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

9 Months Ended

Sep. 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 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 as its foundation, 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), FICO, LTV, term and time on books (for retail loans), 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. Loans in COVID-19 pandemic-related forbearance programs continue to accrue interest during the forbearance period; a reserve is established for interest income expected to be uncollectible following forbearance. The amount of accrued interest receivable reversed against interest income for the three months ended September 30, 2020 was $4 million for total commercial and retail, respectively. Accrued interest reversed against interest income for the nine months ended September 30, 2020 was $7 million and $13 million for total 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 loan and lease portfolios 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 nine months ended September 30, 2020:

	Three Months Ended September 30, 2020									Nine Months Ended September 30, 2020
(in millions)	Commercial			Retail			Total			Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$1,235			$1,213			$2,448			$674			$578			$1,252
Cumulative effect of change in accounting principle	—			—			—			(176		)	629			453
Allowance for loan and lease losses, beginning of period, adjusted	1,235			1,213			2,448			498			1,207			1,705
Charge-offs	(171		)	(86		)	(257		)	(292		)	(319		)	(611		)
Recoveries	1			37			38			7			101			108
Net charge-offs	(170		)	(49		)	(219		)	(285		)	(218		)	(503		)
Provision charged to income	224			89			313			1,076			264			1,340
Allowance for loan and lease losses, end of period		$1,289			$1,253			$2,542			$1,289			$1,253			$2,542
Reserve for unfunded lending commitments, beginning of period		$69			$10			$79			$44			$—			$44
Cumulative effective of change in accounting principle	—			—			—			(3		)	1			(2		)
Reserve for unfunded lending commitments, beginning of period, adjusted	69			10			79			41			1			42
Provision for unfunded lending commitments	83			32			115			111			41			152
Reserve for unfunded lending commitments, end of period		$152			$42			$194			$152			$42			$194

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

	December 31, 2019						January 1, 2020							September 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	%		$45,185		$826	1.8	%
Commercial real estate	13,522		124		0.9		(57		)	67		0.5		14,889		548		3.7
Leases	2,537		19		0.7		77			96		3.8		2,288		67		2.9
Total commercial loans and leases	57,538		718		1.2		(179		)	539		0.9		62,362		1,441		2.3
Residential	19,083		35		0.2		95			130		0.7		19,633		133		0.7
Home equity	13,154		83		0.6		73			156		1.2		12,322		156		1.3
Automobile	12,120		123		1.0		83			206		1.7		12,035		221		1.8
Education	10,347		116		1.1		298			414		4.0		11,631		386		3.3
Other retail	6,846		221		3.2		81			302		4.4		6,088		399		6.6
Total retail loans	61,550		578		0.9		630			1,208		2.0		61,709		1,295		2.1
Total loans and leases		$119,088		$1,296	1.1	%		$451			$1,747	1.5	%		$124,071		$2,736	2.2	%

⁽¹⁾ The commercial coverage ratio includes a 21 basis point reduction associated with PPP loans as of September 30, 2020.

The difference in ACL as of September 30, 2020 as compared to December 31, 2019 continues to be driven by the COVID-19 pandemic and associated lockdowns and the resulting economic impacts from March to September 2020, as well as the Company’s adoption of CECL on January 1, 2020. Citizens added $451 million in ACL upon adoption of CECL, and has since added an additional $989 million in the nine months ended September 30, 2020, resulting in an ending ACL balance of $2.7 billion.    

The increase in commercial net charge-offs in the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 was driven by charge-offs in CRE, metals and mining, oil and gas, and casual dining industry sectors. Retail net charge-offs were flat in the nine months ended September 20, 2020 as compared to the nine months ended September 30, 2019.

To determine the ACL as of September 30, 2020, Citizens utilized an economic scenario that generally reflects real GDP growth of 4.5% over 2021, returning to fourth quarter 2019 real GDP levels by the first quarter of 2022. The scenario also projects the fourth quarter 2020 unemployment rate to be in the range of 9% to 9.5%, and falling to 7% to 7.5% by the fourth quarter of 2021. While the macroeconomic forecast was slightly improved relative to the second quarter 2020 forecast, Citizens continued to apply management judgment to adjust the modeled reserves in the commercial industry sectors most impacted by the COVID-19-related lockdowns, including in retail and hospitality, casual dining, retail trade, price-sensitive energy and related, and educational services, as well as in certain retail products.

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

	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

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. Regulatory classification ratings are assigned at loan origination and are periodically re-evaluated by Citizens utilizing a risk-based approach, or at any time management becomes aware of information affecting the borrowers' ability to fulfill their obligations. Both quantitative and qualitative factors are considered in this review process. 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 September 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)		$7,478		$6,823		$4,838		$2,747		$1,515		$2,453		$15,115		$182		$41,151
Special Mention	58		275		237		149		92		222		892		125		2,050
Substandard	60		220		326		100		85		140		630		19		1,580
Doubtful	52		22		35		43		20		42		186		4		404
Total commercial	7,648		7,340		5,436		3,039		1,712		2,857		16,823		330		45,185
Commercial real estate
Pass	1,774		3,406		3,608		1,553		825		1,112		1,073		—		13,351
Special Mention	11		216		128		237		171		9		77		—		849
Substandard	68		1		170		50		53		66		60		—		468
Doubtful	20		38		53		—		36		3		24		47		221
Total commercial real estate	1,873		3,661		3,959		1,840		1,085		1,190		1,234		47		14,889
Leases
Pass	332		327		265		169		200		917		—		—		2,210
Special Mention	—		2		3		6		5		25		—		—		41
Substandard	—		2		2		5		4		—		—		—		13
Doubtful	—		—		9		1		3		11		—		—		24
Total leases	332		331		279		181		212		953		—		—		2,288
Total commercial loans and leases
Pass(1)	9,584		10,556		8,711		4,469		2,540		4,482		16,188		182		56,712
Special Mention	69		493		368		392		268		256		969		125		2,940
Substandard	128		223		498		155		142		206		690		19		2,061
Doubtful	72		60		97		44		59		56		210		51		649
Total commercial loans and leases		$9,853		$11,332		$9,674		$5,060		$3,009		$5,000		$18,057		$377		$62,362

⁽¹⁾ Includes $4.7 billion of PPP loans 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. Management believes 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 September 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+		$1,971		$1,983		$751		$1,297		$1,833		$2,061		$—		$—		$9,896
740-799	2,351		1,341		463		612		776		977		—		—		6,520
680-739	596		408		193		207		317		500		—		—		2,221
620-679	101		97		44		51		69		235		—		—		597
<620	17		23		34		56		54		197		—		—		381
No FICO available(1)	4		1		—		1		—		12		—		—		18
Total residential mortgages	5,040		3,853		1,485		2,224		3,049		3,982		—		—		19,633
Home equity
800+	3		9		11		7		5		245		4,319		360		4,959
740-799	1		7		7		7		4		204		3,224		340		3,794
680-739	—		4		9		14		8		197		1,671		293		2,196
620-679	—		8		16		19		12		146		420		201		822
<620	1		15		27		30		18		129		117		213		550
No FICO available(1)	—		—		—		—		—		—		1		—		1
Total home equity	5		43		70		77		47		921		9,752		1,407		12,322
Automobile
800+	780		862		472		358		209		91		—		—		2,772
740-799	1,130		1,127		606		406		214		87		—		—		3,570
680-739	1,028		1,012		527		327		170		69		—		—		3,133
620-679	523		557		300		185		102		46		—		—		1,713
<620	90		245		202		157		96		48		—		—		838
No FICO available(1)	1		1		—		—		—		7		—		—		9
Total automobile	3,552		3,804		2,107		1,433		791		348		—		—		12,035
Education
800+	1,191		1,276		810		772		586		776		—		—		5,411
740-799	1,307		1,151		621		449		292		443		—		—		4,263
680-739	385		378		217		160		110		239		—		—		1,489
620-679	27		52		42		36		31		108		—		—		296
<620	2		7		13		14		12		56		—		—		104
No FICO available(1)	6		—		—		—		—		62		—		—		68
Total education	2,918		2,864		1,703		1,431		1,031		1,684		—		—		11,631
Other retail
800+	286		474		174		79		17		49		313		—		1,392
740-799	419		611		217		97		23		33		621		2		2,023
680-739	356		409		141		60		13		17		555		6		1,557
620-679	195		156		51		19		3		6		181		7		618
<620	18		45		24		9		2		4		81		9		192
No FICO available(1)	36		1		—		—		—		—		267		2		306
Total other retail	1,310		1,696		607		264		58		109		2,018		26		6,088
Retail
800+	4,231		4,604		2,218		2,513		2,650		3,222		4,632		360		24,430
740-799	5,208		4,237		1,914		1,571		1,309		1,744		3,845		342		20,170
680-739	2,365		2,211		1,087		768		618		1,022		2,226		299		10,596
620-679	846		870		453		310		217		541		601		208		4,046
<620	128		335		300		266		182		434		198		222		2,065
No FICO available(1)	47		3		—		1		—		81		268		2		402
Total retail		$12,825		$12,260		$5,972		$5,429		$4,976		$7,044		$11,770		$1,433		$61,709

⁽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 September 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		$435		$3		$33		$240
Commercial real estate	323		—		3		2
Leases	2		—		—		3
Total commercial loans and leases	760		3		36		245
Residential mortgages	131		17		101		93
Home equity	265		—		192		246
Automobile	80		—		18		67
Education	16		2		5		18
Other retail	25		6		1		34
Total retail	517		25		317		458
Total loans and leases		$1,277		$28		$353		$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:

	September 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		$44,845		$105		$129		$106		$45,185		$41,340		$45		$27		$67		$41,479
Commercial real estate	14,743		90		—		56		14,889		13,520		1		1		—		13,522
Leases	2,284		1		1		2		2,288		2,498		37		—		2		2,537
Total commercial loans and leases	61,872		196		130		164		62,362		57,358		83		28		69		57,538
Residential mortgages	19,430		64		16		123		19,633		18,947		35		17		84		19,083
Home equity	12,007		51		29		235		12,322		12,834		91		40		189		13,154
Automobile	11,825		147		52		11		12,035		11,788		227		81		24		12,120
Education	11,585		28		12		6		11,631		10,290		30		15		12		10,347
Other retail	6,005		33		22		28		6,088		6,729		45		31		41		6,846
Total retail loans	60,852		323		131		403		61,709		60,588		428		184		350		61,550
Total		$122,724		$519		$261		$567		$124,071		$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 September 30, 2020 and December 31, 2019, the Company had collateral-dependent residential mortgage and home equity loans totaling $489 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 September 30, 2020 and December 31, 2019, the Company had collateral-dependent commercial loans totaling $144 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 $129 million and $152 million as of September 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 for 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)	September 30, 2020		December 31, 2019
Commercial		$294		$297
Retail	715		667
Unfunded commitments related to TDRs	49		42

The following tables below summarize how loans were modified during the three and nine months ended September 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 September 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	—		$—	12		$103	2		$1
Commercial real estate	—	—		—	—		—	—
Total commercial loans	—	—		12	103		2	1
Residential mortgages	47	9		41	6		19	4
Home equity	23	2		52	4		104	6
Automobile	25	1		47	—		1,119	18
Education	—	—		—	—		140	3
Other retail	410	1		—	—		74	—
Total retail loans	505	13		140	10		1,456	31
Total	505		$13	152		$113	1,458		$32

	Three Months Ended September 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	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	63	6		16	1		120	6
Automobile	46	1		4	—		309	4
Education	—	—		—	—		131	2
Other retail	805	5		—	—		218	—
Total retail loans	926	14		28	3		803	16
Total	928		$14	34		$4	809		$31

	Nine Months Ended September 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	—		$—	18		$106	34		$95
Commercial real estate	—	—		—	—		—	—
Total commercial loans	—	—		18	106		34	95
Residential mortgages	139	26		149	27		60	11
Home equity	96	8		107	8		365	21
Automobile	108	2		48	—		2,212	35
Education	—	—		—	—		373	9
Other retail	1,916	8		—	—		251	2
Total retail loans	2,259	44		304	35		3,261	78
Total	2,259		$44	322		$141	3,295		$173

	Nine Months Ended September 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	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	148	15		66	10		358	21
Automobile	111	2		16	—		933	13
Education	—	—		—	—		211	5
Other retail	2,362	14		—	—		362	—
Total retail loans	2,646	37		111	15		1,951	52
Total	2,649		$37	130		$17	1,975		$154

⁽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 September 30, 2020 and 2019 was ($30) million and $3 million, respectively. The net change to ALLL resulting from modifications of loans for the nine months ended September 30, 2020 and 2019 was ($21) million and $7 million, respectively. Charge-offs

may also be recorded on TDRs. Citizens recorded $43 million and $1 million of charge-offs resulting from modification of loans in the three months ended September 30, 2020 and 2019, respectively. Citizens recorded $49 million and $3 million for the nine months ended September 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 September 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 September 30, 2020 were $14 million and there were none for the three months ended September 30, 2019. There were $53 million and $1 million in the nine months ended September 30, 2020 and 2019. For retail loans, there were $22 million and $9 million of loans which defaulted within their restructuring date for the three months ended September 30, 2020 and 2019, respectively, and $47 million and $28 million of loans which defaulted within 12 months of their restructuring date for the nine months ended September 30, 2020 and 2019, respectively.

Concentrations of Credit Risk

As of September 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 $2.4 billion, or 3.8%, of the retail portfolio, approximately $795 million, or 1.4%, of the commercial portfolio, and approximately $464 million, or 8.1%, of the Business Banking portfolio. The vast majority of these deferrals 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 September 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:

	September 30, 2020
(in millions)	Residential Mortgages		Home Equity		Other Retail		Total
High loan-to-value		$408		$95		$—		$503
Interest-only/negative amortization	2,594		—		—		2,594
Low introductory rate	—		—		183		183
Multiple characteristics and other	4		—		—		4
Total		$3,006		$95		$183		$3,284

	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