VARIABLE INTEREST ENTITIES

6 Months Ended

Jun. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

NOTE 7 - VARIABLE INTEREST ENTITIES

Citizens is involved in various entities that are considered VIEs, including investments in limited partnerships that sponsor affordable housing projects, limited liability companies that sponsor renewable energy projects and lending to special purpose entities. Citizens’ maximum exposure to loss as a result of its involvement with these entities is limited to the balance sheet carrying amount of its equity investment and outstanding principal balance of loans to special purpose entities. A summary of these investments is presented below:



(in millions)	June 30, 2020		December 31, 2019
Lending to special purpose entities included in loans and leases		$1,499		$1,101
LIHTC investment included in other assets	1,469		1,401
LIHTC unfunded commitments included in other liabilities	754		716
Renewable energy investments included in other assets	414		355

Lending to Special Purpose Entities

Citizens provides lending facilities to third-party sponsored special purpose entities. Because the sponsor for each respective entity has the power to direct how proceeds from the Company are utilized, as well as maintains responsibility for any associated servicing commitments, Citizens is not the primary beneficiary of these entities. Accordingly, Citizens does not consolidate these VIEs on the Consolidated Balance Sheets. As of June 30, 2020 and December 31, 2019, the lending facilities had aggregate unpaid principal balances of $1.5 billion and $1.1 billion, respectively, and undrawn commitments to extend credit of $1.0 billion and $1.2 billion, respectively.

Low Income Housing Tax Credit Partnerships

The purpose of the Company’s equity investments is to assist in achieving the goals of the Community Reinvestment Act and to earn an adequate return of capital. LIHTC partnerships are managed by unrelated general partners that have the power to direct the activities which most significantly affect the performance of the partnerships. Citizens is therefore not the primary beneficiary of any LIHTC partnerships. Accordingly, Citizens does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.

Citizens applies the proportional amortization method to account for its LIHTC investments. Under the proportional amortization method, the Company applies a practical expedient and amortizes the initial cost of the investment in proportion to the tax credits received in the current period as compared to the total tax credits expected to be received over the life of the investment. The amortization and tax benefits are included as a component of income tax expense. The tax credits received are reported as a reduction of income tax expense (or an increase to income tax benefit) related to these transactions.

The following table presents other information related to the Company’s affordable housing tax credit investments:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Tax credits included in income tax expense		$39		$34		$80		$69
Amortization expense included in income tax expense	42		35		85		72
Other tax benefits included in income tax expense	10		8		20		16

No LIHTC investment impairment losses were recognized for the three and six months ended June 30, 2020 and 2019, respectively.

Renewable Energy Entities

The Company’s investments in renewable energy entities provide benefits from a return generated by government incentives plus other tax attributes that are associated with tax ownership (e.g., tax depreciation). As a tax equity investor, Citizens does not have the power to direct the activities which most significantly affect the performance of these entities and therefore is not the primary beneficiary of any renewable energy entities. Accordingly, Citizens does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.