396 51 24 18 189 282 1 10,679 Consumer other — Key Community Bank 1,493 9 4 6 2 21 — 1,514 Credit cards 698 6 4 9 1 20 — 718 Consumer other: Marine 855 13 3 2 15 33 — 888 Other 47 1 1 1 1 4 — 51 Total consumer other 902 14 4 3 16 37 — 939 Total consumer loans $ 15,550 $ 96 $ 42 $ 40 $ 297 $ 475 $ 14 $ 16,039 Total loans $ 54,832 $ 200 $ 74 $ 83 $ 396 $ 753 $ 15 $ 55,600 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 $15 million of PCI loans at June 30, 2015, and June 30, 2014, respectively, based on bond rating, regulatory classification, and payment activity as of June 30, 2015, and June 30, 2014, are as follows: Commercial Credit Exposure Credit Risk Profile by Creditworthiness Category (a) June 30, in millions Commercial, financial RE —Commercial RE —Construction Commercial Lease Total RATING (b), (c) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 AAA — AA $ 396 $ 364 $ 3 $ 3 $ 1 $ 1 $ 504 $ 712 $ 904 $ 1,080 A 1,189 1,091 4 1 — 1 484 382 1,677 1,475 BBB — BB 25,931 23,534 7,318 7,412 1,084 907 2,853 2,968 37,186 34,821 B 653 545 278 287 138 99 103 99 1,172 1,030 CCC — C 1,116 793 271 242 31 39 66 80 1,484 1,154 Total $ 29,285 $ 26,327 $ 7,874 $ 7,945 $ 1,254 $ 1,047 $ 4,010 $ 4,241 $ 42,423 $ 39,560 (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) June 30, in millions Residential — Prime GRADE 2015 2014 Pass $ 12,506 $ 12,554 Substandard 266 300 Total $ 12,772 $ 12,854 Credit Risk Profile Based on Payment Activity (a) June 30, in millions Consumer — Key Credit cards Consumer —Marine Consumer — Other Total 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Performing $ 1,594 $ 1,512 $ 751 $ 717 $ 665 $ 873 $ 35 $ 50 $ 3,045 $ 3,152 Nonperforming 1 2 2 1 8 15 1 1 12 19 Total $ 1,595 $ 1,514 $ 753 $ 718 $ 673 $ 888 $ 36 $ 51 $ 3,057 $ 3,171 (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 factors such as changes in economic conditions, changes in credit policies or underwriting standards, and changes in the level of credit risk associated with specific industries and markets. For all commercial and consumer loan TDRs, regardless of size, as well as impaired commercial loans with an outstanding balance of $2.5 million or greater, we conduct further analysis to determine the probable loss content and assign a specific allowance to the loan if deemed appropriate. We estimate the extent of the individual impairment for commercial loans and TDRs by comparing the recorded investment of the loan with the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan’s observable market price. Secured consumer loan TDRs that are discharged through Chapter 7 bankruptcy and not formally re-affirmed are adjusted to reflect the fair value of the underlying collateral, less costs to sell. Non-Chapter 7 consumer loan TDRs are combined in homogenous pools and assigned a specific allocation based on the estimated present value of future cash flows using the loan’s effective interest rate. A specific allowance also may be assigned — even when sources of repayment appear sufficient — if we remain uncertain about whether the loan will be repaid in full. On at least a quarterly basis, we evaluate the appropriateness of our loss estimation methods to reduce differences between estimated incurred losses and actual losses. The ALLL at June 30, 2015, represents our best estimate of the probable credit losses inherent in the loan portfolio at that date. Although quantitative modeling factors such as default probability and expected recovery rates are constantly changing as the financial strength of the borrower and overall economic conditions change, we have not changed the accounting policies or methodology that we use to estimate the ALLL. 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 the fair value of the underlying collateral 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 June 30, 2015, the ALLL was $796 million, or 1.37% of loans, compared to $814 million, or 1.46% of loans, at June 30, 2014. At June 30, 2015, the ALLL was 190% of nonperforming loans, compared to 205.6% at June 30, 2014. A summary of the changes in the ALLL for the periods indicated is presented in the table below: Three months Six months in millions 2015 2014 2015 2014 Balance at beginning of period — continuing operations $ 794 $ 834 $ 794 $ 848 Charge-offs (52 ) (56 ) (99 ) (113 ) Recoveries 16 26 35 63 Net loans and leases charged off (36 ) (30 ) (64 ) (50 ) Provision for loan and lease losses from continuing operations 37 10 66 16 Foreign currency translation adjustment 1 — — — Balance at end of period — continuing operations $ 796 $ 814 $ 796 $ 814 The changes in the ALLL by loan category for the periods indicated are as follows: in millions December 31, Provision Charge-offs Recoveries June 30, Commercial, financial and agricultural $ 391 $ 49 $ (33 ) $ 11 $ 418 Real estate — commercial mortgage 148 (4 ) (2 ) 2 144 Real estate — construction 28 3 (1 ) 1 31 Commercial lease financing 56 (5 ) (3 ) 5 53 Total commercial loans 623 43 (39 ) 19 646 Real estate — residential mortgage 23 (1 ) (3 ) 1 20 Home equity: Key Community Bank 66 3 (15 ) 3 57 Other 5 — (3 ) 2 4 Total home equity loans 71 3 (18 ) 5 61 Consumer other — Key Community Bank 22 7 (12 ) 4 21 Credit cards 33 13 (16 ) 1 31 Consumer other: Marine 21 — (10 ) 5 16 Other 1 1 (1 ) — 1 Total consumer other: 22 1 (11 ) 5 17 Total consumer loans 171 23 (60 ) 16 150 Total ALLL — continuing operations 794 66 (a) (99 ) 35 796 Discontinued operations 29 1 (16 ) 8 22 Total ALLL — including discontinued operations $ 823 $ 67 $ (115 ) $ 43 $ 818 (a) Excludes provision for losses on lending-related commitments of $10 million. in millions December 31, Provision Charge-offs Recoveries June 30, Commercial, financial and agricultural $ 362 $ 13 $ (23 ) $ 21 $ 373 Real estate — commercial mortgage 165 (5 ) (3 ) 2 159 Real estate — construction 32 (11 ) (2 ) 15 34 Commercial lease financing 62 (3 ) (5 ) 6 60 Total commercial loans 621 (6 ) (33 ) 44 626 Real estate — residential mortgage 37 (9 ) (5 ) 2 25 Home equity: Key Community Bank 84 9 (20 ) 4 77 Other 11 1 (6 ) 3 9 Total home equity loans 95 10 (26 ) 7 86 Consumer other — Key Community Bank 29 8 (16 ) 3 24 Credit cards 34 13 (18 ) 1 30 Consumer other: Marine 29 1 (14 ) 5 21 Other 3 (1 ) (1 ) 1 2 Total consumer other: 32 — (15 ) 6 23 Total consumer loans 227 22 (80 ) 19 188 Total ALLL — continuing operations 848 16 (a) (113 ) 63 814 Discontinued operations 39 9 (24 ) 8 32 Total ALLL — including discontinued operations $ 887 $ 25 $ (137 ) $ 71 $ 846 (a) Excludes provision for losses on lending-related commitments. Our ALLL from continuing operations decreased by $18 million, or 2.2%, from the second 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 $334 million, with a corresponding allowance of $52 million at June 30, 2015. Loans outstanding collectively evaluated for impairment totaled $57.9 billion, with a corresponding allowance of $743 million at June 30, 2015. At June 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 six months ended June 30, 2015. At June 30, 2014, the loans outstanding individually evaluated for impairment totaled $276 million, with a corresponding allowance of $32 million. Loans outstanding collect |