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ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK | 9 Months Ended
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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 |

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