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ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK | 12 Months Ended
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Dec. 31, 2019
Receivables [Abstract] |
ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK | NOTE 5 - ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK Allowance for Credit Losses Management’s estimate of probable losses in the Company’s loan and lease portfolios is recorded in the ALLL and the reserve for unfunded lending commitments, collectively the ACL. On a quarterly basis, Citizens evaluates the adequacy of the ALLL by performing reviews of certain individual loans and leases, analyzing changes in the composition, size and delinquency of the portfolio, reviewing previous loss experience and considering current and anticipated economic factors. The ALLL is established in accordance with the Company’s credit reserve policies, as approved by the Audit Committee of the Board of Directors. The Chief Financial Officer and Chief Risk Officer review the adequacy of the ALLL each quarter, together with risk management. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. The ALLL is maintained at a level that management considers reflective of probable losses, and is established through charges to earnings in the form of a provision for credit losses. The Company’s methodology for determining the qualitative component includes a statistical analysis of prior charge-off rates and a qualitative assessment of factors affecting the determination of incurred losses in the loan and lease portfolio. Such factors include trends in economic conditions, loan growth, back testing results, credit underwriting policy exceptions, regulatory and audit findings, and peer comparisons. Amounts determined to be uncollectible are deducted from the ALLL and subsequent recoveries, if any, are added to the ALLL. While management uses available information to estimate loan and lease losses, future additions to the ALLL may be necessary based on changes in economic conditions. There were no material changes in assumptions or estimation techniques compared with prior years that impacted the determination of the current year’s ALLL and the reserve for unfunded lending commitments. The evaluation of the adequacy of the commercial, commercial real estate, and leases ALLL and reserve for unfunded lending commitments is primarily based on risk rating models that assess probability of default, loss given default and exposure at default on an individual loan basis. The models are primarily driven by individual customer financial characteristics and are validated against historical experience. Additionally, qualitative factors are included in the risk rating models. After the aggregation of individual borrower incurred loss, additional overlays can be made based on back-testing against historical losses. For non-impaired retail loans, the ALLL is based upon an incurred loss model utilizing the probability of default, loss given default and exposure at default on an individual loan basis. When developing these factors, the Company may consider the loan product and collateral type, delinquency status, LTV ratio, lien position, borrower’s credit, age of the loan, geographic location and incurred loss period. Certain retail portfolios, including education, unsecured personal loans, SBO home equity loans and commercial credit card receivables utilize roll rate or vintage models to estimate the ALLL. For nonaccruing commercial and commercial real estate loans with an outstanding balance of $3 million or greater and for all commercial and commercial real estate TDRs (regardless of size), the Company conducts further analysis to determine the probable amount of loss and establishes a specific allowance for the loan, if appropriate. Citizens estimates the impairment amount by comparing the loan’s carrying amount to the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan’s observable market price. For collateral-dependent impaired commercial and commercial real estate loans, the excess of the Company’s recorded investment in the loan over the fair value of the collateral, less cost to sell, is charged off to the ALLL. For retail TDRs that are not collateral-dependent, allowances are developed using the present value of expected future cash flows compared to the recorded investment 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. The fair value of collateral is periodically monitored subsequent to the modification. In addition to the ALLL, the Company also estimates probable credit losses associated with off-balance sheet financial instruments such as standby letters of credit, financial guarantees and binding unfunded loan commitments. 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, economic conditions and performance trends within specific portfolio segments, result in the estimate of the reserve for unfunded lending commitments. 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. Loan Charge-Offs Commercial loans are charged off when it is highly certain that a loss has been realized, including situations where a loan is determined to be both impaired and collateral-dependent. The determination of whether to recognize a charge-off involves many factors, including the prioritization of the Company’s claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity or the loan collateral. A loan is considered to be collateral-dependent when repayment of the loan is expected to be provided solely by the underlying collateral, rather than by cash flows from the borrower’s operations, income or other resources. Retail loans are generally fully charged-off or written down to the net realizable value of the underlying collateral, with an offset to the ALLL, upon reaching specified stages of delinquency in accordance with standards established by the FFIEC. Residential real estate loans, credit card loans and unsecured open end loans are generally charged off in the month in which the account becomes 180 days past due. Auto loans, education loans and unsecured closed end loans are generally charged off in the month in which the account becomes 120 days past due. Certain retail loans will be charged off or charged down to their net realizable value earlier than the FFIEC charge-off standards in the following circumstances:
• | Loans modified in a TDR that are determined to be collateral-dependent.
• | Loans to borrowers who have experienced an event (e.g., bankruptcy) that suggests a loss is either known or highly certain.
◦ | Residential real estate and auto loans are charged down to the net realizable value within 60 days of receiving notification of the bankruptcy filing, or when the loan becomes 60 days past due if repayment is likely to occur.
◦ | Credit card loans are fully charged off within 60 days of receiving notification of the bankruptcy filing or other event.
◦ | Education loans are generally charged off when the loan becomes 60 days past due after receiving notification of a bankruptcy.
• | Auto loans are written down to net realizable value upon repossession of the collateral.
The following tables present a summary of changes in the ACL:
| Year Ended December 31, 2019
(in millions) | Commercial |  | Retail |  | Total |
Allowance for loan and lease losses, beginning of period |  | $690 |  |  | $552 |  |  | $1,242 |
Charge-offs | (140 | ) | (475 | ) | (615 | )
Recoveries | 24 |  | 161 |  | 185 |
Net charge-offs | (116 | ) | (314 | ) | (430 | )
Provision charged to income | 100 |  | 340 |  | 440 |
Allowance for loan and lease losses, end of period | 674 |  | 578 |  | 1,252 |
Reserve for unfunded lending commitments, beginning of period | 91 |  | — |  | 91 |
Provision for unfunded lending commitments | (47 | ) | — |  | (47 | )
Reserve for unfunded lending commitments, end of period | 44 |  | — |  | 44 |
Total allowance for credit losses, end of period |  | $718 |  |  | $578 |  |  | $1,296 |
| Year Ended December 31, 2018
(in millions) | Commercial |  | Retail |  | Total |
Allowance for loan and lease losses, beginning of period |  | $685 |  |  | $551 |  |  | $1,236 |
Charge-offs | (52 | ) | (442 | ) | (494 | )
Recoveries | 19 |  | 158 |  | 177 |
Net charge-offs | (33 | ) | (284 | ) | (317 | )
Provision charged to income | 38 |  | 285 |  | 323 |
Allowance for loan and lease losses, end of period | 690 |  | 552 |  | 1,242 |
Reserve for unfunded lending commitments, beginning of period | 88 |  | — |  | 88 |
Provision for unfunded lending commitments | 3 |  | — |  | 3 |
Reserve for unfunded lending commitments, end of period | 91 |  | — |  | 91 |
Total allowance for credit losses, end of period |  | $781 |  |  | $552 |  |  | $1,333 |
| Year Ended December 31, 2017
(in millions) | Commercial |  | Retail |  | Total |
Allowance for loan and lease losses, beginning of period |  | $663 |  |  | $573 |  |  | $1,236 |
Charge-offs | (75 | ) | (437 | ) | (512 | )
Recoveries | 40 |  | 167 |  | 207 |
Net charge-offs | (35 | ) | (270 | ) | (305 | )
Provision charged to income(1) | 57 |  | 248 |  | 305 |
Allowance for loan and lease losses, end of period | 685 |  | 551 |  | 1,236 |
Reserve for unfunded lending commitments, beginning of period | 72 |  | — |  | 72 |
Provision for unfunded lending commitments | 16 |  | — |  | 16 |
Reserve for unfunded lending commitments, end of period | 88 |  | — |  | 88 |
Total allowance for credit losses, end of period |  | $773 |  |  | $551 |  |  | $1,324 |
(1) Includes an increase of approximately $50 million to commercial and corresponding decrease to retail for the impact of the enhancement to the assessment of qualitative risks, factors and events that may not be measured in the modeled results. The following table presents the recorded investment in loans and leases based on the Company’s evaluation methodology:
| December 31, 2019 |  | December 31, 2018
(in millions) | Commercial |  | Retail |  | Total |  |  | Commercial |  | Retail |  | Total |
Individually evaluated |  | $399 |  |  | $667 |  |  | $1,066 |  |  |  | $391 |  |  | $723 |  |  | $1,114 |
Formula-based evaluation | 57,139 |  | 60,883 |  | 118,022 |  |  | 56,392 |  | 59,154 |  | 115,546 |
Total loans and leases |  | $57,538 |  |  | $61,550 |  |  | $119,088 |  |  |  | $56,783 |  |  | $59,877 |  |  | $116,660 |
The following table presents a summary of the ACL by evaluation methodology:
| December 31, 2019 |  | December 31, 2018
(in millions) | Commercial |  | Retail |  | Total |  |  | Commercial |  | Retail |  | Total |
Individually evaluated |  | $85 |  |  | $25 |  |  | $110 |  |  |  | $38 |  |  | $26 |  |  | $64 |
Formula-based evaluation | 633 |  | 553 |  | 1,186 |  |  | 743 |  | 526 |  | 1,269 |
Allowance for credit losses |  | $718 |  |  | $578 |  |  | $1,296 |  |  |  | $781 |  |  | $552 |  |  | $1,333 |
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. For retail loans, the Company primarily uses the loan’s payment and delinquency status to monitor credit quality. The further a loan is past due, the greater the likelihood of future credit loss. These credit quality indicators for both commercial and retail loans are continually updated and monitored. The following tables present the recorded investment in commercial loans and leases based on regulatory classification ratings:
| December 31, 2019
|  | Criticized |
(in millions) | Pass |  | Special Mention |  | Substandard |  | Doubtful |  | Total |
Commercial |  | $38,950 |  |  | $1,351 |  |  | $934 |  |  | $244 |  |  | $41,479 |
Commercial real estate | 13,169 |  | 318 |  | 33 |  | 2 |  | 13,522 |
Leases | 2,383 |  | 109 |  | 42 |  | 3 |  | 2,537 |
Total commercial loans and leases |  | $54,502 |  |  | $1,778 |  |  | $1,009 |  |  | $249 |  |  | $57,538 |
| December 31, 2018
|  | Criticized |
(in millions) | Pass |  | Special Mention |  | Substandard |  | Doubtful |  | Total |
Commercial |  | $38,600 |  |  | $1,231 |  |  | $828 |  |  | $198 |  |  | $40,857 |
Commercial real estate | 12,523 |  | 412 |  | 82 |  | 6 |  | 13,023 |
Leases | 2,823 |  | 39 |  | 41 |  | — |  | 2,903 |
Total commercial loans and leases |  | $53,946 |  |  | $1,682 |  |  | $951 |  |  | $204 |  |  | $56,783 |
The following tables present the recorded investment in classes of retail loans, categorized by delinquency status:
| December 31, 2019
|  | Days Past Due |
(in millions) | Current |  | 1-29 | 30-59 | 60-89 | 90 or More | Total |
Residential mortgages |  | $18,818 |  |  | $129 |  |  | $35 |  |  | $17 |  |  | $84 |  |  | $19,083 |
Home equity loans | 713 |  | 64 |  | 10 |  | 4 |  | 21 |  | 812 |
Home equity lines of credit | 11,383 |  | 346 |  | 72 |  | 32 |  | 146 |  | 11,979 |
Home equity loans serviced by others | 244 |  | 23 |  | 7 |  | 3 |  | 12 |  | 289 |
Home equity lines of credit serviced by others | 50 |  | 11 |  | 2 |  | 1 |  | 10 |  | 74 |
Automobile | 10,787 |  | 1,001 |  | 227 |  | 81 |  | 24 |  | 12,120 |
Education | 10,088 |  | 202 |  | 30 |  | 15 |  | 12 |  | 10,347 |
Credit cards | 2,076 |  | 74 |  | 15 |  | 11 |  | 22 |  | 2,198 |
Other retail | 4,492 |  | 87 |  | 30 |  | 20 |  | 19 |  | 4,648 |
Total retail loans |  | $58,651 |  |  | $1,937 |  |  | $428 |  |  | $184 |  |  | $350 |  |  | $61,550 |
| December 31, 2018
|  | Days Past Due |
(in millions) | Current |  | 1-29 | 30-59 | 60-89 | 90 or More | Total |
Residential mortgages |  | $18,664 |  |  | $131 |  |  | $37 |  |  | $13 |  |  | $133 |  |  | $18,978 |
Home equity loans | 945 |  | 75 |  | 12 |  | 3 |  | 38 |  | 1,073 |
Home equity lines of credit | 12,042 |  | 386 |  | 65 |  | 22 |  | 195 |  | 12,710 |
Home equity loans serviced by others | 355 |  | 21 |  | 7 |  | 3 |  | 13 |  | 399 |
Home equity lines of credit serviced by others | 79 |  | 15 |  | 2 |  | 1 |  | 7 |  | 104 |
Automobile | 10,729 |  | 1,039 |  | 207 |  | 59 |  | 72 |  | 12,106 |
Education | 8,694 |  | 159 |  | 23 |  | 13 |  | 11 |  | 8,900 |
Credit cards | 1,894 |  | 53 |  | 14 |  | 10 |  | 20 |  | 1,991 |
Other retail | 3,481 |  | 76 |  | 26 |  | 18 |  | 15 |  | 3,616 |
Total retail loans |  | $56,883 |  |  | $1,955 |  |  | $393 |  |  | $142 |  |  | $504 |  |  | $59,877 |
Nonperforming Assets Nonperforming loans and leases are those on which accrual of interest has been suspended. Loans (other than certain retail loans insured by U.S. government agencies) are placed on nonaccrual status and considered nonperforming when full payment of principal and interest is in doubt, unless the loan is both well secured and in the process of collection. When the Company places a loan on nonaccrual status, the accrued unpaid interest receivable is reversed against interest income and amortization of any net deferred fees is suspended. Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are generally applied to first reduce the carrying value of the asset. Otherwise, interest income may be recognized to the extent of the cash received. A loan or lease may be returned to accrual status if (i) principal and interest payments have been brought current, and the Company expects repayment of the remaining contractual principal and interest, (ii) the loan or lease has otherwise become well-secured and in the process of collection, or (iii) the borrower has been making regularly scheduled payments in full for the prior six months and the Company is reasonably assured that the loan or lease will be brought fully current within a reasonable period. Commercial loans, commercial real estate loans, and leases are generally 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. Some of these loans and leases may remain on accrual status when contractually past due 90 days or more if management considers the loan collectible. Residential mortgages are generally placed on nonaccrual status when past due 120 days, or sooner if determined to be collateral-dependent, unless repayment of the loan is guaranteed by the Federal Housing Administration. Credit card balances are placed on nonaccrual status when past due 90 days or more and are restored to accruing status if they subsequently become less than 90 days past due. All other retail loans are generally placed on nonaccrual status when past due 90 days or more, or earlier if management believes that the probability of collection is insufficient to warrant further accrual. Loans less than 90 days past due may be placed on nonaccrual status upon the death of the borrower, fraud or bankruptcy. The following table presents nonperforming loans and leases and loans accruing and 90 days or more past due:
| Nonperforming (1)(2) |  | Accruing and 90 days or more past due
(in millions) | December 31, 2019 |  | December 31, 2018 |  | December 31, 2019 |  | December 31, 2018
Commercial |  | $240 |  |  |  | $194 |  |  |  | $2 |  |  |  | $1 |
Commercial real estate | 2 |  |  | 7 |  |  | — |  |  | — |
Leases | 3 |  |  | — |  |  | — |  |  | — |
Total commercial loans and leases | 245 |  |  | 201 |  |  | 2 |  |  | 1 |
Residential mortgages | 93 |  |  | 105 |  |  | 13 |  |  | 15 |
Home equity loans | 33 |  |  | 50 |  |  | — |  |  | — |
Home equity lines of credit | 187 |  |  | 231 |  |  | — |  |  | — |
Home equity loans serviced by others | 14 |  |  | 17 |  |  | — |  |  | — |
Home equity lines of credit serviced by others | 12 |  |  | 15 |  |  | — |  |  | — |
Automobile | 67 |  |  | 81 |  |  | — |  |  | — |
Education | 18 |  |  | 38 |  |  | 2 |  |  | 2 |
Credit card | 22 |  |  | 20 |  |  | — |  |  | — |
Other retail | 12 |  |  | 8 |  |  | 8 |  |  | 7 |
Total retail loans | 458 |  |  | 565 |  |  | 23 |  |  | 24 |
Total |  | $703 |  |  |  | $766 |  |  |  | $25 |  |  |  | $25 |
(1) Nonperforming balances exclude first lien residential mortgage loans that are 100% guaranteed by the Federal Housing Administration. These loans are included in the Company’s Consolidated Balance Sheets. (2) Beginning in the fourth quarter of 2019, nonperforming balances exclude both fully and partially guaranteed residential mortgage loans sold to Ginnie Mae for which the Company has the right, but not the obligation, to repurchase. Prior periods have been adjusted to exclude partially guaranteed amounts to conform with the current period presentation. These loans are included in the Company’s Consolidated Balance Sheets. Other nonperforming assets primarily consist of other real estate owned and are presented in other assets on the Consolidated Balance Sheets. Other real estate owned, net of valuation allowance, was $45 million and $34 million as of December 31, 2019 and 2018, respectively. The following table presents a summary of nonperforming loan and lease key performance indicators:
| December 31,
| 2019 |  |  | 2018 |
Nonperforming commercial loans and leases as a percentage of total loans and leases | 0.21 | % |  | 0.17 | %
Nonperforming retail loans as a percentage of total loans and leases | 0.38 |  |  | 0.49 |
Total nonperforming loans and leases as a percentage of total loans and leases (1) | 0.59 | % |  | 0.66 | %
Nonperforming commercial assets as a percentage of total assets | 0.15 | % |  | 0.13 | %
Nonperforming retail assets as a percentage of total assets | 0.30 |  |  | 0.37 |
Total nonperforming assets as a percentage of total assets | 0.45 | % |  | 0.50 | %
(1) Beginning in the fourth quarter of 2019, nonperforming balances exclude both fully and partially guaranteed residential mortgage loans sold to Ginnie Mae for which the Company has the right, but not the obligation, to repurchase. Prior periods have been adjusted to exclude partially guaranteed amounts to conform with the current period presentation. These loans are included in the Company’s Consolidated Balance Sheets. The recorded investment in mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in-process was $152 million and $172 million as of December 31, 2019 and 2018, respectively. The following table presents the aging of both accruing and nonaccruing loan and lease past due amounts:
| December 31, 2019 |  | December 31, 2018
| Days Past Due |  | Days Past Due
(in millions) | 30-59 | 60-89 | 90 or More | Total |  | 30-59 | 60-89 | 90 or More | Total
Commercial |  | $45 |  |  | $27 |  |  | $67 |  |  | $139 |  |  |  | $85 |  |  | $3 |  |  | $78 |  |  | $166 |
Commercial real estate | 1 |  | 1 |  | — |  | 2 |  |  | 8 |  | 32 |  | 5 |  | 45 |
Leases | 37 |  | — |  | 2 |  | 39 |  |  | 7 |  | — |  | — |  | 7 |
Total commercial loans and leases | 83 |  | 28 |  | 69 |  | 180 |  |  | 100 |  | 35 |  | 83 |  | 218 |
Residential mortgages | 35 |  | 17 |  | 84 |  | 136 |  |  | 37 |  | 13 |  | 133 |  | 183 |
Home equity loans | 10 |  | 4 |  | 21 |  | 35 |  |  | 12 |  | 3 |  | 38 |  | 53 |
Home equity lines of credit | 72 |  | 32 |  | 146 |  | 250 |  |  | 65 |  | 22 |  | 195 |  | 282 |
Home equity loans serviced by others | 7 |  | 3 |  | 12 |  | 22 |  |  | 7 |  | 3 |  | 13 |  | 23 |
Home equity lines of credit serviced by others | 2 |  | 1 |  | 10 |  | 13 |  |  | 2 |  | 1 |  | 7 |  | 10 |
Automobile | 227 |  | 81 |  | 24 |  | 332 |  |  | 207 |  | 59 |  | 72 |  | 338 |
Education | 30 |  | 15 |  | 12 |  | 57 |  |  | 23 |  | 13 |  | 11 |  | 47 |
Credit cards | 15 |  | 11 |  | 22 |  | 48 |  |  | 14 |  | 10 |  | 20 |  | 44 |
Other retail | 30 |  | 20 |  | 19 |  | 69 |  |  | 26 |  | 18 |  | 15 |  | 59 |
Total retail loans | 428 |  | 184 |  | 350 |  | 962 |  |  | 393 |  | 142 |  | 504 |  | 1,039 |
Total |  | $511 |  |  | $212 |  |  | $419 |  |  | $1,142 |  |  |  | $493 |  |  | $177 |  |  | $587 |  |  | $1,257 |
Impaired Loans A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all of the contractual interest and principal payments as scheduled in the loan agreement. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. Impaired loans include nonaccruing larger balance (greater than $3 million carrying value), non-homogeneous commercial and commercial real estate loans, and restructured loans that are deemed TDRs. When a loan is identified as impaired, the impairment is measured on an individual loan level as the difference between the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount) and the present value of expected future cash flows, discounted at the loan’s effective interest rate. When collateral is the sole source of repayment for the impaired loan, rather than the borrower’s income or other sources of repayment, the Company charges down the loan to its net realizable value. The following tables present a summary of impaired loans by class:
| December 31, 2019
(in millions) | Impaired Loans With a Related Allowance | Allowance on Impaired Loans | Impaired Loans Without a Related Allowance | Unpaid Contractual Balance | Total Recorded Investment in Impaired Loans
Commercial |  | $243 |  |  | $85 |  |  | $137 |  |  | $458 |  |  | $380 |
Commercial real estate | — |  | — |  | 19 |  | 19 |  | 19 |
Total commercial loans | 243 |  | 85 |  | 156 |  | 477 |  | 399 |
Residential mortgages | 29 |  | 2 |  | 125 |  | 196 |  | 154 |
Home equity loans | 22 |  | 1 |  | 65 |  | 121 |  | 87 |
Home equity lines of credit | 27 |  | 2 |  | 173 |  | 242 |  | 200 |
Home equity loans serviced by others | 15 |  | 1 |  | 16 |  | 41 |  | 31 |
Home equity lines of credit serviced by others | 1 |  | — |  | 5 |  | 9 |  | 6 |
Automobile | 1 |  | — |  | 20 |  | 30 |  | 21 |
Education | 112 |  | 9 |  | 22 |  | 135 |  | 134 |
Credit cards | 27 |  | 9 |  | 1 |  | 29 |  | 28 |
Other retail | 3 |  | 1 |  | 3 |  | 8 |  | 6 |
Total retail loans | 237 |  | 25 |  | 430 |  | 811 |  | 667 |
Total |  | $480 |  |  | $110 |  |  | $586 |  |  | $1,288 |  |  | $1,066 |
| December 31, 2018
(in millions) | Impaired Loans With a Related Allowance | Allowance on Impaired Loans | Impaired Loans Without a Related Allowance | Unpaid Contractual Balance | Total Recorded Investment in Impaired Loans
Commercial |  | $186 |  |  | $31 |  |  | $167 |  |  | $450 |  |  | $353 |
Commercial real estate | 32 |  | 7 |  | 6 |  | 38 |  | 38 |
Total commercial loans | 218 |  | 38 |  | 173 |  | 488 |  | 391 |
Residential mortgages | 28 |  | 2 |  | 127 |  | 201 |  | 155 |
Home equity loans | 34 |  | 3 |  | 76 |  | 148 |  | 110 |
Home equity lines of credit | 21 |  | 1 |  | 181 |  | 244 |  | 202 |
Home equity loans serviced by others | 22 |  | 1 |  | 19 |  | 54 |  | 41 |
Home equity lines of credit serviced by others | 1 |  | — |  | 7 |  | 11 |  | 8 |
Automobile | 1 |  | — |  | 22 |  | 31 |  | 23 |
Education | 130 |  | 11 |  | 23 |  | 153 |  | 153 |
Credit cards | 24 |  | 7 |  | 1 |  | 25 |  | 25 |
Other retail | 4 |  | 1 |  | 2 |  | 8 |  | 6 |
Total retail loans | 265 |  | 26 |  | 458 |  | 875 |  | 723 |
Total |  | $483 |  |  | $64 |  |  | $631 |  |  | $1,363 |  |  | $1,114 |
The following table presents additional information on impaired loans:
| Year Ended December 31,
| 2019 |  | 2018 |  | 2017
(in millions) | Interest Income Recognized | Average Recorded Investment |  | Interest Income Recognized | Average Recorded Investment |  | Interest Income Recognized | Average Recorded Investment
Commercial |  | $11 |  |  | $311 |  |  |  | $9 |  |  | $312 |  |  |  | $4 |  |  | $380 |
Commercial real estate | 1 |  | 39 |  |  | 1 |  | 32 |  |  | — |  | 37 |
Total commercial loans | 12 |  | 350 |  |  | 10 |  | 344 |  |  | 4 |  | 417 |
Residential mortgages | 5 |  | 126 |  |  | 5 |  | 146 |  |  | 4 |  | 136 |
Home equity loans | 5 |  | 84 |  |  | 6 |  | 107 |  |  | 6 |  | 121 |
Home equity lines of credit | 7 |  | 172 |  |  | 7 |  | 181 |  |  | 6 |  | 176 |
Home equity loans serviced by others | 2 |  | 30 |  |  | 3 |  | 42 |  |  | 3 |  | 49 |
Home equity lines of credit serviced by others | — |  | 6 |  |  | — |  | 9 |  |  | — |  | 9 |
Automobile | 1 |  | 17 |  |  | 1 |  | 20 |  |  | 1 |  | 18 |
Education | 8 |  | 125 |  |  | 8 |  | 154 |  |  | 9 |  | 173 |
Credit cards | 2 |  | 21 |  |  | 1 |  | 21 |  |  | 2 |  | 22 |
Other retail | — |  | 5 |  |  | — |  | 7 |  |  | — |  | 9 |
Total retail loans | 30 |  | 586 |  |  | 31 |  | 687 |  |  | 31 |  | 713 |
Total |  | $42 |  |  | $936 |  |  |  | $41 |  |  | $1,031 |  |  |  | $35 |  |  | $1,130 |
Troubled Debt Restructurings In situations where, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider, the related loan is classified as a TDR. TDRs typically result from the Company’s loss mitigation efforts and are undertaken in order to improve the likelihood of recovery and continuity of the relationship with the borrower. The Company’s loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. Concessions granted in TDRs for all classes of loans may include lowering the interest rate, forgiving a portion of principal, extending the loan term, lowering scheduled payments for a specified period of time, waiving or delaying a scheduled payment of principal or interest for other than an insignificant time period, or capitalizing past due amounts. A rate increase can be a concession if the increased rate is lower than a market rate for debt with risk similar to that of the restructured loan. TDRs for commercial loans may also involve creating a multiple note structure, accepting non-cash assets, accepting an equity interest, or receiving a performance-based fee. In some cases, a TDR may involve multiple concessions. The financial effects of TDRs for all loan classes may include lower income (either due to a lower interest rate or a delay in the timing of cash flows), larger loan loss provisions, and accelerated charge-offs if the modification renders the loan collateral-dependent. In some cases, interest income throughout the term of the loan may increase if, for example, the loan is extended or the interest rate is increased as a result of the restructuring. Retail and commercial loans whose contractual terms have been modified in a TDR and are current at the time of restructuring may remain on accrual status if there is demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Retail loans that were discharged in bankruptcy and not reaffirmed by the borrower are deemed to be collateral-dependent TDRs and are generally charged off to the fair value of the collateral, less cost to sell, and less amounts recoverable under a government guarantee (if any). Cash receipts on nonaccruing impaired loans, including nonaccruing loans involved in TDRs, are generally applied to reduce the unpaid principal balance. Certain TDRs that are current in payment status are classified as nonaccrual in accordance with regulatory guidance. Income on these loans may be recognized on a cash basis if management believes that the remaining book value of the loan is realizable. Nonaccruing TDRs that meet the guidelines above for accrual status can be returned to accruing if supported by a well-documented evaluation of the borrowers’ financial condition, and if they have been current for at least six months. Because TDRs are impaired loans, Citizens measures impairment by comparing the present value of expected future cash flows, or when appropriate, the fair value of collateral less costs to sell, to the loan’s recorded investment. Any excess of recorded investment over the present value of expected future cash flows or collateral value is included in the ALLL. Any portion of the loan’s recorded investment the Company does not expect to collect as a result of the modification is charged off at the time of modification. For retail TDR accounts where the expected value of cash flows is utilized, any recorded investment in excess of the present value of expected cash flows is recognized by increasing the ALLL. For retail TDR accounts assessed based on the fair value of collateral, any portion of the loan’s recorded investment in excess of the collateral value less costs to sell is charged off at the time of modification or at the time of subsequent and regularly recurring valuations. The following table summarizes TDRs by class and total unfunded commitments:
| December 31,
(in millions) | 2019 |  |  | 2018 |
Commercial |  | $297 |  |  |  | $304 |
Retail | 667 |  |  | 723 |
Unfunded commitments related to TDRs | 42 |  |  | 30 |
The following tables summarize how loans were modified during the years ended December 31, 2019, 2018 and 2017. The reported balances represent the post-modification outstanding recorded investment 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.
| December 31, 2019
| 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 | 3 |  |  | $— |  |  | 26 |  |  | $5 |  |  | 56 |  |  | $210 |
Commercial real estate | — |  | — |  |  | 1 |  | — |  |  | — |  | — |
Total commercial loans | 3 |  | — |  |  | 27 |  | 5 |  |  | 56 |  | 210 |
Residential mortgages | 60 |  | 12 |  |  | 62 |  | 10 |  |  | 120 |  | 17 |
Home equity loans | 31 |  | 2 |  |  | — |  | — |  |  | 82 |  | 4 |
Home equity lines of credit | 163 |  | 18 |  |  | 72 |  | 11 |  |  | 350 |  | 22 |
Home equity loans serviced by others | 2 |  | — |  |  | — |  | — |  |  | 14 |  | — |
Home equity lines of credit serviced by others | — |  | — |  |  | — |  | — |  |  | 8 |  | — |
Automobile | 160 |  | 3 |  |  | 21 |  | — |  |  | 1,250 |  | 17 |
Education | — |  | — |  |  | — |  | — |  |  | 272 |  | 7 |
Credit cards | 3,259 |  | 18 |  |  | — |  | — |  |  | 304 |  | 1 |
Other retail | — |  | — |  |  | — |  | — |  |  | 176 |  | 1 |
Total retail loans | 3,675 |  | 53 |  |  | 155 |  | 21 |  |  | 2,576 |  | 69 |
Total | 3,678 |  |  | $53 |  |  | 182 |  |  | $26 |  |  | 2,632 |  |  | $279 |
| December 31, 2018
| 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 | 7 |  |  | $1 |  |  | 49 |  |  | $22 |  |  | 53 |  |  | $200 |
Commercial real estate | — |  | — |  |  | 3 |  | 31 |  |  | 2 |  | 31 |
Total commercial loans | 7 |  | 1 |  |  | 52 |  | 53 |  |  | 55 |  | 231 |
Residential mortgages | 35 |  | 4 |  |  | 61 |  | 8 |  |  | 142 |  | 17 |
Home equity loans | 43 |  | 4 |  |  | 1 |  | — |  |  | 134 |  | 5 |
Home equity lines of credit | 76 |  | 7 |  |  | 178 |  | 26 |  |  | 413 |  | 29 |
Home equity loans serviced by others | 4 |  | — |  |  | — |  | — |  |  | 23 |  | 1 |
Home equity lines of credit serviced by others | 5 |  | — |  |  | 1 |  | — |  |  | 14 |  | 1 |
Automobile | 158 |  | 3 |  |  | 46 |  | 1 |  |  | 1,189 |  | 17 |
Education | — |  | — |  |  | — |  | — |  |  | 355 |  | 7 |
Credit cards | 2,312 |  | 13 |  |  | — |  | — |  |  | — |  | — |
Other retail | 1 |  | — |  |  | — |  | — |  |  | 9 |  | — |
Total retail loans | 2,634 |  | 31 |  |  | 287 |  | 35 |  |  | 2,279 |  | 77 |
Total | 2,641 |  |  | $32 |  |  | 339 |  |  | $88 |  |  | 2,334 |  |  | $308 |
| December 31, 2017
| 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 | 7 |  |  | $1 |  |  | 45 |  |  | $22 |  |  | 15 |  |  | $71 |
Commercial real estate | — |  | — |  |  | 1 |  | — |  |  | 1 |  | — |
Total commercial loans | 7 |  | 1 |  |  | 46 |  | 22 |  |  | 16 |  | 71 |
Residential mortgages | 71 |  | 10 |  |  | 73 |  | 13 |  |  | 171 |  | 19 |
Home equity loans | 82 |  | 6 |  |  | 1 |  | — |  |  | 232 |  | 13 |
Home equity lines of credit | 50 |  | 3 |  |  | 235 |  | 30 |  |  | 395 |  | 27 |
Home equity loans serviced by others | 15 |  | 1 |  |  | — |  | — |  |  | 52 |  | 2 |
Home equity lines of credit serviced by others | 5 |  | — |  |  | 2 |  | — |  |  | 26 |  | 2 |
Automobile | 130 |  | 2 |  |  | 29 |  | 1 |  |  | 1,336 |  | 20 |
Education | — |  | — |  |  | — |  | — |  |  | 329 |  | 7 |
Credit cards | 2,363 |  | 13 |  |  | — |  | — |  |  | — |  | — |
Other retail | 1 |  | — |  |  | — |  | — |  |  | 5 |  | — |
Total retail loans | 2,717 |  | 35 |  |  | 340 |  | 44 |  |  | 2,546 |  | 90 |
Total | 2,724 |  |  | $36 |  |  | 386 |  |  | $66 |  |  | 2,562 |  |  | $161 |
(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 modifications of loans for the years ended December 31, 2019, 2018 and 2017 was $9 million, $3 million and $1 million, respectively. Charge-offs may also be recorded on TDRs. Citizens recorded charge-offs resulting from the modification of loans of $7 million for the year ended December 31, 2019 and $5 million for the years ended December 31, 2018 and 2017. 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 December 31, 2019, 2018 and 2017. For commercial loans, recorded investment in TDRs that defaulted within 12 months of their modification date for the years ended December 31, 2019, 2018 and 2017 were $1 million, $63 million and $9 million, respectively. For retail loans, there were $37 million, $40 million and $41 million of loans which defaulted within 12 months of their restructuring date for the years ended December 31, 2019, 2018 and 2017, respectively. Concentrations of Credit Risk 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 December 31, 2019 and 2018, 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. Certain loans have more than one of these characteristics. The following tables present balances of loans with these characteristics:
| December 31, 2019
(in millions) | Residential Mortgages | Home Equity Loans and Lines of Credit | Home Equity Products Serviced by Others | Credit Cards | Total |
High loan-to-value |  | $402 |  |  | $61 |  |  | $90 |  |  | $— |  |  | $553 |
Interest only/negative amortization | 2,043 |  | — |  | — |  | — |  | 2,043 |
Low introductory rate | — |  | — |  | — |  | 235 |  | 235 |
Multiple characteristics and other | — |  | — |  | — |  | — |  | — |
Total |  | $2,445 |  |  | $61 |  |  | $90 |  |  | $235 |  |  | $2,831 |
| December 31, 2018
(in millions) | Residential Mortgages | Home Equity Loans and Lines of Credit | Home Equity Products Serviced by Others | Credit Cards | Education |  | Total |
High loan-to-value |  | $318 |  |  | $87 |  |  | $148 |  |  | $— |  |  | $— |  |  | $553 |
Interest only/negative amortization | 1,794 |  | — |  | — |  | — |  | 1 |  | 1,795 |
Low introductory rate | — |  | — |  | — |  | 217 |  | — |  | 217 |
Multiple characteristics and other | 1 |  | — |  | — |  | — |  | — |  | 1 |
Total |  | $2,113 |  |  | $87 |  |  | $148 |  |  | $217 |  |  | $1 |  |  | $2,566 |

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