ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK

Allowance for Credit Losses

Management’s estimate of probable losses in the Company’s loan and lease portfolios is recorded in the ALLL and the reserve for unfunded lending commitments. On a quarterly basis, Citizens evaluates the adequacy of the ALLL by performing reviews of certain individual loans and leases, analyzing changes in the composition, size and delinquency of the portfolio, reviewing previous loss experience and considering current and anticipated economic factors. The ALLL is established in accordance with the Company’s credit reserve policies, as approved by the Audit Committee of the Board of Directors. The Chief Financial Officer and Chief Risk Officer review the adequacy of the ALLL each quarter, together with risk management. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. The ALLL is maintained at a level that management considers reflective of probable losses, and is established through charges to earnings in the form of a provision for credit losses. The ALLL may be adjusted to reflect the Company’s current assessment of various qualitative risks, factors and events that may not be measured in the statistical analysis. Such factors include trends in economic conditions, loan growth, back testing results, credit underwriting policy exceptions, regulatory and audit findings, and peer comparisons. Amounts determined to be uncollectible are deducted from the ALLL and subsequent recoveries, if any, are added to the ALLL. While management uses available information to estimate loan and lease losses, future additions to the ALLL may be necessary based on changes in economic conditions. There were no material changes in assumptions or estimation techniques compared with prior years that impacted the determination of the current year’s ALLL and the reserve for unfunded lending commitments.

The evaluation of the adequacy of the commercial, commercial real estate, and lease ALLL and reserve for unfunded lending commitments is primarily based on risk rating models that assess probability of default, loss given default and exposure at default on an individual loan basis. The models are primarily driven by individual customer financial characteristics and are validated against historical experience. Additionally, qualitative factors are included in the risk rating models. After the aggregation of individual borrower incurred loss, additional overlays can be made based on back-testing against historical losses.

For non-impaired retail loans, the ALLL is based upon an incurred loss model utilizing the probability of default, loss given default and exposure at default on an individual loan basis. When developing these factors, the Company may consider the loan product and collateral type, delinquency status, LTV ratio, lien position, borrower’s credit, age of the loan, geographic location and incurred loss period. Certain retail portfolios, including education, unsecured personal loans, SBO home equity loans and commercial credit card receivables utilize roll rate or vintage models to estimate the ALLL.

For nonaccruing commercial and commercial real estate loans with an outstanding balance of $3 million or greater and for all commercial and commercial real estate TDRs (regardless of size), the Company conducts further analysis to determine the probable amount of loss and establishes a specific allowance for the loan, if appropriate. Citizens estimates the impairment amount by comparing the loan’s carrying amount to the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan’s observable market price. For collateral-dependent impaired commercial and commercial real estate loans, the excess of the Company’s recorded investment in the loan over the fair value of the collateral, less cost to sell, is charged off to the ALLL.

For retail TDRs that are not collateral-dependent, allowances are developed using the present value of expected future cash flows compared to the recorded investment in the loans. Expected re-default factors are considered in this analysis. Retail TDRs that are deemed collateral-dependent are written down to fair market value less cost to sell. The fair value of collateral is periodically monitored subsequent to the modification.

In addition to the ALLL, the Company also estimates probable credit losses associated with off-balance sheet financial instruments such as standby letters of credit, financial guarantees and binding unfunded loan commitments. Off-balance sheet financial instruments are subject to individual reviews and are analyzed and segregated by risk according to the Company’s internal risk rating scale. These risk classifications, in conjunction with historical loss experience, economic conditions and performance trends within specific portfolio segments, result in the estimate of the reserve for unfunded lending commitments.

The ALLL and the reserve for unfunded lending commitments are reported on the Consolidated Balance Sheets in the allowance for loan and lease losses and in other liabilities, respectively. Provision for credit losses related to the loans and leases portfolio and the unfunded lending commitments are reported in the Consolidated Statements of Operations as provision for credit losses.

Loan Charge-Offs

Commercial loans are charged off when it is highly certain that a loss has been realized, including situations where a loan is determined to be both impaired and collateral-dependent. The determination of whether to recognize a charge-off involves many factors, including the prioritization of the Company’s claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity or the loan collateral.

Retail loans are generally fully charged-off or written down to the net realizable value of the underlying collateral, with an offset to the ALLL, upon reaching specified stages of delinquency in accordance with standards established by the FFIEC. Residential real estate loans, credit card loans and unsecured open end loans are generally charged off in the month in which the account becomes 180 days past due. Auto loans, education loans and unsecured closed end loans are generally charged off in the month in which the account becomes 120 days past due. Certain retail loans will be charged off earlier than the FFIEC standards in the following circumstances:


•	A charge-off is recognized when a loan is modified in a TDR if the loan is determined to be collateral-dependent. A loan is considered to be collateral-dependent when repayment of the loan is expected to be provided solely by the underlying collateral, rather than by cash flows from the borrower’s operations, income or other resources.

•

Loans to borrowers who have experienced an event (e.g. bankruptcy) that suggests a loss is either known or highly certain are subject to accelerated charge-off standards. Residential real estate and auto loans are charged down to the net realizable value when the loan becomes 60 days past due, or sooner if the loan is determined to be collateral-dependent. Credit card loans are fully charged off within 60 days of receiving notification of the bankruptcy filing or other event. Education loans are generally charged off when the loan becomes 60 days past due after receiving notification of a bankruptcy.


•	Auto loans are written down to net realizable value upon repossession of the collateral.

A summary of changes in the ACL is presented below:



	Year Ended December 31, 2018
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$685			$551			$1,236
Charge-offs	(52		)	(442		)	(494		)
Recoveries	19			158			177
Net charge-offs	(33		)	(284		)	(317		)
Provision charged to income	38			285			323
Allowance for loan and lease losses, end of period	690			552			1,242
Reserve for unfunded lending commitments, beginning of period	88			—			88
Provision for unfunded lending commitments	3			—			3
Reserve for unfunded lending commitments, end of period	91			—			91
Total allowance for credit losses, end of period		$781			$552			$1,333



	Year Ended December 31, 2017
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$663			$573			$1,236
Charge-offs	(75		)	(437		)	(512		)
Recoveries	40			167			207
Net charge-offs	(35		)	(270		)	(305		)
Provision charged to income⁽¹⁾	57			248			305
Allowance for loan and lease losses, end of period	685			551			1,236
Reserve for unfunded lending commitments, beginning of period	72			—			72
Provision for unfunded lending commitments	16			—			16
Reserve for unfunded lending commitments, end of period	88			—			88
Total allowance for credit losses, end of period		$773			$551			$1,324

⁽¹⁾ Includes an increase of approximately $50 million to commercial and corresponding decrease to retail for the impact of the enhancement to the assessment of qualitative risks, factors and events that may not be measured in the modeled results.



	Year Ended December 31, 2016
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$596			$620			$1,216
Charge-offs	(79		)	(457		)	(536		)
Recoveries	33			168			201
Net charge-offs	(46		)	(289		)	(335		)
Provision charged to income	113			242			355
Allowance for loan and lease losses, end of period	663			573			1,236
Reserve for unfunded lending commitments, beginning of period	58			—			58
Provision for unfunded lending commitments	14			—			14
Reserve for unfunded lending commitments, end of period	72			—			72
Total allowance for credit losses, end of period		$735			$573			$1,308

The recorded investment in loans and leases based on the Company’s evaluation methodology is presented below:



	December 31, 2018						December 31, 2017
(in millions)	Commercial		Retail		Total		Commercial		Retail		Total
Individually evaluated		$391		$723		$1,114		$370		$761		$1,131
Formula-based evaluation	56,392		59,154		115,546		51,661		57,825		109,486
Total loans and leases		$56,783		$59,877		$116,660		$52,031		$58,586		$110,617

A summary of the ACL by evaluation method is presented below:



	December 31, 2018						December 31, 2017
(in millions)	Commercial		Retail		Total		Commercial		Retail		Total
Individually evaluated		$38		$26		$64		$47		$34		$81
Formula-based evaluation	743		526		1,269		726		517		1,243
Allowance for credit losses		$781		$552		$1,333		$773		$551		$1,324

For commercial loans and leases, Citizens utilizes regulatory classification ratings to monitor credit quality. Loans with a “pass” rating are those that the Company believes will be fully repaid in accordance with the contractual loan terms. Commercial loans and leases that are “criticized” are those that have some weakness or potential weakness that indicate an increased probability of future loss. “Criticized” loans are grouped into three categories, “special mention,” “substandard” and “doubtful.” Special mention loans have potential weaknesses that, if left uncorrected, may result in deterioration of the Company’s credit position at some future date. Substandard loans are inadequately protected loans; these loans have well-defined weaknesses that could hinder normal repayment or collection of the debt. Doubtful loans have the same weaknesses as substandard, with the added characteristics that the possibility of loss is high and collection of the full amount of the loan is improbable. For retail loans, the Company primarily uses the loan’s payment and delinquency status to monitor credit quality. The further a loan is past due, the greater the likelihood of future credit loss. These credit quality indicators for both commercial and retail loans are continually updated and monitored.

The recorded investment in commercial loans and leases based on regulatory classification ratings is presented below:



	December 31, 2018
			Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$38,600		$1,231		$828		$198		$40,857
Commercial real estate	12,523		412		82		6		13,023
Leases	2,823		39		41		—		2,903
Total commercial loans and leases		$53,946		$1,682		$951		$204		$56,783



	December 31, 2017
			Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$35,430		$1,143		$785		$204		$37,562
Commercial real estate	10,706		500		74		28		11,308
Leases	3,069		73		19		—		3,161
Total commercial loans and leases		$49,205		$1,716		$878		$232		$52,031

The recorded investment in classes of retail loans, categorized by delinquency status is presented below:



	December 31, 2018
			Days Past Due
(in millions)	Current		1-29		30-59		60-89		90 or More		Total
Residential mortgages		$18,664		$131		$37		$13		$133		$18,978
Home equity loans	945		75		12		3		38		1,073
Home equity lines of credit	12,042		386		65		22		195		12,710
Home equity loans serviced by others	355		21		7		3		13		399
Home equity lines of credit serviced by others	79		15		2		1		7		104
Automobile	10,729		1,039		207		59		72		12,106
Education	8,694		159		23		13		11		8,900
Credit cards	1,894		53		14		10		20		1,991
Other retail	3,481		76		26		18		15		3,616
Total retail loans		$56,883		$1,955		$393		$142		$504		$59,877



	December 31, 2017
			Days Past Due
(in millions)	Current		1-29		30-59		60-89		90 or More		Total
Residential mortgages		$16,714		$147		$46		$18		$120		$17,045
Home equity loans	1,212		102		20		4		54		1,392
Home equity lines of credit	12,756		438		78		23		188		13,483
Home equity loans serviced by others	477		29		10		4		22		542
Home equity lines of credit serviced by others	116		21		4		1		7		149
Automobile	11,596		1,273		220		55		60		13,204
Education	7,898		160		23		12		41		8,134
Credit cards	1,747		63		12		9		17		1,848
Other retail	2,679		68		20		12		10		2,789
Total retail loans		$55,195		$2,301		$433		$138		$519		$58,586

Nonperforming Assets

Nonperforming loans and leases are those on which accrual of interest has been suspended. Loans (other than certain retail loans insured by U.S. government agencies) are placed on nonaccrual status and considered nonperforming when full payment of principal and interest is in doubt, unless the loan is both well secured and in the process of collection.

When the Company places a loan on nonaccrual status, the accrued unpaid interest receivable is reversed against interest income and amortization of any net deferred fees is suspended. Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are generally applied to first reduce the carrying value of the loan. Otherwise, interest income may be recognized to the extent of the cash received. A loan may be returned to accrual status if (i) principal and interest payments have been brought current, and the Company expects repayment of the remaining contractual principal and interest, (ii) the loan or lease has otherwise become well-secured and in the process of collection, or (iii) the borrower has been making regularly scheduled payments in full for the prior six months and the Company is reasonably assured that the loan or lease will be brought fully current within a reasonable period.

Commercial loans, commercial real estate loans, and leases are generally placed on nonaccrual status when contractually past due 90 days or more, or earlier if management believes that the probability of collection is insufficient to warrant further accrual. Some of these loans and leases may remain on accrual status when contractually past due 90 days or more if management considers the loan collectible.

Residential mortgages are generally placed on nonaccrual status when past due 120 days, or sooner if determined to be collateral-dependent, unless repayment of the loan is guaranteed by the Federal Housing Administration. Credit card balances are placed on nonaccrual status when past due 90 days or more and are restored to accruing status if they subsequently become less than 90 days past due. All other retail loans are generally placed on nonaccrual status when past due 90 days or more, or earlier if management believes that the probability of collection is insufficient to warrant further accrual. Loans less than 90 days past due may be placed on nonaccrual status upon the death of the borrower, fraud or bankruptcy.

The following table presents nonperforming loans and leases and loans accruing and 90 days or more past due:



	Nonperforming ⁽¹⁾				Accruing and 90 days or more past due
(in millions)	December 31, 2018		December 31, 2017		December 31, 2018		December 31, 2017
Commercial		$194		$238		$1		$5
Commercial real estate	7		27		—		3
Leases	—		—		—		—
Total commercial loans and leases	201		265		1		8
Residential mortgages⁽¹⁾	136		128		15		16
Home equity loans	50		72		—		—
Home equity lines of credit	231		233		—		—
Home equity loans serviced by others	17		25		—		—
Home equity lines of credit serviced by others	15		18		—		—
Automobile	81		70		—		—
Education	38		38		2		3
Credit card	20		17		—		—
Other retail	8		5		7		5
Total retail loans	596		606		24		24
Total		$797		$871		$25		$32

⁽¹⁾ Nonperforming balances exclude first lien residential mortgage loans that are 100% guaranteed by the Federal Housing Administration. These loans, which are accruing and 90 days or more past due, totaled $12 million and $15 million as of December 31, 2018 and 2017, respectively. Nonperforming balances also exclude guaranteed residential mortgage loans sold to GNMA for which the Company has the right, but not the obligation, to repurchase. These loans totaled $133 million and $30 million as of December 31, 2018 and 2017, respectively. These loans are included in the Company’s Consolidated Balance Sheets.

Other nonperforming assets consisted primarily of other real estate owned and was presented in other assets on the Consolidated Balance Sheets. Other real estate owned, net of valuation allowance, was $34 million and $36 million as of December 31, 2018 and 2017, respectively.

A summary of nonperforming loan and lease key performance indicators is presented below:



	December 31,
	2018		2017
Nonperforming commercial loans and leases as a percentage of total loans and leases	0.17	%	0.24	%
Nonperforming retail loans as a percentage of total loans and leases	0.51		0.55
Total nonperforming loans and leases as a percentage of total loans and leases	0.68	%	0.79	%

Nonperforming commercial assets as a percentage of total assets	0.13	%	0.17	%
Nonperforming retail assets as a percentage of total assets	0.39		0.43
Total nonperforming assets as a percentage of total assets	0.52	%	0.60	%

The recorded investment in mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings are in-process was $172 million and $181 million as of December 31, 2018 and 2017, respectively.

An analysis of the age of both accruing and nonaccruing loan and lease past due amounts is presented below:



	December 31, 2018								December 31, 2017
	Days Past Due								Days Past Due
(in millions)	30-59		60-89		90 or More		Total		30-59		60-89		90 or More		Total
Commercial		$85		$3		$78		$166		$26		$4		$243		$273
Commercial real estate	8		32		5		45		38		20		30		88
Leases	7		—		—		7		4		1		—		5
Total commercial loans and leases	100		35		83		218		68		25		273		366
Residential mortgages	37		13		133		183		46		18		120		184
Home equity loans	12		3		38		53		20		4		54		78
Home equity lines of credit	65		22		195		282		78		23		188		289
Home equity loans serviced by others	7		3		13		23		10		4		22		36
Home equity lines of credit serviced by others	2		1		7		10		4		1		7		12
Automobile	207		59		72		338		220		55		60		335
Education	23		13		11		47		23		12		41		76
Credit cards	14		10		20		44		12		9		17		38
Other retail	26		18		15		59		20		12		10		42
Total retail loans	393		142		504		1,039		433		138		519		1,090
Total		$493		$177		$587		$1,257		$501		$163		$792		$1,456

Impaired Loans

A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all of the contractual interest and principal payments as scheduled in the loan agreement. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. Impaired loans include nonaccruing larger balance (greater than $3 million carrying value), non-homogeneous commercial and commercial real estate loans, and restructured loans that are deemed TDRs.

When a loan is identified as impaired, the impairment is measured on an individual loan level as the difference between the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount) and the present value of expected future cash flows, discounted at the loan’s effective interest rate. When collateral is the sole source of repayment for the impaired loan, rather than the borrower’s income or other sources of repayment, the Company charges down the loan to its net realizable value.

A summary of impaired loans by class is presented below:



	December 31, 2018
(in millions)	Impaired Loans With a Related Allowance		Allowance on Impaired Loans		Impaired Loans Without a Related Allowance		Unpaid Contractual Balance		Total Recorded Investment in Impaired Loans
Commercial		$186		$31		$167		$450		$353
Commercial real estate	32		7		6		38		38
Leases	—		—		—		—		—
Total commercial loans and leases	218		38		173		488		391
Residential mortgages	28		2		127		201		155
Home equity loans	34		3		76		148		110
Home equity lines of credit	21		1		181		244		202
Home equity loans serviced by others	22		1		19		54		41
Home equity lines of credit serviced by others	1		—		7		11		8
Automobile	1		—		22		31		23
Education	130		11		23		153		153
Credit cards	24		7		1		25		25
Other retail	4		1		2		8		6
Total retail loans	265		26		458		875		723
Total		$483		$64		$631		$1,363		$1,114



	December 31, 2017
(in millions)	Impaired Loans With a Related Allowance		Allowance on Impaired Loans		Impaired Loans Without a Related Allowance		Unpaid Contractual Balance		Total Recorded Investment in Impaired Loans
Commercial		$183		$42		$159		$403		$342
Commercial real estate	25		5		3		40		28
Leases	—		—		—		—		—
Total commercial loans and leases	208		47		162		443		370
Residential mortgages	25		2		126		197		151
Home equity loans	41		4		80		162		121
Home equity lines of credit	16		1		181		241		197
Home equity loans serviced by others	29		2		22		67		51
Home equity lines of credit serviced by others	2		—		7		14		9
Automobile	2		—		21		30		23
Education	154		17		21		175		175
Credit cards	24		7		1		25		25
Other retail	5		1		4		10		9
Total retail loans	298		34		463		921		761
Total		$506		$81		$625		$1,364		$1,131

Additional information on impaired loans is presented below:



	Year Ended December 31,
	2018				2017				2016
(in millions)	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
Commercial		$9		$312		$4		$380		$5		$295
Commercial real estate	1		32		—		37		—		53
Leases	—		—		—		—		—		3
Total commercial loans and leases	10		344		4		417		5		351
Residential mortgages	5		146		4		136		4		161
Home equity loans	6		107		6		121		7		144
Home equity lines of credit	7		181		6		176		6		178
Home equity loans serviced by others	3		42		3		49		3		60
Home equity lines of credit serviced by others	—		9		—		9		—		9
Automobile	1		20		1		18		—		14
Education	8		154		9		173		7		150
Credit cards	1		21		2		22		2		23
Other retail	—		7		—		9		1		12
Total retail loans	31		687		31		713		30		751
Total		$41		$1,031		$35		$1,130		$35		$1,102

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider, the related loan is classified as a TDR. TDRs typically result from the Company’s loss mitigation efforts and are undertaken in order to improve the likelihood of recovery and continuity of the relationship with the borrower. The Company’s 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. Concessions granted in TDRs for all classes of loans may include lowering the interest rate, forgiving a portion of principal, extending the loan term, lowering scheduled payments for a specified period of time, waiving or delaying a scheduled payment of principal or interest for other than an insignificant time period, or capitalizing past due amounts. A rate increase can be a concession if the increased rate is lower than a market rate for debt with risk similar to that of the restructured loan. TDRs for commercial loans and leases may also involve creating a multiple note structure, accepting non-cash assets, accepting an equity interest, or receiving a performance-based fee. In some cases, a TDR may involve multiple concessions. The financial effects of TDRs for all loan classes may include lower income (either due to a lower interest rate or a delay in the timing of cash flows), larger loan loss provisions, and accelerated charge-offs if the modification renders the loan collateral-dependent. In some cases, interest income throughout the term of the loan may increase if, for example, the loan is extended or the interest rate is increased as a result of the restructuring.

Retail and commercial loans whose contractual terms have been modified in a TDR and are current at the time of restructuring may remain on accrual status if there is demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Retail loans that were discharged in bankruptcy and not reaffirmed by the borrower are deemed to be collateral-dependent TDRs and are generally charged off to the fair value of the collateral, less cost to sell, and less amounts recoverable under a government guarantee (if any). Cash receipts on nonaccruing impaired loans, including nonaccruing loans involved in TDRs, are generally applied to reduce the unpaid principal balance. Certain TDRs that are current in payment status are classified as nonaccrual in accordance with regulatory guidance. Income on these loans is generally recognized on a cash basis if management believes that the remaining book value of the loan is realizable. Nonaccruing TDRs that meet the guidelines above for accrual status can be returned to accruing if supported by a well-documented evaluation of the borrowers’ financial condition, and if they have been current for at least six months.

Because TDRs are impaired loans, Citizens measures impairment by comparing the present value of expected future cash flows, or when appropriate, the fair value of collateral less costs to sell, to the loan’s recorded investment. Any excess of recorded investment over the present value of expected future cash flows or collateral value is included in the ALLL. Any portion of the loan’s recorded investment the Company does not expect to collect as a result of the modification is charged off at the time of modification. For retail TDR accounts where the expected value of cash flows is utilized, any recorded investment in excess of the present value of expected cash flows is recognized by increasing the ALLL. For retail TDR accounts assessed based on the fair value of collateral, any portion of the loan’s recorded investment in excess of the collateral value less costs to sell is charged off at the time of modification or at the time of subsequent and regularly recurring valuations.

The table below summarizes TDRs by class and total unfunded commitments:



	December 31,
(in millions)	2018		2017
Commercial		$304		$129
Retail	723		761
Unfunded commitments related to TDRs	30		39

The table below summarizes how loans were modified during the year ended December 31, 2018, the charge-offs related to the modifications, and the impact on the ALLL. The reported balances can include loans that became TDRs during 2018 and were paid off in full, charged off, or sold prior to December 31, 2018.



	Primary Modification Types
	Interest Rate Reduction ⁽¹⁾					Maturity Extension ⁽²⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	7		$1		$1	49		$23		$22
Commercial real estate	—	—		—		3	31		31
Total commercial loans	7	1		1		52	54		53
Residential mortgages	35	4		4		61	8		8
Home equity loans	43	3		4		1	—		—
Home equity lines of credit	76	6		7		178	25		26
Home equity loans serviced by others	4	—		—		—	—		—
Home equity lines of credit serviced by others	5	—		—		1	—		—
Automobile	158	4		3		46	1		1
Education	—	—		—		—	—		—
Credit cards	2,312	13		13		—	—		—
Other retail	1	—		—		—	—		—
Total retail loans	2,634	30		31		287	34		35
Total	2,641		$31		$32	339		$88		$88



	Primary Modification Types
	Other ⁽³⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Net Change to ALLL Resulting from Modification			Charge-offs Resulting from Modification
Commercial	53		$202		$200		$—			$—
Commercial real estate	2	31		31		—			—
Total commercial loans	55	233		231		—			—
Residential mortgages	142	17		17		(1		)	—
Home equity loans	134	5		5		—			—
Home equity lines of credit	413	29		29		—			1
Home equity loans serviced by others	23	1		1		—			—
Home equity lines of credit serviced by others	14	1		1		—			—
Automobile	1,189	21		17		—			4
Education	355	7		7		1			—
Credit cards	—	—		—		4			—
Other retail	9	—		—		(1		)	—
Total retail loans	2,279	81		77		3			5
Total	2,334		$314		$308		$3			$5

⁽¹⁾ Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

⁽²⁾ Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

⁽³⁾ Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forgiveness, and capitalizing arrearages. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post modification balances being higher than pre-modification.

The table below summarizes how loans were modified during the year ended December 31, 2017, the charge-offs related to the modifications, and the impact on the ALLL. The reported balances can include loans that became TDRs during 2017 and were paid off in full, charged off, or sold prior to December 31, 2017.



	Primary Modification Types
	Interest Rate Reduction ⁽¹⁾					Maturity Extension ⁽²⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	7		$1		$1	45		$22		$22
Commercial real estate	—	—		—		1	—		—
Total commercial loans	7	1		1		46	22		22
Residential mortgages	71	9		10		73	12		13
Home equity loans	82	5		6		1	—		—
Home equity lines of credit	50	3		3		235	30		30
Home equity loans serviced by others	15	1		1		—	—		—
Home equity lines of credit serviced by others	5	—		—		2	—		—
Automobile	130	2		2		29	1		1
Education	—	—		—		—	—		—
Credit cards	2,363	13		13		—	—		—
Other retail	1	—		—		—	—		—
Total retail loans	2,717	33		35		340	43		44
Total	2,724		$34		$36	386		$65		$66



	Primary Modification Types
	Other ⁽³⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Net Change to ALLL Resulting from Modification			Charge-offs Resulting from Modification
Commercial	15		$70		$71		($1	)		$—
Commercial real estate	1	—		—		—			—
Total commercial loans	16	70		71		(1		)	—
Residential mortgages	171	19		19		(1		)	—
Home equity loans	232	13		13		—			—
Home equity lines of credit	395	27		27		—			1
Home equity loans serviced by others	52	2		2		—			—
Home equity lines of credit serviced by others	26	2		2		—			—
Automobile	1,336	24		20		—			4
Education	329	7		7		2			—
Credit cards	—	—		—		3			—
Other retail	5	—		—		(2		)	—
Total retail loans	2,546	94		90		2			5
Total	2,562		$164		$161		$1			$5

⁽¹⁾ Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

⁽²⁾ Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

The table below summarizes how loans were modified during the year ended December 31, 2016, the charge-offs related to the modifications, and the impact on the ALLL. The reported balances can include loans that became TDRs during 2016 and were paid off in full, charged off, or sold prior to December 31, 2016.



	Primary Modification Types
	Interest Rate Reduction ⁽¹⁾					Maturity Extension ⁽²⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	12		$1		$1	81		$20		$21
Commercial real estate	1	—		—		1	5		5
Total commercial loans	13	1		1		82	25		26
Residential mortgages	71	10		10		60	10		10
Home equity loans	97	6		6		39	4		5
Home equity lines of credit	49	4		4		121	13		12
Home equity loans serviced by others	18	1		1		—	—		—
Home equity lines of credit serviced by others	8	—		—		5	1		1
Automobile	138	3		3		41	1		1
Education	—	—		—		—	—		—
Credit cards	2,187	12		12		—	—		—
Other retail	4	—		—		—	—		—
Total retail loans	2,572	36		36		266	29		29
Total	2,585		$37		$37	348		$54		$55



	Primary Modification Types
	Other ⁽³⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Net Change to ALLL Resulting from Modification			Charge-offs Resulting from Modification
Commercial	14		$48		$48		$3			$—
Commercial real estate	—	—		—		—			—
Total commercial loans	14	48		48		3			—
Residential mortgages	247	26		26		(1		)	—
Home equity loans	279	18		17		(1		)	—
Home equity lines of credit	304	23		22		—			1
Home equity loans serviced by others	60	2		2		—			—
Home equity lines of credit serviced by others	24	1		1		—			—
Automobile	1,081	20		18		—			3
Education	479	12		12		4			—
Credit cards	—	—		—		3			—
Other retail	13	—		—		—			—
Total retail loans	2,487	102		98		5			4
Total	2,501		$150		$146		$8			$4

⁽¹⁾ Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

⁽²⁾ Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

⁽³⁾ Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forgiveness, and capitalizing arrearages. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post-modification balances being higher than pre-modification.

The table below summarizes TDRs that defaulted within 12 months of their modification date during 2018, 2017 and 2016. For purposes of this table, a payment default refers to a loan that becomes 90 days or more past due under the modified terms. Amounts represent the loan’s recorded investment at the time of payment default. Loan data includes loans meeting the criteria that were paid off in full, charged off, or sold prior to December 31, 2018 and 2017. If a TDR of any loan type becomes 90 days past due after being modified, the loan is written down to the fair value of collateral less cost to sell. The amount written off is charged to the ALLL.



	Year Ended December 31,
	2018			2017			2016
(dollars in millions)	Number of Contracts	Balance Defaulted		Number of Contracts	Balance Defaulted		Number of Contracts	Balance Defaulted
Commercial	28		$63	8		$5	22		$13
Commercial real estate	1	—		1	4		1	—
Total commercial loans	29	63		9	9		23	13
Residential mortgages	128	15		152	19		187	24
Home equity loans	31	2		43	2		50	3
Home equity lines of credit	238	18		200	14		155	13
Home equity loans serviced by others	15	—		23	—		37	1
Home equity lines of credit serviced by others	6	—		10	1		17	—
Automobile	167	2		140	1		110	2
Education	23	1		44	1		59	1
Credit cards	465	2		491	3		433	3
Other retail	1	—		4	—		3	—
Total retail loans	1,074	40		1,107	41		1,051	47
Total	1,103		$103	1,116		$50	1,074		$60

Concentrations of Credit Risk

Most of the Company’s lending activity is with customers located in the New England, Mid-Atlantic and Midwest regions. Generally, loans are collateralized by assets including real estate, inventory, accounts receivable, other personal property and investment securities. As of December 31, 2018 and 2017, Citizens had a significant amount of loans collateralized by residential and commercial real estate. There were no significant concentration risks within the commercial loan or retail loan portfolios. Exposure to credit losses arising from lending transactions may fluctuate with fair values of collateral supporting loans, which may not perform according to contractual agreements. The Company’s policy is to collateralize loans to the extent necessary; however, unsecured loans are also granted on the basis of the financial strength of the applicant and the facts surrounding the transaction.

Certain loan products, including residential mortgages, home equity loans and lines of credit, and credit cards, have contractual features that may increase credit exposure to the Company in the event of an increase in interest rates or a decline in housing values. These products include loans that exceed 90% of the value of the underlying collateral (high LTV loans), interest-only and negative amortization residential mortgages, and loans with low introductory rates. Certain loans have more than one of these characteristics. The following tables present balances of loans with these characteristics:



	December 31, 2018
(in millions)	Residential Mortgages		Home Equity Loans and Lines of Credit		Home Equity Products Serviced by Others		Credit Cards		Education		Total
High loan-to-value		$318		$87		$148		$—		$—		$553
Interest only/negative amortization	1,794		—		—		—		1		1,795
Low introductory rate	—		—		—		217		—		217
Multiple characteristics and other	1		—		—		—		—		1
Total		$2,113		$87		$148		$217		$1		$2,566



	December 31, 2017
(in millions)	Residential Mortgages		Home Equity Loans and Lines of Credit		Home Equity Products Serviced by Others		Credit Cards		Education		Total
High loan-to-value		$366		$166		$264		$—		$—		$796
Interest only/negative amortization	1,763		—		—		—		1		1,764
Low introductory rate	—		—		—		197		—		197
Multiple characteristics and other	1		—		—		—		—		1
Total		$2,130		$166		$264		$197		$1		$2,758