ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK (Tables)

3 Months Ended

Mar. 31, 2020

Schedule of changes in the allowance for credit losses

The following table presents a summary of changes in the ALLL and the reserve for unfunded lending commitments:



	Three Months Ended March 31, 2020
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$674			$578			$1,252
Cumulative effect of change in accounting principle	(176		)	629			453
Allowance for loan and lease losses, beginning of period, adjusted	498			1,207			1,705
Charge-offs	(47		)	(127		)	(174		)
Recoveries	3			34			37
Net charge-offs	(44		)	(93		)	(137		)
Provision charged to income	298			305			603
Allowance for loan and lease losses, end of period		$752			$1,419			$2,171

Reserve for unfunded lending commitments, beginning of period		$44			$—			$44
Cumulative effective of change in accounting principle	(3		)	1			(2		)
Reserve for unfunded lending commitments, beginning of period, adjusted	41			1			42
Provision for unfunded lending commitments	(3		)	—			(3		)
Reserve for unfunded lending commitments, end of period		$38			$1			$39

The following table provides additional detail on the cumulative effect of change in accounting principle on the ACL:



	December 31, 2019						January 1, 2020							March 31, 2020
(in millions)	Amortized Cost Basis		ACL Balance		Coverage		Impact of Adoption of CECL			ACL Balance		Coverage		Amortized Cost Basis		ACL Balance		Coverage
Commercial		$41,479		$575	1.4	%		($199	)		$376	0.9	%		$49,092		$613	1.2	%
Commercial real estate	13,522		124		0.9		(57		)	67		0.5		14,502		74		0.5
Leases	2,537		19		0.7		77			96		3.8		2,438		103		4.2
Total commercial loans and leases	57,538		718		1.2		(179		)	539		0.9		66,032		790		1.2
Residential	19,083		35		0.2		95			130		0.7		18,721		153		0.8
Home equity	13,154		83		0.6		73			156		1.2		12,992		169		1.3
Automobile	12,120		123		1.0		83			206		1.7		12,157		278		2.3
Education	10,347		116		1.1		298			414		4.0		10,887		473		4.3
Other retail	6,846		221		3.2		81			302		4.4		6,739		347		5.1
Total retail loans	61,550		578		0.9		630			1,208		2.0		61,496		1,420		2.3
Total loans and leases		$119,088		$1,296	1.1	%		$451			$1,747	1.5	%		$127,528		$2,210	1.7	%

In addition to the adoption of CECL, macroeconomic assumptions shifted as the COVID-19 pandemic and related economic impacts surfaced during the quarter ended March 31, 2020, resulting in a significant impact to the ACL. The significant increase in the ACL as of March 31, 2020 as compared to the January 1, 2020 ACL was driven

by the COVID-19 pandemic and the resulting economic impacts, with a total reserve build of $463 million and an ending balance of $2.2 billion.

To determine the ACL as of March 31, 2020, the Company utilized the Moody’s March 27th Baseline forecast to integrate the effects of COVID-19 in the loss estimates. Estimated Losses were adjusted for the expected benefit of COVID-19-related fiscal and monetary stimulus measures and the expected beneficial impacts of customer assistance actions. These actions include company forbearance and other customer accommodation efforts encouraged by the CARES Act and regulatory interagency guidance that the Company believes will stabilize credit profiles in both the commercial and consumer portfolios.

The economic forecast risk component of the qualitative reserve was informed by a composite economic scenario approach utilizing the Moody’s March 27th Baseline scenario as the most likely outcome and two less likely outcomes - an alternate Moody’s pandemic scenario and an internally generated pandemic scenario. All scenarios assumed a deep recession in the second quarter 2020 with significantly declining GDP and elevated unemployment followed by a strong recovery in the second half of 2020.

The following table presents a summary of changes in the ALLL and the reserve for unfunded lending commitments:



	Three Months Ended March 31, 2019
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$690			$552			$1,242
Charge-offs	(26		)	(112		)	(138		)
Recoveries	2			47			49
Net charge-offs	(24		)	(65		)	(89		)
Provision charged to income	25			67			92
Allowance for loan and lease losses, end of period		$691			$554			$1,245

Reserve for unfunded lending commitments, beginning of period		$91			$—			$91
Provision for unfunded lending commitments	(7		)	—			(7		)
Reserve for unfunded lending commitments, end of period		$84			$—			$84

Schedule of classes of loans and leases, amortized cost basis by credit quality indicator

The following table presents the amortized cost basis of commercial loans and leases, by vintage date and regulatory classification rating, as of March 31, 2020:



	Term Loans by Origination Year												Revolving Loans
(in millions)	2020		2019		2018		2017		2016		Prior to 2016		Within the Revolving Period		Converted to Term		Total
Commercial
Pass		$1,480		$7,457		$5,444		$3,079		$1,901		$3,035		$23,655		$174		$46,225
Special Mention	—		126		264		88		75		177		766		4		1,500
Substandard	2		60		150		136		99		104		493		18		1,062
Doubtful	—		27		9		23		10		87		145		4		305
Total commercial	1,482		7,670		5,867		3,326		2,085		3,403		25,059		200		49,092
Commercial real estate
Pass	898		3,322		3,750		1,937		1,187		1,257		1,394		—		13,745
Special Mention	48		72		181		78		56		93		197		—		725
Substandard	—		—		19		2		—		3		—		—		24
Doubtful	—		—		1		5		—		2		—		—		8
Total commercial real estate	946		3,394		3,951		2,022		1,243		1,355		1,591		—		14,502
Leases
Pass	90		370		291		200		261		1,107		—		—		2,319
Special Mention	—		2		6		5		4		2		—		—		19
Substandard	—		6		33		6		21		33		—		—		99
Doubtful	—		—		—		—		—		1		—		—		1
Total leases	90		378		330		211		286		1,143		—		—		2,438
Total commercial loans and leases
Pass	2,468		11,149		9,485		5,216		3,349		5,399		25,049		174		62,289
Special Mention	48		200		451		171		135		272		963		4		2,244
Substandard	2		66		202		144		120		140		493		18		1,185
Doubtful	—		27		10		28		10		90		145		4		314
Total commercial loans and leases		$2,518		$11,442		$10,148		$5,559		$3,614		$5,901		$26,650		$200		$66,032

For retail loans, Citizens utilizes credit scores provided by FICO which are generally refreshed on a quarterly basis and the loan’s payment and delinquency status to monitor credit quality. FICO credit scores are considered the strongest indicator of credit losses over the contractual life of the loan as the scores are based on current and historical national industry-wide consumer level credit performance data, and assist management in predicting the borrower’s future payment performance.

The following table presents the amortized cost basis of retail loans, by vintage date and FICO scores, as of March 31, 2020:



	Term Loans by Origination Year												Revolving Loans
(in millions)	2020		2019		2018		2017		2016		Prior to 2016		Within the Revolving Period		Converted to Term		Total
Residential mortgages
800+		$328		$1,694		$950		$1,541		$2,001		$2,459		$—		$—		$8,973
740-799	634		2,026		647		828		1,017		1,220		—		—		6,372
680-739	192		687		280		294		367		614		—		—		2,434
620-679	12		102		44		56		79		237		—		—		530
<620	4		16		35		46		44		251		—		—		396
No FICO available⁽¹⁾	2		2		—		—		—		12		—		—		16
Total residential mortgages	1,172		4,527		1,956		2,765		3,508		4,793		—		—		18,721
Home equity
800+	1		10		15		9		6		288		4,314		339		4,982
740-799	1		7		8		7		4		238		3,423		302		3,990
680-739	—		3		8		9		6		224		1,915		272		2,437
620-679	—		1		6		15		9		160		570		174		935
<620	—		3		10		33		21		166		207		207		647
No FICO available⁽¹⁾	—		—		—		—		—		1		—		—		1
Total home equity	2		24		47		73		46		1,077		10,429		1,294		12,992
Automobile
800+	302		935		541		441		289		175		—		—		2,683
740-799	393		1,304		738		529		312		174		—		—		3,450
680-739	355		1,233		676		441		252		135		—		—		3,092
620-679	191		758		391		248		145		84		—		—		1,817
<620	26		314		277		227		151		99		—		—		1,094
No FICO available⁽¹⁾	2		1		—		—		—		18		—		—		21
Total automobile	1,269		4,545		2,623		1,886		1,149		685		—		—		12,157
Education
800+	221		1,159		880		853		669		848		—		—		4,630
740-799	294		1,364		793		567		397		562		—		—		3,977
680-739	105		553		321		222		156		298		—		—		1,655
620-679	5		86		69		55		45		130		—		—		390
<620	—		12		23		25		22		86		—		—		168
No FICO available⁽¹⁾	—		—		—		—		—		67		—		—		67
Total education	625		3,174		2,086		1,722		1,289		1,991		—		—		10,887
Other retail
800+	138		574		234		90		21		58		300		—		1,415
740-799	223		849		318		130		32		41		664		—		2,257
680-739	162		609		216		84		19		22		648		—		1,760
620-679	78		272		84		28		6		8		229		—		705
<620	6		75		44		16		3		5		117		—		266
No FICO available⁽¹⁾	19		3		—		—		—		—		314		—		336
Total other retail	626		2,382		896		348		81		134		2,272		—		6,739
Retail
800+	990		4,372		2,620		2,934		2,986		3,828		4,614		339		22,683
740-799	1,545		5,550		2,504		2,061		1,762		2,235		4,087		302		20,046
680-739	814		3,085		1,501		1,050		800		1,293		2,563		272		11,378
620-679	286		1,219		594		402		284		619		799		174		4,377
<620	36		420		389		347		241		607		324		207		2,571
No FICO available⁽¹⁾	23		6		—		—		—		98		314		—		441
Total retail		$3,694		$14,652		$7,608		$6,794		$6,073		$8,680		$12,701		$1,294		$61,496

⁽¹⁾ Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).

Schedule of nonaccrual loans and leases and loans accruing and 90 days or more past due

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



	As of December 31, 2019		As of March 31, 2020
(in millions)	Nonaccrual loans and leases		Nonaccrual loans and leases		90+ days past due and accruing		Nonaccrual with no related ACL
Commercial		$240		$305		$—		$46
Commercial real estate	2		8		—		6
Leases	3		1		—		—
Total commercial loans and leases	245		314		—		52
Residential mortgages	93		101		14		55
Home equity	246		242		—		90
Automobile	67		69		—		30
Education	18		21		2		4
Other retail	34		33		11		1
Total retail	458		466		27		180
Total loans and leases		$703		$780		$27		$232

Schedule of accruing and nonaccruing past due amounts

The following table presents an analysis of the age of both accruing and nonaccruing loan and lease past due amounts:



	March 31, 2020										December 31, 2019
	Days Past Due										Days Past Due
(in millions)	Current-29		30-59		60-89		90 or More		Total		Current-29		30-59		60-89		90 or More		Total
Commercial		$48,909		$97		$28		$58		$49,092		$41,340		$45		$27		$67		$41,479
Commercial real estate	14,494		1		6		1		14,502		13,520		1		1		—		13,522
Leases	2,431		6		—		1		2,438		2,498		37		—		2		2,537
Total commercial loans and leases	65,834		104		34		60		66,032		57,358		83		28		69		57,538
Residential mortgages	18,586		25		16		94		18,721		18,947		35		17		84		19,083
Home equity	12,681		92		34		185		12,992		12,834		91		40		189		13,154
Automobile	11,856		206		72		23		12,157		11,788		227		81		24		12,120
Education	10,835		24		13		15		10,887		10,290		30		15		12		10,347
Other retail	6,622		46		29		42		6,739		6,729		45		31		41		6,846
Total retail loans	60,580		393		164		359		61,496		60,588		428		184		350		61,550
Total		$126,414		$497		$198		$419		$127,528		$117,946		$511		$212		$419		$119,088

Troubled debt restructurings on financing receivables

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



(in millions)	March 31, 2020		December 31, 2019
Commercial		$283		$297
Retail	664		667
Unfunded commitments related to TDRs	30		42

The following tables below summarize how loans were modified during the three months ended March 31, 2020 and 2019. The reported balances represent the post-modification outstanding amortized cost basis 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 March 31, 2020
	Primary Modification Types
	Interest Rate Reduction⁽¹⁾			Maturity Extension⁽²⁾			Other⁽³⁾
(dollars in millions)	Number of Contracts	Amortized Cost		Number of Contracts	Amortized Cost		Number of Contracts	Amortized Cost
Commercial	—		$—	2		$—	17		$41
Commercial real estate	—	—		—	—		—	—
Total commercial loans	—	—		2	—		17	41
Residential mortgages	38	6		37	7		21	4
Home equity	46	4		6	—		71	4
Automobile	47	1		—	—		183	2
Education	—	—		—	—		91	2
Other retail	861	4		—	—		112	1
Total retail loans	992	15		43	7		478	13
Total	992		$15	45		$7	495		$54



	Three Months Ended March 31, 2019
	Primary Modification Types
	Interest Rate Reduction⁽¹⁾			Maturity Extension⁽²⁾			Other⁽³⁾
(dollars in millions)	Number of Contracts	Amortized Cost		Number of Contracts	Amortized Cost		Number of Contracts	Amortized Cost
Commercial	—		$—	5		$1	12		$40
Commercial real estate	—	—		—	—		—	—
Total commercial loans	—	—		5	1		12	40
Residential mortgages	4	2		11	2		30	4
Home equity	36	4		35	6		138	9
Automobile	25	—		5	—		289	4
Education	—	—		—	—		67	2
Other retail	616	4		—	—		1	—
Total retail loans	681	10		51	8		525	19
Total	681		$10	56		$9	537		$59

⁽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.

Schedule of loans that may increase credit exposure

The following tables present balances of loans with these characteristics:



	March 31, 2020
(in millions)	Residential Mortgages		Home Equity		Other Retail		Total
High loan-to-value		$412		$131		$—		$543
Interest-only/negative amortization	2,126		—		—		2,126
Low introductory rate	—		—		245		245
Total		$2,538		$131		$245		$2,914



	December 31, 2019
(in millions)	Residential Mortgages		Home Equity		Other Retail		Total
High loan-to-value		$402		$151		$—		$553
Interest-only/negative amortization	2,043		—		—		2,043
Low introductory rate	—		—		235		235
Total		$2,445		$151		$235		$2,831