The ACL consists of the ALLL and the reserve for unfunded commitments. It is adjusted through a provision for credit losses that is charged to earnings, based on the Company’s quarterly evaluation of the loan and lease portfolio and related commitments, and is reduced by net charge-offs and the ALLL associated with sold loans. See Note 5 in the Company’s 2018 Form 10-K for a detailed discussion of the ALLL reserve methodology and estimation techniques.

On a quarterly basis, the Company reviews and refines its estimate of the ACL, taking into consideration changes in portfolio size and composition, historical loss experience, internal risk ratings, current economic conditions, industry performance trends and other pertinent information. As of September 30, 2019, there were no material changes in assumptions or estimation techniques compared with prior periods that impacted the determination of the current period’s ALLL and the reserve for unfunded lending commitments.



	Three Months Ended September 30, 2019									Nine Months Ended September 30, 2019
(in millions)	Commercial			Retail			Total			Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$680			$547			$1,227			$690			$552			$1,242
Charge-offs	(35		)	(124		)	(159		)	(106		)	(347		)	(453		)
Recoveries	3			43			46			17			128			145
Net charge-offs	(32		)	(81		)	(113		)	(89		)	(219		)	(308		)
Provision charged to income	64			85			149			111			218			329
Allowance for loan and lease losses, end of period	712			551			1,263			712			551			1,263
Reserve for unfunded lending commitments, beginning of period	93			—			93			91			—			91
Provision for unfunded lending commitments	(48		)	—			(48		)	(46		)	—			(46		)
Reserve for unfunded lending commitments, end of period	45			—			45			45			—			45
Total allowance for credit losses, end of period		$757			$551			$1,308			$757			$551			$1,308



	Three Months Ended September 30, 2018									Nine Months Ended September 30, 2018
(in millions)	Commercial			Retail			Total			Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$715			$538			$1,253			$685			$551			$1,236
Charge-offs	(18		)	(109		)	(127		)	(35		)	(328		)	(363		)
Recoveries	2			39			41			10			121			131
Net charge-offs	(16		)	(70		)	(86		)	(25		)	(207		)	(232		)
Provision charged to income	8			67			75			47			191			238
Allowance for loan and lease losses, end of period	707			535			1,242			707			535			1,242
Reserve for unfunded lending commitments, beginning of period	88			—			88			88			—			88
Provision for unfunded lending commitments	3			—			3			3			—			3
Reserve for unfunded lending commitments, end of period	91			—			91			91			—			91
Total allowance for credit losses, end of period		$798			$535			$1,333			$798			$535			$1,333



	September 30, 2019						December 31, 2018
(in millions)	Commercial		Retail		Total		Commercial		Retail		Total
Individually evaluated		$387		$675		$1,062		$391		$723		$1,114
Formula-based evaluation	56,346		60,472		116,818		56,392		59,154		115,546
Total loans and leases		$56,733		$61,147		$117,880		$56,783		$59,877		$116,660



	September 30, 2019						December 31, 2018
(in millions)	Commercial		Retail		Total		Commercial		Retail		Total
Individually evaluated		$74		$25		$99		$38		$26		$64
Formula-based evaluation	683		526		1,209		743		526		1,269
Allowance for credit losses		$757		$551		$1,308		$781		$552		$1,333

For commercial loans and leases, Citizens utilizes regulatory classification ratings to monitor credit quality. For additional information on regulatory classification ratings, see Note 5 in the Company’s 2018 Form 10-K.



	September 30, 2019
			Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$38,997		$1,369		$761		$229		$41,356
Commercial real estate	12,437		297		36		50		12,820
Leases	2,466		39		49		3		2,557
Total commercial loans and leases		$53,900		$1,705		$846		$282		$56,733



	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



	September 30, 2019
			Days Past Due
(in millions)	Current		1-29		30-59		60-89		90 or More		Total
Residential mortgages		$19,375		$129		$28		$78		$89		$19,699
Home equity loans	772		62		10		25		7		876
Home equity lines of credit	11,593		331		52		27		145		12,148
Home equity loans serviced by others	275		23		5		3		12		318
Home equity lines of credit serviced by others	56		11		2		1		11		81
Automobile	10,849		932		194		71		24		12,070
Education	9,513		162		27		16		11		9,729
Credit cards	2,028		53		20		11		21		2,133
Other retail	3,942		80		30		21		20		4,093
Total retail loans		$58,403		$1,783		$368		$253		$340		$61,147



	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



	Nonperforming				Accruing and 90 days or more past due
(in millions)	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Commercial		$228		$194		$1		$1
Commercial real estate	49		7		—		—
Leases	4		—		1		—
Total commercial loans and leases	281		201		2		1
Residential mortgages⁽¹⁾⁽²⁾	147		136		15		15
Home equity loans	36		50		—		—
Home equity lines of credit	184		231		—		—
Home equity loans serviced by others	14		17		—		—
Home equity lines of credit serviced by others	13		15		—		—
Automobile	69		81		—		—
Education	17		38		3		2
Credit card	21		20		—		—
Other retail	11		8		10		7
Total retail loans	512		596		28		24
Total		$793		$797		$30		$25

⁽¹⁾ Nonperforming balances exclude first lien residential mortgage loans which are accruing and 90 days or more past due that are 100% guaranteed by the Federal Housing Administration. These loans totaled $12 million as of September 30, 2019 and December 31, 2018.

⁽²⁾Nonperforming balances exclude guaranteed residential mortgage loans sold to GNMA for which the Company has the right, but not the obligation, to repurchase. These loans totaled $195 million and $133 million as of September 30, 2019 and December 31, 2018, respectively, and are included in the Company’s Consolidated Balance Sheets.

Other nonperforming assets primarily consist of other real estate owned and are presented in other assets on the Consolidated Balance Sheets. Other real estate owned, net of valuation allowance, was $40 million and $34 million as of September 30, 2019 and December 31, 2018, respectively.



	September 30, 2019		December 31, 2018
Nonperforming commercial loans and leases as a percentage of total loans and leases	0.24	%	0.17	%
Nonperforming retail loans as a percentage of total loans and leases	0.43		0.51
Nonperforming loans and leases as a percentage of total loans and leases	0.67	%	0.68	%

Nonperforming commercial assets as a percentage of total assets	0.17	%	0.13	%
Nonperforming retail assets as a percentage of total assets	0.34		0.39
Nonperforming assets as a percentage of total assets	0.51	%	0.52	%

The recorded investment in mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process was $164 million and $172 million as of September 30, 2019 and December 31, 2018, respectively.



	September 30, 2019								December 31, 2018
	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		$17		$4		$76		$97		$85		$3		$78		$166
Commercial real estate	7		16		1		24		8		32		5		45
Leases	—		—		1		1		7		—		—		7
Total commercial loans and leases	24		20		78		122		100		35		83		218
Residential mortgages	28		78		89		195		37		13		133		183
Home equity loans	10		25		7		42		12		3		38		53
Home equity lines of credit	52		27		145		224		65		22		195		282
Home equity loans serviced by others	5		3		12		20		7		3		13		23
Home equity lines of credit serviced by others	2		1		11		14		2		1		7		10
Automobile	194		71		24		289		207		59		72		338
Education	27		16		11		54		23		13		11		47
Credit cards	20		11		21		52		14		10		20		44
Other retail	30		21		20		71		26		18		15		59
Total retail loans	368		253		340		961		393		142		504		1,039
Total		$392		$273		$418		$1,083		$493		$177		$587		$1,257

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. A summary of impaired loans by class is presented below:



	September 30, 2019
(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		$194		$62		$127		$376		$321
Commercial real estate	47		12		19		76		66
Total commercial loans	241		74		146		452		387
Residential mortgages	25		2		122		191		147
Home equity loans	23		1		69		126		92
Home equity lines of credit	26		2		176		243		202
Home equity loans serviced by others	18		1		16		44		34
Home equity lines of credit serviced by others	1		—		6		10		7
Automobile	1		—		20		30		21
Education	117		9		22		139		139
Credit cards	27		9		1		29		28
Other retail	3		1		2		7		5
Total retail loans	241		25		434		819		675
Total		$482		$99		$580		$1,271		$1,062



	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
Total commercial loans	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



	Three Months Ended September 30,
	2019				2018
(in millions)	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
Commercial		$2		$293		$3		$334
Commercial real estate	—		35		—		34
Total commercial loans	2		328		3		368
Residential mortgages	1		145		1		154
Home equity loans	1		94		1		107
Home equity lines of credit	2		199		2		202
Home equity loans serviced by others	1		34		1		43
Home equity lines of credit serviced by others	—		7		—		9
Automobile	1		21		—		23
Education	2		141		3		160
Credit cards	—		26		—		24
Other retail	—		5		—		7
Total retail loans	8		672		8		729
Total		$10		$1,000		$11		$1,097



	Nine Months Ended September 30,
	2019				2018
(in millions)	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
Commercial		$7		$300		$7		$318
Commercial real estate	1		30		—		33
Total commercial loans	8		330		7		351
Residential mortgages	4		128		4		148
Home equity loans	4		86		4		107
Home equity lines of credit	6		173		6		189
Home equity loans serviced by others	2		31		2		44
Home equity lines of credit serviced by others	—		6		—		9
Automobile	1		18		—		21
Education	6		128		7		159
Credit cards	1		21		1		22
Other retail	—		5		—		7
Total retail loans	24		596		24		706
Total		$32		$926		$31		$1,057

TDR is the classification given to a loan that has been restructured in a manner that grants a concession to a borrower experiencing financial hardship that we would not otherwise make. For additional information on regulatory classification ratings, see Note 5 in the Company’s 2018 Form 10-K.

The table below summarizes how loans were modified during the three months and nine months ended September 30, 2019 and 2018. The reported balances represent the post-modification outstanding recorded investment and can include loans that became TDRs during the period and were paid off in full, charged off, or sold prior to period end. Pre-modification balances for modified loans approximate the post-modification balances shown.



	Three Months Ended September 30, 2019
	Primary Modification Types
	Interest Rate Reduction⁽¹⁾			Maturity Extension⁽²⁾			Other⁽³⁾
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial	2		$—	6		$1	6		$15
Commercial real estate	—	—		—	—		—	—
Total commercial loans	2	—		6	1		6	15
Residential mortgages	12	2		8	2		25	4
Home equity loans	11	—		—	—		19	1
Home equity lines of credit	51	6		16	1		95	5
Home equity loans serviced by others	1	—		—	—		4	—
Home equity lines of credit serviced by others	—	—		—	—		2	—
Automobile	46	1		4	—		309	4
Education	—	—		—	—		131	2
Credit cards	805	5		—	—		163	—
Other retail	—	—		—	—		55	—
Total retail loans	926	14		28	3		803	16
Total	928		$14	34		$4	809		$31



	Three Months Ended September 30, 2018
	Primary Modification Types
	Interest Rate Reduction⁽¹⁾			Maturity Extension⁽²⁾			Other⁽³⁾
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial	1		$—	13		$1	1		$—
Commercial real estate	—	—		—	—		—	—
Total commercial loans	1	—		13	1		1	—
Residential mortgages	9	1		17	2		31	3
Home equity loans	10	1		—	—		40	2
Home equity lines of credit	27	3		58	10		104	7
Home equity loans serviced by others	2	—		—	—		5	1
Home equity lines of credit serviced by others	1	—		—	—		8	—
Automobile	45	—		9	—		315	4
Education	—	—		—	—		45	1
Credit cards	623	4		—	—		—	—
Other retail	—	—		—	—		—	—
Total retail loans	717	9		84	12		548	18
Total	718		$9	97		$13	549		$18



	Nine Months Ended September 30, 2019
	Primary Modification Types
	Interest Rate Reduction⁽¹⁾			Maturity Extension⁽²⁾			Other⁽³⁾
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial	3		$—	18		$2	24		$102
Commercial real estate	—	—		1	—		—	—
Total commercial loans	3	—		19	2		24	102
Residential mortgages	25	6		29	5		87	13
Home equity loans	24	1		—	—		64	3
Home equity lines of credit	123	14		66	10		277	17
Home equity loans serviced by others	1	—		—	—		11	1
Home equity lines of credit serviced by others	—	—		—	—		6	—
Automobile	111	2		16	—		933	13
Education	—	—		—	—		211	5
Credit cards	2,362	14		—	—		304	—
Other retail	—	—		—	—		58	—
Total retail loans	2,646	37		111	15		1,951	52
Total	2,649		$37	130		$17	1,975		$154



	Nine Months Ended September 30, 2018
	Primary Modification Types
	Interest Rate Reduction⁽¹⁾			Maturity Extension⁽²⁾			Other⁽³⁾
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial	6		$1	23		$2	40		$156
Commercial real estate	—	—		1	—		2	31
Total commercial loans	6	1		24	2		42	187
Residential mortgages	32	4		47	6		117	14
Home equity loans	32	3		1	—		106	5
Home equity lines of credit	55	5		147	21		310	21
Home equity loans serviced by others	3	—		—	—		20	1
Home equity lines of credit serviced by others	5	—		1	—		13	—
Automobile	122	2		42	1		893	13
Education	—	—		—	—		296	5
Credit cards	1,776	10		—	—		—	—
Other retail	1	—		—	—		4	—
Total retail loans	2,026	24		238	28		1,759	59
Total	2,032		$25	262		$30	1,801		$246

⁽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 net change to ALLL resulting from modifications of loans for the three months ended September 30, 2019 and 2018 was $3 million and $1 million, respectively. The net change to ALLL resulting from modifications of loans for the nine months ended September 30, 2019 and 2018 was $7 million and $3 million, respectively. Charge-offs may also be recorded on TDRs. Citizens recorded $1 million and $2 million of charge-offs resulting from the modification of loans in the three months ended September 30, 2019 and 2018, respectively, and $3 million for the nine months ended September 30, 2019 and 2018.

A payment default refers to a loan that becomes 90 days or more past due under the modified terms. Loan data includes loans meeting the criteria that were paid off in full, charged off, or sold prior to September 30, 2019 and 2018. For commercial loans, recorded investment in TDRs that defaulted within 12 months of their modification date for the three months ended September 30, 2018 was $32 million. There were none for the three months ended September 30, 2019. There were $1 million and $52 million of TDRs that defaulted within 12 months of their modification date for commercial loans during the nine months ended September 30, 2019 and 2018, respectively. For retail loans, there were $9 million and $10 million of loans which defaulted within 12 months of their restructuring date for the three months ended September 30, 2019 and 2018, respectively, and there were $28 million and $30 million of loans which defaulted within 12 months of their restructuring date for the nine months ended September 30, 2019 and 2018, respectively.

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 September 30, 2019 and December 31, 2018, 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:



	September 30, 2019
(in millions)	Residential Mortgages		Home Equity Loans and Lines of Credit		Home Equity Products Serviced by Others		Credit Cards		Total
High loan-to-value		$421		$68		$107		$—		$596
Interest-only/negative amortization	1,862		—		—		—		1,862
Low introductory rate	—		—		—		224		224
Multiple characteristics and other	3		—		—		—		3
Total		$2,286		$68		$107		$224		$2,685



	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