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

9 Months Ended

Sep. 30, 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 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

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 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).

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 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

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:



	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

Troubled debt restructurings on financing receivables

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.

Schedule of loans that may increase credit exposure

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