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ALLOWANCE FOR CREDIT LOSSES, NONACCRUING LOANS AND LEASES, AND CONCENTRATIONS OF CREDIT RISK
 3 Months Ended
Mar. 31, 2021
Receivables [Abstract]  
ALLOWANCE FOR CREDIT LOSSES, NONACCRUING LOANS AND LEASES, 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 allowance for unfunded lending commitments (collectively the ACL). See Note 5 in the Company’s 2020 Form 10-K for a detailed discussion of the ACL reserve methodology and estimation techniques as of December 31, 2020. There were no significant changes to the ACL reserve methodology in the three months ended March 31, 2021.
The following table presents a summary of changes in the ALLL and the allowance for unfunded lending commitments for the three months ended March 31, 2021:
Three Months Ended March 31, 2021
(in millions)CommercialRetailTotal
Allowance for loan and lease losses, beginning of period$1,233 $1,210 $2,443 
Charge-offs(134)(93)(227)
Recoveries30 39 69 
Net charge-offs(104)(54)(158)
Provision charged to income17 (108)(91)
Allowance for loan and lease losses, end of period$1,146 $1,048 $2,194 
Allowance for unfunded lending commitments, beginning of period$186 $41 $227 
Provision for unfunded lending commitments(21)(28)(49)
Allowance for unfunded lending commitments, end of period$165 $13 $178 
The difference in ACL as of March 31, 2021 as compared to December 31, 2020 was due to higher net charge-offs of $158 million, as detailed below, coupled with a negative provision for credit losses for $140 million. This reflected strong credit performance across the retail and commercial loan portfolios, and improvement in the macroeconomic outlook. Overall, an ending ACL balance of $2.4 billion at March 31, 2021 compared to $2.7 billion at December 31, 2020.    
The increase in commercial net charge-offs of $60 million in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was driven by higher charge-offs in finance and insurance, including one large charge-off related to a financial sponsor, and CRE. Retail net charge-offs were down $39 million in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 as a result of government stimulus and forbearance programs.
To determine the ACL as of March, 31, 2021, Citizens utilized an economic forecast that generally reflects real GDP growth of approximately 3.2% over 2021, returning to fourth quarter 2019 real GDP levels by the last quarter of 2021. The forecast also projects the unemployment rate to be in the range of 6.3% to 7.0% throughout 2021. Overall, this forecast reflects an improved macroeconomic outlook as compared to December 31, 2020. In addition to judgment applied at the commercial portfolio as a whole, Citizens continued to apply management judgment to adjust the modeled reserves in the commercial industry sectors most impacted by the COVID-19 pandemic and associated lockdowns, including CRE retail and hospitality and casual dining.
Accrued interest receivable on loans and leases is excluded from asset balances used to calculate the ACL. 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. Accrued interest reversed against interest income for the three months ended March 31, 2021 was $1 million and $6 million for commercial and retail, respectively. For the three months ended March 31, 2020, these reversals were $1 million and $5 million for commercial and retail, respectively.
The following table presents a summary of changes in the ALLL and the allowance for unfunded lending commitments for the three months ended March 31, 2020:
Three Months Ended March 31, 2020
(in millions)CommercialRetailTotal
Allowance for loan and lease losses, beginning of period$674 $578 $1,252 
Cumulative effect of change in accounting principle(176)629 453 
Allowance for loan and lease losses, beginning of period, adjusted498 1,207 1,705 
Charge-offs(47)(127)(174)
Recoveries3 34 37 
Net charge-offs(44)(93)(137)
Provision charged to income298 305 603 
Allowance for loan and lease losses, end of period$752 $1,419 $2,171 
Allowance for unfunded lending commitments, beginning of period$44 $— $44 
Cumulative effect of change in accounting principle(3)1 (2)
Allowance for unfunded lending commitments, beginning of period, adjusted41 1 42 
Provision for unfunded lending commitments(3)— (3)
Allowance for unfunded lending commitments, end of period$38 $1 $39 
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 March 31, 2021:
Term Loans by Origination YearRevolving Loans
(in millions)20212020201920182017Prior to 2017Within the Revolving PeriodConverted to TermTotal
Commercial and industrial
Pass(1)
$3,000 $7,178 $5,699 $3,995 $2,206 $3,384 $15,134 $326 $40,922 
Special Mention— 41 221 241 86 244 415 34 1,282 
Substandard22 101 294 256 124 177 612 23 1,609 
Doubtful— 65 11 31 28 35 72 3 245 
Total commercial and industrial3,022 7,385 6,225 4,523 2,444 3,840 16,233 386 44,058 
Commercial real estate
Pass253 2,411 3,815 3,212 1,206 1,794 940 — 13,631 
Special Mention— 9 131 72 178 99 — — 489 
Substandard46 116 58 58 49 81 — — 408 
Doubtful— 16 — 7 — 2 — — 25 
Total commercial real estate299 2,552 4,004 3,349 1,433 1,976 940 — 14,553 
Leases
Pass94 401 240 225 116 675 — — 1,751 
Special Mention— 3 4 2 6 19 — — 34 
Substandard— 13 2 1 — — — — 16 
Doubtful— — — — — 1 — — 1 
Total leases94 417 246 228 122 695 — — 1,802 
Total commercial loans and leases
Pass(1)
3,347 9,990 9,754 7,432 3,528 5,853 16,074 326 56,304 
Special Mention— 53 356 315 270 362 415 34 1,805 
Substandard68 230 354 315 173 258 612 23 2,033 
Doubtful— 81 11 38 28 38 72 3 271 
Total commercial$3,415 $10,354 $10,475 $8,100 $3,999 $6,511 $17,173 $386 $60,413 
(1) Includes $5.1 billion of PPP loans designated as pass that are fully guaranteed by the SBA originating in 2021 and 2020.
The following table presents the amortized cost basis of commercial loans and leases, by vintage date and regulatory classification rating, as of December 31, 2020:
Term Loans by Origination YearRevolving Loans
(in millions)20202019201820172016Prior to 2016Within the Revolving PeriodConverted to TermTotal
Commercial and industrial
Pass(1)
$8,036 $5,730 $4,180 $2,174 $1,157 $1,980 $17,281 $340 $40,878 
Special Mention34 264 163 84 60 173 771 34 1,583 
Substandard91 195 248 100 81 127 600 22 1,464 
Doubtful65 10 34 38 3 31 63 4 248 
Total commercial and industrial8,226 6,199 4,625 2,396 1,301 2,311 18,715 400 44,173 
Commercial real estate
Pass1,848 2,836 2,810 1,106 566 919 3,271 — 13,356 
Special Mention19 130 121 92 94 48 300 — 804 
Substandard116 2 65 5 53 26 149 — 416 
Doubtful16 26 8 — — 2 24 — 76 
Total commercial real estate1,999 2,994 3,004 1,203 713 995 3,744 — 14,652 
Leases
Pass455 246 229 139 180 673 — — 1,922 
Special Mention3 4 2 4 2 18 — — 33 
Substandard— 2 2 4 4 — — — 12 
Doubtful— — — — — 1 — — 1 
Total leases458 252 233 147 186 692 — — 1,968 
Total commercial loans and leases
Pass(1)
10,339 8,812 7,219 3,419 1,903 3,572 20,552 340 56,156 
Special Mention56 398 286 180 156 239 1,071 34 2,420 
Substandard207 199 315 109 138 153 749 22 1,892 
Doubtful81 36 42 38 3 34 87 4 325 
Total commercial$10,683 $9,445 $7,862 $3,746 $2,200 $3,998 $22,459 $400 $60,793 
(1) Includes $4.2 billion 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 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 March 31, 2021:
Term Loans by Origination YearRevolving Loans
(in millions)20212020201920182017Prior to 2017Within the Revolving PeriodConverted to TermTotal
Residential mortgages
800+$307 $3,088 $1,756 $556 $1,014 $3,023 $— $— $9,744 
740-799729 2,369 944 337 446 1,442 — — 6,267 
680-739175 699 331 140 157 681 — — 2,183 
620-67914 96 93 46 65 306 — — 620 
<6202 25 28 40 53 224 — — 372 
No FICO available(1)
2 2 1 — — 11 — — 16 
Total residential mortgages1,229 6,279 3,153 1,119 1,735 5,687 — — 19,202 
Home equity
800+— 3 7 8 6 192 4,288 335 4,839 
740-799— 1 5 6 6 170 3,167 317 3,672 
680-739— 1 6 11 16 175 1,610 270 2,089 
620-679— 3 13 20 23 144 363 189 755 
<620— 5 21 33 26 124 87 203 499 
No FICO available(1)
— — — — — — — — — 
Total home equity— 13 52 78 77 805 9,515 1,314 11,854 
Automobile
800+370 997 749 378 265 168 — — 2,927 
740-799495 1,426 906 460 288 169 — — 3,744 
680-739441 1,253 781 396 232 136 — — 3,239 
620-679188 616 421 220 131 86 — — 1,662 
<62018 159 218 168 117 87 — — 767 
No FICO available(1)
2 1 — — — 2 — — 5 
Total automobile1,514 4,452 3,075 1,622 1,033 648 — — 12,344 
Education
800+347 1,781 1,169 713 647 1,151 — — 5,808 
740-799399 1,883 971 528 370 638 — — 4,789 
680-73998 560 326 187 136 312 — — 1,619 
620-6795 55 50 41 34 125 — — 310 
<620— 5 12 15 12 62 — — 106 
No FICO available(1)
2 — — — — 57 — — 59 
Total education851 4,284 2,528 1,484 1,199 2,345 — — 12,691 
Other retail
800+63 394 269 117 56 49 303 — 1,251 
740-79995 546 359 151 68 42 592 2 1,855 
680-73987 431 245 102 45 22 531 5 1,468 
620-67956 229 88 36 13 7 170 6 605 
<6204 46 35 20 7 4 74 8 198 
No FICO available(1)
24 9 — — — — 279 2 314 
Total other retail329 1,655 996 426 189 124 1,949 23 5,691 
Retail
800+1,087 6,263 3,950 1,772 1,988 4,583 4,591 335 24,569 
740-7991,718 6,225 3,185 1,482 1,178 2,461 3,759 319 20,327 
680-739801 2,944 1,689 836 586 1,326 2,141 275 10,598 
620-679263 999 665 363 266 668 533 195 3,952 
<62024 240 314 276 215 501 161 211 1,942 
No FICO available(1)
30 12 1 — — 70 279 2 394 
Total retail$3,923 $16,683 $9,804 $4,729 $4,233 $9,609 $11,464 $1,337 $61,782 
(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).
The following table presents the amortized cost basis of retail loans, by vintage date and FICO scores, as of December 31, 2020:
Term Loans by Origination YearRevolving Loans
(in millions)20202019201820172016Prior to 2016Within the Revolving PeriodConverted to TermTotal
Residential mortgages
800+$2,687 $1,885 $638 $1,129 $1,615 $1,755 $— $— $9,709 
740-7992,931 1,133 398 527 743 904 — — 6,636 
680-739784 351 162 172 295 458 — — 2,222 
620-67997 94 44 56 66 223 — — 580 
<62012 28 35 58 50 185 — — 368 
No FICO available(1)
1 2 1 5 1 14 — — 24 
Total residential mortgages6,512 3,493 1,278 1,947 2,770 3,539 — — 19,539 
Home equity
800+2 8 10 7 5 216 4,319 344 4,911 
740-7992 6 7 6 5 180 3,234 331 3,771 
680-7391 6 10 15 8 179 1,632 284 2,135 
620-679— 10 18 21 14 136 402 195 796 
<6201 17 30 29 18 122 105 214 536 
No FICO available(1)
— — — — — — — — — 
Total home equity6 47 75 78 50 833 9,692 1,368 12,149 
Automobile
800+1,056 812 424 312 169 62 — — 2,835 
740-7991,514 1,022 531 344 172 59 — — 3,642 
680-7391,347 889 461 282 138 47 — — 3,164 
620-679669 484 259 157 84 32 — — 1,685 
<620140 242 189 137 79 34 — — 821 
No FICO available(1)
2 — — — — 4 — — 6 
Total automobile4,728 3,449 1,864 1,232 642 238 — — 12,153 
Education
800+1,817 1,363 849 781 578 777 — — 6,165 
740-7991,797 1,009 541 387 251 423 — — 4,408 
680-739450 294 173 127 90 221 — — 1,355 
620-67926 35 33 28 25 95 — — 242 
<6202 5 10 10 8 41 — — 76 
No FICO available(1)
2 — — — — 60 — — 62 
Total education4,094 2,706 1,606 1,333 952 1,617 — — 12,308 
Other retail
800+461 380 163 77 15 44 341 — 1,481 
740-799620 460 184 81 19 31 638 2 2,035 
680-739495 302 111 48 10 13 561 5 1,545 
620-679248 104 37 14 3 5 174 7 592 
<62024 30 17 6 1 3 77 8 166 
No FICO available(1)
54 1 — — — — 272 2 329 
Total other retail1,902 1,277 512 226 48 96 2,063 24 6,148 
Retail
800+6,023 4,448 2,084 2,306 2,382 2,854 4,660 344 25,101 
740-7996,864 3,630 1,661 1,345 1,190 1,597 3,872 333 20,492 
680-7393,077 1,842 917 644 541 918 2,193 289 10,421 
620-6791,040 727 391 276 192 491 576 202 3,895 
<620179 322 281 240 156 385 182 222 1,967 
No FICO available(1)
59 3 1 5 1 78 272 2 421 
Total retail$17,242 $10,972 $5,335 $4,816 $4,462 $6,323 $11,755 $1,392 $62,297 
(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 March 31, 2021As of December 31, 2020
(in millions)Nonaccrual loans and leases90+ days past due and accruingNonaccrual with no related ACLNonaccrual loans and leases90+ days past due and accruingNonaccrual with no related ACL
Commercial and industrial$281 $3 $56 $280 $20 $56 
Commercial real estate100 9 37 176 — 2 
Leases1 — — 2 1 — 
Total commercial382 12 93 458 21 58 
Residential mortgages237 23 178 167 30 96 
Home equity269 — 202 276 — 207 
Automobile70 — 33 72 — 17 
Education22 2 2 18 2 2 
Other retail28 9 2 28 9 — 
Total retail626 34 417 561 41 322 
Total loans and leases$1,008 $46 $510 $1,019 $62 $380 
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:
March 31, 2021December 31, 2020
Days Past DueDays Past Due
(in millions)Current-2930-5960-89 90 or More TotalCurrent-2930-5960-89 90 or More Total
Commercial and industrial$43,768 $178 $20 $92 $44,058 $43,817 $223 $16 $117 $44,173 
Commercial real estate14,440 60 36 17 14,553 14,531 1 85 35 14,652 
Leases1,798 2 — 2 1,802 1,956 9 — 3 1,968 
Total commercial60,006 240 56 111 60,413 60,304 233 101 155 60,793 
Residential mortgages18,951 55 11 185 19,202 19,291 59 21 168 19,539 
Home equity11,599 46 19 190 11,854 11,848 61 28 212 12,149 
Automobile12,176 117 41 10 12,344 11,901 170 65 17 12,153 
Education12,638 29 13 11 12,691 12,255 33 13 7 12,308 
Other retail5,602 31 24 34 5,691 6,047 38 29 34 6,148 
Total retail loans60,966 278 108 430 61,782 61,342 361 156 438 62,297 
Total$120,972 $518 $164 $541 $122,195 $121,646 $594 $257 $593 $123,090 
At March 31, 2021 and December 31, 2020, the Company had collateral-dependent residential mortgage and home equity loans totaling $613 million and $552 million, respectively. At March 31, 2021 and December 31, 2020, the Company had collateral-dependent commercial loans totaling $110 million and $206 million, respectively.
The amortized cost basis of mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process was $112 million and $119 million as of March 31, 2021 and December 31, 2020, respectively.
Troubled Debt Restructurings
The following table summarizes TDRs by portfolio segment and total unfunded commitments:
(in millions)March 31, 2021December 31, 2020
Commercial$367 $257 
Retail714 718 
Unfunded commitments related to TDRs167 49 
The following tables below summarize how loans were modified during the three months ended March 31, 2021 and March 31, 2020. 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 March 31, 2021
Primary Modification Types
Interest Rate Reduction(1)
Maturity Extension(2)
Other(3)
(dollars in millions)Number of ContractsAmortized CostNumber of ContractsAmortized CostNumber of ContractsAmortized Cost
Commercial and industrial— $— 3 $3 4 $— 
Commercial real estate— — — — — — 
Total commercial loans— — 3 3 4 — 
Residential mortgages20 4 9 6 13 3 
Home equity34 2 41 5 72 4 
Automobile21 — 52 — 596 8 
Education— — — — 147 4 
Other retail556 3 — — 74 1 
Total retail loans631 9 102 11 902 20 
Total631 $9 105 $14 906 $20 
Three Months Ended March 31, 2020
Primary Modification Types
Interest Rate Reduction(1)
Maturity Extension(2)
Other(3)
(dollars in millions)Number of ContractsAmortized CostNumber of ContractsAmortized CostNumber of ContractsAmortized Cost
Commercial and industrial— $— 2 $— 17 $41 
Commercial real estate— — — — — — 
Total commercial loans— — 2 — 17 41 
Residential mortgages38 6 37 7 21 4 
Home equity46 4 6 — 71 4 
Automobile47 1 — — 183 2 
Education— — — — 91 2 
Other retail861 4 — — 112 1 
Total retail loans992 15 43 7 478 13 
Total992 $15 45 $7 495 $54 
(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 three months ended March 31, 2021 and 2020 was $0 million and $4 million, respectively. Charge-offs may also be recorded on TDRs. Citizens recorded $2 million of charge-offs related to TDRs for each of the three months ended March 31, 2021 and 2020.
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 March 31, 2021 and 2020. For commercial loans, the amortized cost basis of TDRs that defaulted within 12 months of their modification date was $22 million and $13 million in the three months ended March 31, 2021 and 2020,
respectively. For retail loans, there were $15 million and $11 million of loans which defaulted within 12 months of their restructuring date for the three months ended March 31, 2021 and 2020, 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 March 31, 2021 and December 31, 2020, 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 residential mortgages, and loans with low introductory rates. The following tables present balances of loans with these characteristics:
March 31, 2021
(in millions)Residential MortgagesHome EquityOther RetailTotal
High loan-to-value$224 $41 $— $265 
Interest-only2,936 — — 2,936 
Low introductory rate— — 145 145 
Multiple characteristics and other2 — — 2 
Total$3,162 $41 $145 $3,348 
December 31, 2020
(in millions)Residential MortgagesHome EquityOther RetailTotal
High loan-to-value$289 $64 $— $353 
Interest-only2,801 — — 2,801 
Low introductory rate— — 170 170 
Total$3,090 $64 $170 $3,324