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

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

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

NOTE 4 - ALLOWANCE FOR CREDIT LOSSES, NONACCRUING LOANS AND LEASES, AND CONCENTRATIONS OF CREDIT RISK

Allowance for Credit Losses    

Management’s estimate of expected credit losses in the Company’s loan and lease portfolios is recorded in the ALLL and the reserve for unfunded lending commitments (collectively the ACL). See Note 5 in the Company’s 2019 Form 10-K for a detailed discussion of the ACL reserve methodology and estimation techniques as of December 31, 2019. Upon adoption of CECL effective January 1, 2020, the Company’s ACL reserve methodology changed to estimate expected credit losses over the contractual life of the loans and leases.

The ACL is maintained at a level the Company believes to be appropriate to absorb expected lifetime credit losses over the contractual life of the loan and lease portfolios and on the unfunded lending commitments. The determination of the ACL is based on periodic evaluation of the loan and lease portfolios and unfunded lending commitments that are not unconditionally cancelable considering a number of relevant underlying factors, including key assumptions and evaluation of quantitative and qualitative information.

Key assumptions used in the ACL measurement process include the use of a two-year reasonable and supportable economic forecast period followed by a one-year period during which the expected credit losses revert to long-term historical macroeconomic inputs.

The evaluation of quantitative and qualitative information is performed through assessments of groups of assets that share similar risk characteristics and certain individual loans and leases that do not share similar risk characteristics with the collective group. Loans are grouped generally by product type (e.g., commercial, commercial real estate, residential mortgage, etc.), and significant loan portfolios are assessed for credit losses using econometric models.

The quantitative evaluation of the adequacy of the ACL utilizes a single economic forecast and is primarily based on econometric models that use known or estimated data as of the balance sheet date and forecasted data over the reasonable and supportable period. Known and estimated data include current PD, LGD and EAD (for commercial loans and leases), timing and amount of expected draws (for unfunded lending commitments), mix and level of loan balances, delinquency levels, assigned risk ratings, previous loss experience, current business conditions, amounts and timing of expected future cash flows, and factors particular to a specific commercial credit such as competition, business and management performance. Forward-looking economic assumptions include real gross domestic product, unemployment rate, interest rate curve, and changes in collateral values. This data is aggregated to estimate expected credit losses over the contractual life of the loans and leases, adjusted for expected prepayments. In highly volatile economic environments historical information, such as commercial customer financial statements or consumer credit ratings, may not be as important to estimating future expected losses as forecasted inputs to the models.

The ACL may also be affected materially by a variety of qualitative factors that the Company considers to reflect current judgment of various events and risks that are not measured in the statistical procedures including uncertainty related to the economic forecasts used in the modeled credit loss estimates, loan growth, back testing results, credit underwriting policy exceptions, regulatory and audit findings, and peer comparisons. The qualitative allowance is further informed by multiple alternative scenarios to support the period-end ACL balance.

The measurement process results in specific or pooled allowances for loans, leases and unfunded lending commitments, and qualitative allowances that are judgmentally determined and applied across the portfolio.

There are certain loan portfolios that may not need an econometric model to enable the Company to calculate management’s best estimate of the expected credit losses. Less data intensive, non-modeled approaches to estimating losses are considered more efficient and practical for portfolios that have lower levels of outstanding balances (e.g., runoff or closed portfolios, new products or products that are not significant to the Company’s overall credit risk exposure).

Loans and leases that do not share similar risk characteristics are individually assessed for expected credit losses. Nonaccruing commercial and commercial real estate loans with an outstanding balance of $5 million or greater and all commercial and commercial real estate TDRs (regardless of size) are assessed on an individual loan level basis. Generally, the measurement of ACL on individual loans and leases is the present value of its future cash flows or the fair value of its underlying collateral, if the loan or lease is collateral dependent. Loans that are deemed to be collateral dependent are written down to the fair value, less costs to sell, if sale of the collateral is expected as of the evaluation date and are reassessed each subsequent period to determine if a change to the ACL is required. Subsequent evaluations may result in an increase or decrease to the ACL, based on a corresponding change in the fair value of the collateral during the period. Any subsequent decrease to the ACL (because of an increase to the collateral-dependent loan’s fair value) is limited to the total amount previously written off for that loan. For retail TDRs that are not collateral dependent, the ACL is developed using the present value of expected future cash flows compared to the amortized cost basis 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.

Expected recoveries are considered in management’s estimate of the ACL and may result in a negative adjustment (i.e., reduction) to the ACL balance. A loan is collateral dependent if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty as of the evaluation date. Generally, repayment would be expected to be provided substantially by the sale or continued operation of the underlying collateral if cash flows to repay the loan from all other available sources (including guarantors) are expected to be no more than nominal. If repayment is dependent only on the operation of the collateral, the fair value of the collateral would not be adjusted for estimated costs to sell. If a loan is considered collateral dependent, the ACL is calculated as the difference between the fair value of collateral (adjusted for the costs to sell if the sale of the collateral is expected) and the amortized cost basis as of the evaluation date. It is possible to have a negative ACL for a collateral dependent loan if the fair value of the collateral

increases in a subsequent reporting period. The negative ACL cannot exceed the total amount previously charged off.

Accrued interest receivable on loans and leases is excluded from asset balances used to calculate the ACL. All accrued and uncollected interest is immediately reversed against interest income when a loan or lease is placed on nonaccrual status. Uncollectible interest is written off timely in accordance with regulatory guidelines. Generally, loans and leases are 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. Residential mortgages are placed on nonaccrual status when contractually past due 120 days or more, or sooner if deemed collateral-dependent, unless guaranteed by the Federal Housing Administration. The amount of accrued interest receivable reversed against interest income for the three months ended June 30, 2020 was $2 million and $4 million for commercial and retail, respectively. Accrued interest reversed against interest income for the six months ended June 30, 2020 was $3 million and $9 million for commercial and retail, respectively.

The Company estimates expected credit losses associated with off-balance sheet financial instruments such as standby letters of credit, financial guarantees and unfunded loan commitments that are not unconditionally cancelable. 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, current and future economic conditions, timing and amount of expected draws, and performance trends within specific portfolio segments, result in the estimate of the reserve for unfunded lending commitments. The Company does not recognize a reserve for future draws from credit lines that are unconditionally cancelable (e.g., credit cards).

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.

The following table presents a summary of changes in the ALLL and the reserve for unfunded lending commitments for the three and six months ended June 30, 2020:

	Three Months Ended June 30, 2020									Six Months Ended June 30, 2020
(in millions)	Commercial			Retail			Total			Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$752			$1,419			$2,171			$674			$578			$1,252
Cumulative effect of change in accounting principle	—			—			—			(176		)	629			453
Allowance for loan and lease losses, beginning of period, adjusted	752			1,419			2,171			498			1,207			1,705
Charge-offs	(74		)	(106		)	(180		)	(121		)	(233		)	(354		)
Recoveries	3			30			33			6			64			70
Net charge-offs	(71		)	(76		)	(147		)	(115		)	(169		)	(284		)
Provision charged to income	554			(130		)	424			852			175			1,027
Allowance for loan and lease losses, end of period		$1,235			$1,213			$2,448			$1,235			$1,213			$2,448
Reserve for unfunded lending commitments, beginning of period		$38			$1			$39			$44			$—			$44
Cumulative effective of change in accounting principle	—			—			—			(3		)	1			(2		)
Reserve for unfunded lending commitments, beginning of period, adjusted	38			1			39			41			1			42
Provision for unfunded lending commitments	31			9			40			28			9			37
Reserve for unfunded lending commitments, end of period		$69			$10			$79			$69			$10			$79

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

	December 31, 2019						January 1, 2020							June 30, 2020
(in millions)	Amortized Cost Basis		ACL Balance		Coverage		Impact of Adoption of CECL			ACL Balance		Coverage		Amortized Cost Basis		ACL Balance		Coverage
Commercial(1)		$41,479		$575	1.4	%		($199	)		$376	0.9	%		$48,017		$847	1.8	%
Commercial real estate	13,522		124		0.9		(57		)	67		0.5		14,485		330		2.3
Leases	2,537		19		0.7		77			96		3.8		2,428		127		5.2
Total commercial loans and leases	57,538		718		1.2		(179		)	539		0.9		64,930		1,304		2.0
Residential	19,083		35		0.2		95			130		0.7		19,245		104		0.5
Home equity	13,154		83		0.6		73			156		1.2		12,541		143		1.1
Automobile	12,120		123		1.0		83			206		1.7		12,028		277		2.3
Education	10,347		116		1.1		298			414		4.0		10,591		312		2.9
Other retail	6,846		221		3.2		81			302		4.4		6,378		387		6.1
Total retail loans	61,550		578		0.9		630			1,208		2.0		60,783		1,223		2.0
Total loans and leases		$119,088		$1,296	1.1	%		$451			$1,747	1.5	%		$125,713		$2,527	2.0	%

⁽¹⁾ The commercial coverage ratio includes a 19 basis point reduction associated with PPP loans as of June 30, 2020.

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 June 30, 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 $780 million and an ending balance of $2.5 billion.

To determine the ACL as of June 30, 2020, the Company utilized the Moody’s May 13th Baseline scenario to integrate the effects of COVID-19 in the Company’s loss estimates, which reflected a second quarter 2020 decline in GDP of approximately 33%, with peak unemployment of approximately 15% followed by a gradual recovery in the second half of 2020. This scenario was more severe than first quarter 2020 which had second quarter 2020 GDP down approximately 18% and peak unemployment of approximately 9%. Estimated losses were adjusted for the expected benefit of COVID-19-related fiscal and monetary stimulus measures and the expected beneficial impacts of the Company’s own customer assistance actions. These actions include 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 its commercial and retail portfolios.

The following table presents a summary of changes in the ALLL and the reserve for unfunded lending commitments for the three and six months ended June 30, 2019:

	Three Months Ended June 30, 2019									Six Months Ended June 30, 2019
(in millions)	Commercial			Retail			Total			Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$691			$554			$1,245			$690			$552			$1,242
Charge-offs	(45		)	(111		)	(156		)	(71		)	(223		)	(294		)
Recoveries	12			38			50			14			85			99
Net charge-offs	(33		)	(73		)	(106		)	(57		)	(138		)	(195		)
Provision charged to income	22			66			88			47			133			180
Allowance for loan and lease losses, end of period		$680			$547			$1,227			$680			$547			$1,227
Reserve for unfunded lending commitments, beginning of period		$84			$—		84				$91			$—			$91
Provision for unfunded lending commitments	9			—			9			2			—			2
Reserve for unfunded lending commitments, end of period	93			—			93				$93			$—			$93

Credit Quality Indicators

Loan and lease portfolio segments and classes, excluding LHFS, are presented by credit quality indicator and vintage year. Citizens defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. In general, renewals are categorized as new credit decisions and reflect the renewal date as the vintage date. Loans modified in a TDR are considered to be a continuation of the original loan and vintage date corresponds with the initial loan origination date.

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.

The following table presents the amortized cost basis of commercial loans and leases, by vintage date and regulatory classification rating, as of June 30, 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)		$6,585		$7,127		$5,054		$2,897		$1,564		$2,724		$17,515		$393		$43,859
Special Mention	159		245		287		131		126		209		1,110		22		2,289
Substandard	92		89		238		120		119		119		702		19		1,498
Doubtful	8		26		9		49		5		97		173		4		371
Total commercial	6,844		7,487		5,588		3,197		1,814		3,149		19,500		438		48,017
Commercial real estate
Pass	1,227		3,375		3,674		1,792		1,037		1,152		1,192		—		13,449
Special Mention	31		70		145		132		64		82		77		—		601
Substandard	—		58		106		2		56		3		149		—		374
Doubtful	—		38		16		5		—		2		—		—		61
Total commercial real estate	1,258		3,541		3,941		1,931		1,157		1,239		1,418		—		14,485
Leases
Pass	263		351		275		184		236		1,007		—		—		2,316
Special Mention	—		2		5		6		4		1		—		—		18
Substandard	—		2		3		6		4		1		—		—		16
Doubtful	—		4		30		1		14		29		—		—		78
Total leases	263		359		313		197		258		1,038		—		—		2,428
Total commercial loans and leases
Pass	8,075		10,853		9,003		4,873		2,837		4,883		18,707		393		59,624
Special Mention	190		317		437		269		194		292		1,187		22		2,908
Substandard	92		149		347		128		179		123		851		19		1,888
Doubtful	8		68		55		55		19		128		173		4		510
Total commercial loans and leases		$8,365		$11,387		$9,842		$5,325		$3,229		$5,426		$20,918		$438		$64,930

⁽¹⁾ Includes $4.7 billion of PPP loans primarily designated as pass that are fully guaranteed by the SBA originating in 2020.

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 June 30, 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+		$1,067		$2,018		$876		$1,488		$1,986		$2,353		$—		$—		$9,788
740-799	1,574		1,594		520		677		858		1,059		—		—		6,282
680-739	387		459		242		226		329		556		—		—		2,199
620-679	46		105		40		58		89		240		—		—		578
<620	1		21		36		48		55		221		—		—		382
No FICO available(1)	3		1		—		—		—		12		—		—		16
Total residential mortgages	3,078		4,198		1,714		2,497		3,317		4,441		—		—		19,245
Home equity
800+	2		10		14		9		6		269		4,331		379		5,020
740-799	1		7		7		5		5		216		3,164		345		3,750
680-739	—		3		6		12		7		213		1,730		304		2,275
620-679	—		3		10		20		11		150		480		203		877
<620	—		4		11		33		20		153		170		227		618
No FICO available(1)	—		—		—		—		—		—		1		—		1
Total home equity	3		27		48		79		49		1,001		9,876		1,458		12,541
Automobile
800+	550		924		521		412		255		131		—		—		2,793
740-799	740		1,218		679		466		261		124		—		—		3,488
680-739	667		1,126		600		384		209		98		—		—		3,084
620-679	332		646		342		215		123		64		—		—		1,722
<620	52		268		231		186		121		69		—		—		927
No FICO available(1)	2		—		—		—		—		12		—		—		14
Total automobile	2,343		4,182		2,373		1,663		969		498		—		—		12,028
Education
800+	651		1,165		773		751		601		811		—		—		4,752
740-799	820		1,199		627		443		314		475		—		—		3,878
680-739	267		424		231		163		117		258		—		—		1,460
620-679	20		59		46		38		34		119		—		—		316
<620	1		9		15		16		13		67		—		—		121
No FICO available(1)	—		—		—		—		—		64		—		—		64
Total education	1,759		2,856		1,692		1,411		1,079		1,794		—		—		10,591
Other retail
800+	239		534		209		87		20		54		293		—		1,436
740-799	339		726		268		116		28		39		613		2		2,131
680-739	266		500		178		74		16		18		579		6		1,637
620-679	142		204		66		24		4		8		196		7		651
<620	13		60		34		12		2		4		95		10		230
No FICO available(1)	39		1		—		—		—		—		251		2		293
Total other retail	1,038		2,025		755		313		70		123		2,027		27		6,378
Retail
800+	2,509		4,651		2,393		2,747		2,868		3,618		4,624		379		23,789
740-799	3,474		4,744		2,101		1,707		1,466		1,913		3,777		347		19,529
680-739	1,587		2,512		1,257		859		678		1,143		2,309		310		10,655
620-679	540		1,017		504		355		261		581		676		210		4,144
<620	67		362		327		295		211		514		265		237		2,278
No FICO available(1)	44		2		—		—		—		88		252		2		388
Total retail		$8,221		$13,288		$6,582		$5,963		$5,484		$7,857		$11,903		$1,485		$60,783

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

Nonaccrual and Past Due Assets

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

	As of June 30, 2020						As of December 31, 2019
(in millions)	Nonaccrual loans and leases		90+ days past due and accruing		Nonaccrual with no related ACL		Nonaccrual loans and leases
Commercial		$366		$33		$40		$240
Commercial real estate	61		—		6		2
Leases	79		—		—		3
Total commercial loans and leases	506		33		46		245
Residential mortgages	112		13		54		93
Home equity	254		—		86		246
Automobile	67		—		18		67
Education	18		2		4		18
Other retail	33		7		—		34
Total retail	484		22		162		458
Total loans and leases		$990		$55		$208		$703

Interest income is generally not recognized for loans and leases that are on nonaccrual status. The Company reverses accrued interest receivable with a charge to interest income upon classifying the loan or lease as nonaccrual.

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

	June 30, 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		$47,768		$60		$30		$159		$48,017		$41,340		$45		$27		$67		$41,479
Commercial real estate	14,340		92		52		1		14,485		13,520		1		1		—		13,522
Leases	2,347		5		12		64		2,428		2,498		37		—		2		2,537
Total commercial loans and leases	64,455		157		94		224		64,930		57,358		83		28		69		57,538
Residential mortgages	19,044		65		33		103		19,245		18,947		35		17		84		19,083
Home equity	12,212		71		41		217		12,541		12,834		91		40		189		13,154
Automobile	11,784		162		66		16		12,028		11,788		227		81		24		12,120
Education	10,548		25		12		6		10,591		10,290		30		15		12		10,347
Other retail	6,285		31		25		37		6,378		6,729		45		31		41		6,846
Total retail loans	59,873		354		177		379		60,783		60,588		428		184		350		61,550
Total		$124,328		$511		$271		$603		$125,713		$117,946		$511		$212		$419		$119,088

The Company estimates expected credit losses based on the fair value of collateral for collateralized loans that management believes will not be paid under the terms of the original loan contract. These loans are considered to be collateral dependent, and the estimated credit loss is calculated as the difference between the loan’s amortized cost basis and the fair value of the collateral as of each evaluation date.

Collateral values for residential mortgage and home equity loans are based on refreshed valuations which are updated at least every 90 days less estimated costs to sell. At June 30, 2020 and December 31, 2019, the Company had collateral-dependent residential mortgage and home equity loans totaling $405 million and $227 million, respectively.

For collateral-dependent commercial loans, the ACL is individually assessed based on the fair value of the collateral. Various types of collateral are used, including real estate, inventory, equipment, accounts receivable, securities and cash, among others. For commercial real estate loans, collateral values are generally based on

appraisals which are updated based on management judgment under the specific circumstances on a case-by-case basis. At June 30, 2020 and December 31, 2019, the Company had collateral-dependent commercial loans totaling $213 million and $85 million, respectively.

The amortized cost basis of mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process was $135 million and $152 million as of June 30, 2020 and December 31, 2019, respectively.

Troubled Debt Restructurings

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 the Company would not otherwise make. Citizens implemented various retail and commercial loan modification programs to provide borrowers relief from the economic impacts of COVID-19. The CARES Act and bank regulatory agencies provided guidance stating certain loan modifications to borrowers experiencing financial distress as a result of COVID-19 may not be accounted for as TDRs under U.S. GAAP. In accordance with the CARES Act, Citizens has elected to not apply TDR classification to any COVID-19 related loan modifications performed after March 1, 2020 to borrowers who were current as of December 31, 2019. In addition, for loans modified in response to the COVID-19 pandemic that are not eligible for relief from TDR classification under the CARES Act, the Company elected to apply the guidance issued by the bank regulatory agencies. Under this guidance deferral of principal and interest for up to six months to borrowers who were current as of March 1, 2020 and impacted by COVID-19 are not classified as TDRs.

For loan modifications that include a payment deferral and are not TDRs, the borrower’s past due and nonaccrual status will not be impacted during the deferral period. Interest income will continue to be recognized over the contractual life of the loan. The following table summarizes TDRs by class and total unfunded commitments:

(in millions)	June 30, 2020		December 31, 2019
Commercial		$265		$297
Retail	700		667
Unfunded commitments related to TDRs	52		42

The following tables below summarize how loans were modified during the six months ended June 30, 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 June 30, 2020
	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	—		$—	4		$3	15		$53
Commercial real estate	—	—		—	—		—	—
Total commercial loans	—	—		4	3		15	53
Residential mortgages	54	11		71	14		20	3
Home equity	27	2		49	4		190	11
Automobile	36	—		1	—		910	15
Education	—	—		—	—		142	4
Other retail	645	3		—	—		65	1
Total retail loans	762	16		121	18		1,327	34
Total	762		$16	125		$21	1,342		$87

	Three Months Ended June 30, 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	1		$—	7		$—	6		$47
Commercial real estate	—	—		1	—		—	—
Total commercial loans	1	—		8	—		6	47
Residential mortgages	9	2		10	1		32	5
Home equity	49	5		15	3		100	6
Automobile	40	1		7	—		335	5
Education	—	—		—	—		13	1
Other retail	941	5		—	—		143	—
Total retail loans	1,039	13		32	4		623	17
Total	1,040		$13	40		$4	629		$64

	Six Months Ended June 30, 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	—		$—	6		$3	32		$94
Commercial real estate	—	—		—	—		—	—
Total commercial loans	—	—		6	3		32	94
Residential mortgages	92	17		108	21		41	7
Home equity	73	6		55	4		261	15
Automobile	83	1		1	—		1,093	17
Education	—	—		—	—		233	6
Other retail	1,506	7		—	—		177	2
Total retail loans	1,754	31		164	25		1,805	47
Total	1,754		$31	170		$28	1,837		$141

	Six Months Ended June 30, 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	1		$—	12		$1	18		$87
Commercial real estate	—	—		1	—		—	—
Total commercial loans	1	—		13	1		18	87
Residential mortgages	13	4		21	3		62	9
Home equity	85	9		50	9		238	15
Automobile	65	1		12	—		624	9
Education	—	—		—	—		80	3
Other retail	1,557	9		—	—		144	—
Total retail loans	1,720	23		83	12		1,148	36
Total	1,721		$23	96		$13	1,166		$123

⁽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 net change to ALLL resulting from modification of loans for the three months ended June 30, 2020 and 2019 was $5 million and $2 million, respectively. The net change to ALLL resulting from modifications of loans for the six months ended June 30, 2020 and 2019 was $9 million and $4 million, respectively. Charge-offs may also be

recorded on TDRs. Citizens recorded $4 million and $1 million of charge-offs resulting from modification of loans in the three months ended June 30, 2020 and 2019, respectively. Citizens recorded $6 million and $2 million for the six months ended June 30, 2020 and 2019, respectively.

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 June 30, 2020 and 2019. For commercial loans, recorded investment in TDRs that defaulted within 12 months of their modification date for the three months ended June 30, 2020 and 2019 were $26 million and $1 million, respectively, and $39 million and $1 million in the six months ended June 30, 2020 and 2019. For retail loans, there were $14 million and $10 million of loans which defaulted within their restructuring date for the three months ended June 30, 2020 and 2019, respectively, and $25 million and $19 million of loans which defaulted within 12 months of their restructuring date for the six months ended June 30, 2020 and 2019, respectively.

Concentrations of Credit Risk

As of June 30, 2020, under the Company’s COVID-19-related forbearance and other customer accommodation programs that are guided by the CARES Act as well as banking regulator interagency guidance, Citizens deferred payments on approximately $3.5 billion, or 6%, of the retail portfolio. Further, the Company is working with its commercial customers seeking flexibility on loan terms and conditions. The vast majority of these retail deferrals or commercial modifications are not classified as TDRs.

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 June 30, 2020 and December 31, 2019, 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. The following tables present balances of loans with these characteristics:

	June 30, 2020
(in millions)	Residential Mortgages		Home Equity		Other Retail		Total
High loan-to-value		$456		$104		$—		$560
Interest-only/negative amortization	2,324		—		—		2,324
Low introductory rate	—		—		208		208
Multiple characteristics and other	3		—		—		3
Total		$2,783		$104		$208		$3,095

	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