Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended
September 30, 2016

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From
(Not Applicable)
Commission File Number 001-36636
CITIZENS FINANCIAL GROUP, INC.
(Exact name of the registrant as specified in its charter)

Delaware
 
05-0412693
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
One Citizens Plaza, Providence, RI 02903
(Address of principal executive offices, including zip code)

(401) 456-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
[ü] Yes [] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[ü] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer                     [ü]          Accelerated filer      [ ]
Non-accelerated filer (Do not check if a smaller reporting company) [ ]         Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [ü] No

There were 511,877,853 shares of Registrant’s common stock ($0.01 par value) outstanding on November 1, 2016.



 
 
 
 
 
 
a5422139a7e5fcpreview620a15.jpg
 
 
 
 
Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
CITIZENS FINANCIAL GROUP, INC.

 

GLOSSARY OF ACRONYMS AND TERMS
The following listing provides a comprehensive reference of common acronyms and terms we regularly use in our financial reporting:
AFS
 
Available for Sale
ALLL
 
Allowance for Loan and Lease Losses
AOCI
 
Accumulated Other Comprehensive Income (Loss)
ASU
 
Accounting Standards Update
ATM
 
Automated Teller Machine
BHC
 
Bank Holding Company
bps
 
Basis Points
C&I
 
Commercial and Industrial
Capital Plan Rule
 
Federal Reserve’s Regulation Y Capital Plan Rule
CBNA
 
Citizens Bank, N.A.
CBPA
 
Citizens Bank of Pennsylvania
CCAR
 
Comprehensive Capital Analysis and Review
CCB
 
Capital Conservation Buffer
CCO
 
Chief Credit Officer
CET1
 
Common Equity Tier 1
CEO
 
Chief Executive Officer
CFPB
 
Consumer Financial Protection Bureau
Citizens or CFG or the Company
 
Citizens Financial Group, Inc. and its Subsidiaries
CLTV
 
Combined Loan to Value
CMO
 
Collateralized Mortgage Obligation
CRE
 
Commercial Real Estate
CRO
 
Chief Risk Officer
DFAST
 
Dodd-Frank Act Stress Test
Dodd-Frank Act
 
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EPS
 
Earnings Per Share
ERISA
 
Employee Retirement Income Security Act of 1974
Fannie Mae (FNMA)
 
Federal National Mortgage Association
FASB
 
Financial Accounting Standards Board
FDIA
 
Federal Deposit Insurance Act
FDIC
 
Federal Deposit Insurance Corporation
FHLB
 
Federal Home Loan Bank
FICO
 
Fair Isaac Corporation (credit rating)
FRB
 
Federal Reserve Bank
FRBG
 
Federal Reserve Board of Governors
Freddie Mac (FHLMC)
 
Federal Home Loan Mortgage Corporation
FTP
 
Funds Transfer Pricing
GAAP
 
Accounting Principles Generally Accepted in the United States of America
GDP
 
Gross Domestic Product
Ginnie Mae (GNMA)
 
Government National Mortgage Association
HELOC
 
Home Equity Line of Credit
HTM
 
Held To Maturity
LCR
 
Liquidity Coverage Ratio

3
CITIZENS FINANCIAL GROUP, INC.

 

LGD
 
Loss Given Default
LIBOR
 
London Interbank Offered Rate
LIHTC
 
Low Income Housing Tax Credit
LTV
 
Loan to Value
MBS
 
Mortgage-Backed Securities
MSR
 
Mortgage Servicing Right
NSFR
 
Net Stable Funding Ratio
OCC
 
Office of the Comptroller of the Currency
OCI
 
Other Comprehensive Income
PD
 
Probability of Default
peers or peer banks or peer regional banks
 
BB&T, Comerica, Fifth Third, KeyCorp, M&T, PNC, Regions, SunTrust and U.S. Bancorp
RBS
 
The Royal Bank of Scotland Group plc or any of its subsidiaries
RPA
 
Risk Participation Agreement
SBO
 
Serviced by Others loan portfolio
SEC
 
United States Securities and Exchange Commission
SVaR
 
Stressed Value at Risk
TDR
 
Troubled Debt Restructuring
VaR
 
Value at Risk




4
CITIZENS FINANCIAL GROUP, INC.

 

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


5
CITIZENS FINANCIAL GROUP, INC.

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data)
September 30, 2016

 
December 31, 2015
ASSETS:
 
 
 
Cash and due from banks

$915

 

$1,099

Interest-bearing cash and due from banks
2,000

 
1,986

Interest-bearing deposits in banks
720

 
356

Securities available for sale, at fair value (including $229 and $4,283 pledged to creditors, respectively) (a)
19,425

 
17,884

Securities held to maturity (including $0 and $135 pledged to creditors, respectively, and fair value of $5,431 and $5,297, respectively) (a)
5,289

 
5,258

Other investment securities, at fair value
113

 
70

Other investment securities, at cost
877

 
863

Loans held for sale, at fair value
526

 
325

Other loans held for sale
—

 
40

Loans and leases
105,467

 
99,042

Less: Allowance for loan and lease losses
1,240

 
1,216

Net loans and leases
104,227

 
97,826

Derivative assets
1,102

 
625

Premises and equipment, net
540

 
595

Bank-owned life insurance
1,600

 
1,564

Goodwill
6,876

 
6,876

Other assets
2,805

 
2,841

TOTAL ASSETS

$147,015

 

$138,208

LIABILITIES AND STOCKHOLDERS’ EQUITY:
 
 
 
LIABILITIES:
 
 
 
Deposits:
 
 
 
      Noninterest-bearing

$27,292

 

$27,649

Interest-bearing
81,035

 
74,890

          Total deposits
108,327

 
102,539

Federal funds purchased and securities sold under agreements to repurchase
900

 
802

Other short-term borrowed funds
2,512

 
2,630

Derivative liabilities
840

 
485

Deferred taxes, net
994

 
730

Long-term borrowed funds
11,902

 
9,886

Other liabilities
1,359

 
1,490

TOTAL LIABILITIES

$126,834

 

$118,562

Contingencies (refer to Note 12)


 


STOCKHOLDERS’ EQUITY:
 
 
 
Preferred stock, $25.00 par value, authorized 100,000,000 shares:
 
 
 
Series A, non-cumulative perpetual, $25.00 par value (liquidation preference $1,000), 250,000 shares authorized and issued net of issuance costs and related premium at September 30, 2016 and December 31, 2015

$247

 

$247

Common stock:
 
 
 
$0.01 par value, 1,000,000,000 shares authorized, 564,553,524 shares issued and 518,148,345 shares outstanding at September 30, 2016 and 1,000,000,000 shares authorized, 563,117,415 shares issued and 527,774,428 shares outstanding at December 31, 2015
6

 
6

Additional paid-in capital
18,740

 
18,725

Retained earnings
2,483

 
1,913

Treasury Stock, at cost, 46,405,179 and 35,342,987 shares at September 30, 2016 and December 31, 2015, respectively
(1,108
)
 
(858
)
Accumulated other comprehensive loss
(187
)
 
(387
)
TOTAL STOCKHOLDERS’ EQUITY

$20,181

 

$19,646

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$147,015

 

$138,208

(a) Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

6
CITIZENS FINANCIAL GROUP, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
Three Months Ended September 30,
Nine Months Ended September 30,
 (in millions, except share and per-share data)
2016

2015

2016

2015

INTEREST INCOME:
 
 
 
 
Interest and fees on loans and leases

$926


$812


$2,690


$2,381

Interest and fees on loans held for sale, at fair value
4

3

10

8

Interest and fees on other loans held for sale
1

3

6

7

Investment securities
146

154

432

468

Interest-bearing deposits in banks
2

2

6

4

Total interest income
1,079

974

3,144

2,868

INTEREST EXPENSE:
 
 
 
 
Deposits
71

65

194

177

Federal funds purchased and securities sold under agreements to repurchase
1

4

2

13

Other short-term borrowed funds
10

17

33

51

Long-term borrowed funds
52

32

143

95

Total interest expense
134

118

372

336

Net interest income
945

856

2,772

2,532

Provision for credit losses
86

76

267

211

Net interest income after provision for credit losses
859

780

2,505

2,321

NONINTEREST INCOME:
 
 
 
 
Service charges and fees
152

145

446

419

Card fees
52

60

153

172

Trust and investment services fees
37

41

112

118

Capital markets fees
34

21

91

73

Foreign exchange and letter of credit fees
23

22

65

67

Mortgage banking fees
33

18

76

81

Bank-owned life insurance income
14

14

40

40

Securities gains, net
—

2

13

19

Net securities impairment losses recognized in earnings
(3
)
(2
)
(11
)
(5
)
Other income
93

32

135

76

Total noninterest income
435

353

1,120

1,060

NONINTEREST EXPENSE:
 
 
 
 
Salaries and employee benefits
432

404

1,289

1,234

Outside services
102

89

279

267

Occupancy
78

75

230

245

Equipment expense
65

62

194

190

Amortization of software
46

35

126

108

Other operating expense
144

133

387

405

Total noninterest expense
867

798

2,505

2,449

Income before income tax expense
427

335

1,120

932

Income tax expense
130

115

357

313

NET INCOME

$297


$220


$763


$619

Net income available to common stockholders
$290
$213
$749

$612

Weighted-average common shares outstanding:
 
 
 
 
Basic
519,458,976

530,985,255

525,477,273

538,279,222

Diluted
521,122,466

533,398,158

527,261,384

540,926,361

Per common share information:
 
 
 
 
Basic earnings

$0.56


$0.40


$1.43


$1.14

Diluted earnings
0.56

0.40

1.42

1.13

   Dividends declared and paid
0.12

0.10

0.34

0.30

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

7
CITIZENS FINANCIAL GROUP, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2016

2015

2016

2015

Net income

$297


$220


$763


$619

Other comprehensive income (loss):
 
 
 
 
Net unrealized derivative instrument (losses) gains arising during the periods, net of income taxes of $0, $30, $29 and $66, respectively
(1
)
48

45

108

Reclassification adjustment for net derivative gains included in net income, net of income taxes of ($4), ($3), ($14) and ($5), respectively
(6
)
(4
)
(23
)
(8
)
Net unrealized securities available for sale (losses) gains arising during the periods, net of income taxes of ($17), $37, $114 and $25, respectively
(28
)
61

190

41

Other-than-temporary impairment not recognized in earnings on securities, net of income taxes of $2, ($4), ($11) and ($15), respectively
3

(8
)
(18
)
(26
)
Reclassification of net securities losses (gains) to net income, net of income taxes of $1, $0, ($1) and ($5), respectively
2

—

(1
)
(9
)
Defined benefit pension plans:
 
 
 
 
Amortization of actuarial loss, net of income taxes of $2, $0, $5 and $3, respectively
2

3

7

7

Total other comprehensive (loss) income, net of income taxes
(28
)
100

200

113

Total comprehensive income

$269


$320


$963


$732

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

8
CITIZENS FINANCIAL GROUP, INC.

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
 
Preferred Stock
 
Common Stock
Additional Paid-in Capital
Retained Earnings
Treasury Stock, at Cost
Accumulated Other Comprehensive Income (Loss)
Total

(in millions)
Shares
Amount
 
Shares
Amount
Balance at January 1, 2015
—


$—

 
546


$6


$18,676


$1,294


($336
)
($372)

$19,268

Dividends to common stockholders
—

—

 
—

—

—

(161
)
—

—
(161
)
Dividends to preferred stockholders
—

—

 
—

—

—

(7
)
—

—
(7
)
Issuance of preferred stock
—

247

 
—

—

—

—

—

—
247

Treasury stock purchased
—

—

 
(20
)
—

—

—

(500
)
—
(500
)
Share-based compensation plans
—

—

 
2

—

35

—

(21
)
—
14

Employee stock purchase plan shares purchased
—

—

 
—

—

7

—

—

—
7

Total comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income
—

—

 
—

—

—

619

—

—
619

Other comprehensive income
—

—

 
—

—

—

—

—

113
113

Total comprehensive income
—

—

 
—

—

—

619

—

113
732

Balance at September 30, 2015
—


$247

 
528


$6


$18,718


$1,745


($857
)
($259)

$19,600

 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
—


$247

 
528


$6


$18,725


$1,913


($858
)
($387)

$19,646

Dividends to common stockholders
—

—

 
—

—

—

(179
)
—

—
(179
)
Dividends to preferred stockholders
—

—

 
—

—

—

(14
)
—

—
(14
)
Treasury stock purchased
—

—

 
(11
)
—

—

—

(250
)
—
(250
)
Share-based compensation plans
—

—

 
1

—

8

—

—

—
8

Employee stock purchase plan shares purchased
—

—

 
—

—

7

—

—

—
7

Total comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income
—

—

 
—

—

—

763

—

—
763

Other comprehensive income
—

—

 
—

—

—

—



200
200

Total comprehensive income
—

—

 
—

—

—

763

—

200
963

Balance at September 30, 2016
—


$247

 
518


$6


$18,740


$2,483


($1,108
)
($187)

$20,181

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

9
CITIZENS FINANCIAL GROUP, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Nine Months Ended September 30,
(in millions)
2016

2015

OPERATING ACTIVITIES
 
 
Net income

$763


$619

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Provision for credit losses
267

211

Originations of mortgage loans held for sale
(1,904
)
(1,836
)
Proceeds from sales of mortgage loans held for sale
1,775

1,780

Purchases of commercial loans held for sale
(1,053
)
(887
)
Proceeds from sales of commercial loans held for sale
1,040

826

Amortization of terminated cash flow hedges
6

13

Depreciation, amortization and accretion
387

350

Mortgage servicing rights valuation charge-off (recovery)
6

(6
)
Securities impairment
11

5

Deferred income taxes
143

76

Share-based compensation
15

22

Net gain on sales of:
 
 
Debt securities
(13
)
(19
)
Marketable equity securities available for sale
—

(3
)
Premises and equipment
(2
)
(9
)
Increase in other assets
(305
)
(306
)
Increase (decrease) in other liabilities
62

(5
)
Net cash provided by operating activities
1,198

831

INVESTING ACTIVITIES
 
 
Investment securities:
 
 
Purchases of securities available for sale
(4,774
)
(5,418
)
Proceeds from maturities and paydowns of securities available for sale
2,658

2,660

Proceeds from sales of securities available for sale
785

3,180

Purchases of securities held to maturity
(523
)
(811
)
Proceeds from maturities and paydowns of securities held to maturity
503

610

Proceeds from sales of securities held to maturity
—

73

Purchases of other investment securities, at fair value
(204
)
(109
)
Proceeds from sales of other investment securities, at fair value
161

92

Purchases of other investment securities, at cost
(84
)
(33
)
Proceeds from sales of other investment securities, at cost
70

78

Net (increase) decrease in interest-bearing deposits in banks
(364
)
7

Net increase in loans and leases
(6,724
)
(4,315
)
Net increase in bank-owned life insurance
(36
)
(26
)
Premises and equipment:
 
 
Purchases
(44
)
(54
)
Proceeds from sales
3

12

Capitalization of software
(126
)
(142
)
Net cash used in investing activities
(8,699
)
(4,196
)
FINANCING ACTIVITIES
 
 
Net increase in deposits
5,788

6,159

Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase
98

(2,983
)
Net decrease in other short-term borrowed funds
(1,635
)
(1,152
)
Proceeds from issuance of long-term borrowed funds
9,644

250

Repayments of long-term borrowed funds
(6,128
)
(8
)
Treasury stock purchased
(250
)
(500
)
Net proceeds from issuance of preferred stock
—

247

Dividends declared and paid to common stockholders

(179
)
(161
)
Dividends declared and paid to preferred stockholders
(7
)
(7
)
Net cash provided by financing activities
7,331

1,845

Decrease in cash and cash equivalents
(170
)
(1,520
)
Cash and cash equivalents at beginning of period
3,085

3,276

Cash and cash equivalents at end of period

$2,915


$1,756

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.



10
CITIZENS FINANCIAL GROUP, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Basis of Presentation
The unaudited interim Consolidated Financial Statements, including the Notes thereto of Citizens Financial Group, Inc., have been prepared in accordance with GAAP interim reporting requirements, and therefore do not include all information and Notes included in the audited Consolidated Financial Statements in conformity with GAAP. These unaudited interim Consolidated Financial Statements and Notes thereto should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying Notes included in the Company’s Form 10-K for the year ended December 31, 2015. The Company’s principal business activity is banking, conducted through its subsidiaries, Citizens Bank, N.A. and Citizens Bank of Pennsylvania.
The unaudited interim Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.
Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on net income, total comprehensive income, total assets or total stockholders’ equity as previously reported.
Recent Accounting Pronouncements
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.” The ASU provides guidance on classifying specific cash flows in the Statement of Cash Flows, including cash flows resulting from debt prepayment or debt extinguishment costs, the settlement of zero-coupon debt instruments (and other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing), payments on a transferor’s beneficial interests in securitized trade receivables, and other specified sources. The ASU is effective for the Company beginning on January 1, 2018. Adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” Under current GAAP, the Company reflects credit losses on financial assets measured on an amortized cost basis only when the losses are probable or have been incurred. The ASU replaces this approach with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when the assets are first acquired. Under the revised methodology, credit losses will be measured based on past events, current conditions and reasonable and supportable forecasts that affect the collectability of financial assets. The ASU also revises the approach to recognizing credit losses on securities available for sale by allowing entities to record reversals of credit losses in current-period earnings. The ASU is effective for the Company beginning on January 1, 2020. The Company is currently assessing the impact of this guidance on the Company’s Consolidated Financial Statements.
In May 2016, the FASB issued ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients.” The ASU supplements the new revenue recognition standard issued in 2014 by addressing certain issues in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The ASU is effective for the Company beginning on January 1, 2018. The Company is currently assessing the impact of this guidance on the Company’s Consolidated Financial Statements.
In April 2016, the FASB issued ASU No. 2016-10 “Identifying Performance Obligations and Licensing.” The ASU supplements the new revenue recognition standard issued in 2014 by clarifying the guidance related to licensing and the identification of performance obligations. The ASU is effective for the Company beginning on January 1, 2018. The Company is currently assessing the impact of this guidance on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-09 “Improvements to Employee Share-Based Payment Accounting.” The ASU modifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for the Company beginning on January 1, 2017. Adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-08 “Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” The ASU supplements the new revenue recognition standard issued in 2014 by clarifying the implementation guidance on principal versus agent considerations. The ASU is effective for the Company beginning on January 1, 2018. The Company is currently assessing the impact of this guidance on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-05 “Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” The ASU clarifies that a change in a counterparty to a derivative instrument that has been designated as a hedging instrument, in and of itself, does not result in a hedge de-designation under ASC 815. The ASU is effective for the

11
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Company beginning on January 1, 2017. Adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” The ASU generally requires lessees to recognize a right-of use asset and corresponding lease liability for all leases with a lease term of greater than one year. The ASU is effective for the Company beginning on January 1, 2019. The Company is currently assessing the impact of this guidance on the Company’s Consolidated Financial Statements.
In January 2016, the FASB issued ASU No. 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities.” The ASU requires equity investments (except for those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in the fair value recognized through net income. The ASU also requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the notes to the financial statements. In addition, the ASU makes several other targeted amendments to the existing accounting and disclosure requirements for financial instruments, including revised guidance related to valuation allowance assessments when recognizing deferred tax assets on unrealized losses on debt securities available for sale. The ASU is effective for the Company beginning on January 1, 2018. The Company is currently assessing the impact of this guidance on the Company’s Consolidated Financial Statements.
NOTE 2 - SECURITIES
The following table presents the major components of securities at amortized cost and fair value:
 
September 30, 2016
 
December 31, 2015
(in millions)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
 
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Securities Available for Sale
 
 
 
 
 




U.S. Treasury and other

$15


$—


$—


$15

 

$16


$—


$—


$16

State and political subdivisions
8

—

—

8

 
9

—

—

9

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
18,606

362

(12
)
18,956

 
17,234

153

(67
)
17,320

Other/non-agency
456

2

(29
)
429

 
555

4

(37
)
522

Total mortgage-backed securities
19,062

364

(41
)
19,385

 
17,789

157

(104
)
17,842

Total debt securities available for sale
19,085

364

(41
)
19,408

 
17,814

157

(104
)
17,867

Marketable equity securities
5

—

—

5

 
5

—

—

5

Other equity securities
12

—

—

12

 
12

—

—

12

Total equity securities available for sale
17

—

—

17

 
17

—

—

17

Total securities available for sale

$19,102


$364


($41
)

$19,425

 

$17,831


$157


($104
)

$17,884

Securities Held to Maturity
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities

$4,279


$102


($1
)

$4,380

 

$4,105


$27


($11
)

$4,121

Other/non-agency
1,010

41

—

1,051

 
1,153

23

—

1,176

Total securities held to maturity

$5,289


$143


($1
)

$5,431

 

$5,258


$50


($11
)

$5,297

Other Investment Securities, at Fair Value
 
 
 
 
 
 
 
 
 
Money market mutual fund

$108


$—


$—


$108

 

$65


$—


$—


$65

Other investments
5

—

—

5

 
5

—

—

5

Total other investment securities, at fair value

$113


$—


$—


$113

 

$70


$—


$—


$70

Other Investment Securities, at Cost
 
 
 
 
 
 
 
 
 
Federal Reserve Bank stock

$463


$—


$—


$463

 

$468


$—


$—


$468

Federal Home Loan Bank stock
414

—

—

414

 
395

—

—

395

Total other investment securities, at cost

$877


$—


$—


$877

 

$863


$—


$—


$863


12
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



The Company has reviewed its securities portfolio for other-than-temporary impairments. The following table presents the net securities impairment losses recognized in earnings:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2016

 
2015

 
2016

 
2015

Other-than-temporary impairment:
 
 
 
 
 
 
 
Total other-than-temporary impairment losses

$2

 

($14
)
 

($40
)
 

($46
)
      Portions of loss recognized in other comprehensive income (before taxes)
(5
)
 
12

 
29

 
41

Net securities impairment losses recognized in earnings

($3
)
 

($2
)
 

($11
)
 

($5
)

The following tables present securities whose fair values are below carrying values, segregated by those that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve months or longer:
 
September 30, 2016
 
Less than 12 Months
 
12 Months or Longer
 
Total
(dollars in millions)
Number of Issues
Fair Value
Gross Unrealized Losses
 
Number of Issues
Fair Value
Gross Unrealized Losses
 
Number of Issues
Fair Value
Gross Unrealized Losses
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
17


$645


($2
)
 
29


$704


($11
)
 
46


$1,349


($13
)
Other/non-agency
4

9

—

 
20

317

(29
)
 
24

326

(29
)
Total mortgage-backed securities
21

654

(2
)
 
49

1,021

(40
)
 
70

1,675

(42
)
Total
21


$654


($2
)
 
49


$1,021


($40
)
 
70


$1,675


($42
)

 
December 31, 2015
 
Less than 12 Months
 
12 Months or Longer
 
Total
(dollars in millions)
Number of Issues
Fair Value
Gross Unrealized Losses
 
Number of Issues
Fair Value
Gross Unrealized Losses
 
Number of Issues
Fair Value
Gross Unrealized Losses
State and political subdivisions
1


$9


$—

 
—


$—


$—

 
1


$9


$—

U.S. Treasury and other
1

15

—

 
—

—

—

 
1

15

—

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
162

7,423

(51
)
 
36

819

(27
)
 
198

8,242

(78
)
Other/non-agency
2

9

—

 
20

361

(37
)
 
22

370

(37
)
Total mortgage-backed securities
164

7,432

(51
)
 
56

1,180

(64
)
 
220

8,612

(115
)
Total
166


$7,456


($51
)
 
56


$1,180


($64
)
 
222


$8,636


($115
)

For each debt security identified with an unrealized loss, the Company reviews the expected cash flows to determine if the impairment in value is temporary or other-than-temporary. If the Company determines that the present value of the debt security’s expected cash flows is less than its amortized cost basis, an other-than-temporary impairment is deemed to have occurred. The amount of impairment loss recognized in current period earnings is dependent on the Company’s intent to sell (or not sell) the debt security.

13
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


If the Company intends to sell the impaired debt security, the impairment loss recognized in current period earnings equals the difference between the debt security’s fair value and its amortized cost. If the Company does not intend to sell the impaired debt security, and it is not more likely than not that the Company will be required to sell the impaired security, the credit-related impairment loss is recognized in current period earnings and equals the difference between the amortized cost of the debt security and the present value of the expected future cash flows.
In addition to these cash flow projections, several other characteristics of each debt security are reviewed when determining whether a credit loss exists and the period over which the debt security is expected to recover. These characteristics include: (1) the type of investment, (2) various market factors affecting the fair value of the security (e.g., interest rates, spread levels, liquidity in the sector, etc.), (3) the length and severity of impairment, and (4) the public credit rating of the instrument.
The Company estimates the portion of loss attributable to credit using a collateral loss model and an integrated cash flow engine. The model calculates prepayment, default, and loss severity assumptions using collateral performance data. These assumptions are used to produce cash flows that generate loss projections. These loss projections are reviewed on a quarterly basis by a cross-functional governance committee to determine whether security impairments are other-than-temporary.
The following table presents the cumulative credit-related losses recognized in earnings on debt securities held by the Company:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2016

 
2015

 
2016

 
2015

Cumulative balance at beginning of period

$73

 

$62

 

$66

 

$62

Credit impairments recognized in earnings on securities that have been previously impaired
3

 
2

 
11

 
5

Reductions due to increases in cash flow expectations on impaired securities
(1
)
 
(1
)
 
(2
)
 
(4
)
Cumulative balance at end of period

$75

 

$63

 

$75

 

$63


Cumulative credit losses recognized in earnings for impaired AFS debt securities held as of September 30, 2016 and 2015 were $75 million and $63 million, respectively. There were no credit losses recognized in earnings for the Company’s HTM portfolio as of September 30, 2016 and 2015.
For the three months ended September 30, 2016 and 2015, the Company recognized credit related other-than-temporary-impairment losses in earnings of $3 million and $2 million respectively, related to non-agency MBS in the AFS portfolio.
For the nine months ended September 30, 2016 and 2015, the Company recognized credit related other-than-temporary impairment losses in earnings of $11 million and $5 million, respectively. Other-than-temporary impairment losses for the nine months ended September 30, 2016 reflect a $5 million increase from September 30, 2015 related to a one-time adjustment tied to a new model implementation. This adjustment was the result of the Company migrating in June 2016 from a proprietary internal process to a vendor-based model to estimate other-than-temporary impairment. There were no credit impaired debt securities sold during the three and nine months ended September 30, 2016 and 2015. Reductions in credit losses due to increases in cash flow expectations were $1 million for the three months ended September 30, 2016 and 2015, and $2 million and $4 million for the nine months ended September 30, 2016 and 2015, respectively, and were presented in interest income from investment securities on the Consolidated Statements of Operations. The Company does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases.
The Company has determined that credit losses are not expected to be incurred on the remaining agency and non-agency MBS identified with unrealized losses as of the current reporting date. The unrealized losses on these debt securities reflect the reduced liquidity in the MBS market and increased risk spreads due to the uncertainty of the U.S. macroeconomic environment. Therefore, the Company has determined that these debt securities are not other-than-temporarily impaired because the Company does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases. Any subsequent increases in the valuation of impaired debt securities do not impact their recorded cost bases. Additionally, $29 million and $41 million of pre-tax non-credit related losses were deferred in OCI for the nine months ended September 30, 2016 and 2015, respectively.


14
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The amortized cost and fair value of debt securities by contractual maturity are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.
 
September 30, 2016
 
Distribution of Maturities
(in millions)
1 Year or Less
1-5 Years
5-10 Years
After 10 Years
Total

Amortized Cost:
 
 
 
 
 
Debt securities available for sale
 
 
 
 
 
U.S. Treasury and other

$15


$—


$—


$—


$15

State and political subdivisions
—

—

—

8

8

Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
10

32

1,546

17,018

18,606

Other/non-agency
—

40

3

413

456

Total debt securities available for sale
25

72

1,549

17,439

19,085

Debt securities held to maturity
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
—

—

—

4,279

4,279

Other/non-agency
—

—

—

1,010

1,010

Total debt securities held to maturity
—

—

—

5,289

5,289

Total amortized cost of debt securities

$25


$72


$1,549


$22,728


$24,374

 
 
 
 
 
 
Fair Value:
 
 
 
 
 
Debt securities available for sale
 
 
 
 
 
U.S. Treasury and other

$15


$—


$—


$—


$15

State and political subdivisions
—

—

—

8

8

Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
10

33

1,585

17,328

18,956

Other/non-agency
—

41

3

385

429

Total debt securities available for sale
25

74

1,588

17,721

19,408

Debt securities held to maturity
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
—

—

—

4,380

4,380

Other/non-agency
—

—

—

1,051

1,051

Total debt securities held to maturity
—

—

—

5,431

5,431

Total fair value of debt securities

$25


$74


$1,588


$23,152


$24,839


Taxable interest income from investment securities as presented on the Consolidated Statements of Operations was $146 million and $154 million for the three months ended September 30, 2016 and 2015, respectively, and was $432 million and $468 million for the nine months ended September 30, 2016 and 2015, respectively.

Realized gains and losses on securities are presented below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2016

 
2015

 
2016

 
2015

Gains on sale of debt securities

$—

 

$7

 

$13

 

$29

Losses on sale of debt securities
—

 
(7
)
 
—

 
(12
)
Debt securities gains, net

$—

 

$—

 

$13

 

$17

Equity securities gains

$—

 

$—

 

$—

 

$3


15
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


In advance of the Volcker Rule effective date, during the three months ended September 30, 2015, the Company sold a $73 million mortgage-backed security that was classified as HTM that would have been prohibited under the Volcker Rule beginning in July 2017. Upon completion of the sale, the Company recognized a $2 million gain.

The amortized cost and fair value of securities pledged are presented below:
 
September 30, 2016
 
December 31, 2015
(in millions)
Amortized Cost
Fair Value

 
Amortized Cost
Fair Value

Pledged against repurchase agreements

$795


$808

 

$805


$808

Pledged against FHLB borrowed funds
1,018

1,060

 
1,163

1,186

Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law
3,247

3,329

 
3,579

3,610


The Company regularly enters into security repurchase agreements with unrelated counterparties. Repurchase agreements are financial transactions that involve the transfer of a security from one party to another and a subsequent transfer of the same (or “substantially the same”) security back to the original party. The Company’s repurchase agreements are typically short-term transactions, but they may be extended to longer terms to maturity. Such transactions are accounted for as secured borrowed funds on the Company’s Consolidated Balance Sheets. When permitted by GAAP, the Company offsets short-term receivables associated with its reverse repurchase agreements against short-term payables associated with its repurchase agreements.
The impact of this offsetting on the Consolidated Balance Sheets is presented in the following table:
 
September 30, 2016
 
December 31, 2015
(in millions)
Gross Assets (Liabilities)
Gross Assets (Liabilities) Offset
Net Amounts of Assets (Liabilities)
 
Gross Assets (Liabilities)
Gross Assets (Liabilities) Offset
Net Amounts of Assets (Liabilities)
Securities purchased under agreements to resell

$—


$—


$—

 

$500


($500
)

$—

Securities sold under agreements to repurchase
—

—

—

 
(500
)
500

—


Note: The Company also offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. For further information see Note 11 “Derivatives.”

There were $16 million and $21 million in securitizations of mortgage loans retained in the investment portfolio for the three and nine months ended September 30, 2016 and none in 2015. These securitizations included a substantive guarantee by a third party. In 2016, the guarantors were Fannie Mae and Ginnie Mae. These securitizations were accounted for as a sale of the transferred loans and as a purchase of securities. The securities received from the guarantors are classified as AFS.

16
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 3 - LOANS AND LEASES
The Company’s loans and leases are disclosed in portfolio segments and classes. The Company’s loan and lease portfolio segments are commercial and retail. The classes of loans and leases are: commercial, commercial real estate, leases, residential mortgages, home equity loans, home equity lines of credit, home equity loans serviced by others, home equity lines of credit serviced by others, automobile, student, credit cards and other retail. The Company’s SBO portfolio consists of purchased home equity loans and lines that were originally serviced by others, which the Company now services a portion of internally. A summary of the loans and leases portfolio follows:
(in millions)
September 30, 2016
 
December 31, 2015
Commercial

$36,449

 

$33,264

Commercial real estate
10,152

 
8,971

Leases
3,788

 
3,979

Total commercial
50,389

 
46,214

Residential mortgages
14,602

 
13,318

Home equity loans
2,027

 
2,557

Home equity lines of credit
14,271

 
14,674

Home equity loans serviced by others
796

 
986

Home equity lines of credit serviced by others
238

 
389

Automobile
14,063

 
13,828

Student
5,997

 
4,359

Credit cards
1,644

 
1,634

Other retail
1,440

 
1,083

Total retail
55,078

 
52,828

Total loans and leases (1) (2)

$105,467

 

$99,042


(1) Excluded from the table above are loans held for sale totaling $526 million and $365 million as of September 30, 2016 and December 31, 2015, respectively.
(2) Mortgage loans serviced for others by the Company’s subsidiaries are not included above and amounted to $17.4 billion and $17.6 billion at September 30, 2016 and December 31, 2015, respectively.
During the three months ended September 30, 2016, the Company purchased $222 million of residential mortgages, $200 million of automobile loans and $126 million of student loans. During the three months ended September 30, 2015, the Company purchased $252 million of residential mortgages, $326 million of automobile loans and $152 million of student loans.
During the nine months ended September 30, 2016, the Company purchased $405 million of residential mortgages, $534 million of automobile loans and $843 million of student loans. During the nine months ended September 30, 2015, the Company purchased $887 million of residential mortgages, $1.1 billion of automobile loans and $615 million of student loans.
During the three and nine months ended September 30, 2016, the Company sold $310 million of TDRs, including $255 million of residential mortgages and $55 million of home equity loans, which resulted in a pre-tax gain of $72 million reported in other income on the Consolidated Statements of Operations.
Additionally, during the three months ended September 30, 2016, the Company sold $163 million of residential mortgage loans and $14 million of commercial loans. During the three months ended September 30, 2015, the Company sold $41 million of credit card balances associated with a terminated agent servicing agreement and $100 million of commercial loans.
During the nine months ended September 30, 2016, the Company also sold $444 million of residential mortgage loans and $132 million of commercial loans. During the nine months ended September 30, 2015, the Company sold $273 million of residential mortgage loans, $41 million of credit card balances and $325 million of commercial loans.
Loans held for sale at fair value totaled $526 million and $325 million at September 30, 2016 and December 31, 2015, respectively, and consisted of residential mortgages originated for sale of $456 million and loans in commercial trading portfolio of $70 million as of September 30, 2016. As of December 31, 2015, residential mortgages originated for sale were $268 million and loans in commercial trading portfolio totaled $57 million. Following the TDR sale described above, there were no other loans held for sale, at lower of cost or market value, as of September 30, 2016. As of December 31, 2015, there were $40 million of other loans held for sale, which consisted of commercial loan syndications.
Loans pledged as collateral for FHLB borrowed funds totaled $23.2 billion at September 30, 2016 and December 31, 2015. This collateral consists primarily of residential mortgages and home equity loans. Loans pledged as collateral to support

17
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


the contingent ability to borrow at the FRB discount window, if necessary, totaled $16.9 billion and $15.9 billion at September 30, 2016 and December 31, 2015, respectively.
NOTE 4 - ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK
The allowance for credit losses consists of the ALLL and the reserve for unfunded commitments. It is increased through a provision for credit losses that is charged to earnings, based on the Company’s quarterly evaluation of the loan portfolio, and is reduced by net charge-offs and the ALLL associated with sold loans. See Note 1 “Significant Accounting Policies” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2015, for a detailed discussion of ALLL reserve methodologies and estimation techniques.
On a quarterly basis, the Company reviews and refines its estimate of the allowance for credit losses, taking into consideration changes in portfolio size and composition, historical loss experience, internal risk ratings, current economic conditions, industry performance trends and other pertinent information.
There were no material changes in assumptions or estimation techniques compared with prior periods that impacted the determination of the current period’s ALLL and the reserve for unfunded lending commitments. However, as part of the annual review of loss emergence periods, the incurred loss periods for retail property secured loans were extended.
A summary of changes in the allowance for credit losses is presented below:
 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2016
(in millions)
Commercial

Retail

Total

 
Commercial

Retail

Total

Allowance for loan and lease losses, beginning of period

$676


$570


$1,246

 

$596


$620


$1,216

Charge-offs
(33
)
(112
)
(145
)
 
(53
)
(331
)
(384
)
Recoveries
14

48

62

 
23

130

153

Net charge-offs
(19
)
(64
)
(83
)
 
(30
)
(201
)
(231
)
Provision charged to income
(2
)
79

77

 
89

166

255

Allowance for loan and lease losses, end of period
655

585

1,240

 
655

585

1,240

Reserve for unfunded lending commitments, beginning of period
61

—

61

 
58

—

58

Credit for unfunded lending commitments
9

—

9

 
12

—

12

Reserve for unfunded lending commitments as of period end
70

—

70

 
70

—

70

Total allowance for credit losses as of period end

$725


$585


$1,310

 

$725


$585


$1,310

 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
(in millions)
Commercial

Retail

Total

 
Commercial

Retail

Total

Allowance for loan and lease losses, beginning of period

$565


$636


$1,201

 

$544


$651


$1,195

Charge-offs
(11
)
(109
)
(120
)
 
(32
)
(324
)
(356
)
Recoveries
6

39

45

 
42

107

149

Net (charge-offs) recoveries
(5
)
(70
)
(75
)
 
10

(217
)
(207
)
Sales/Other
—

2

2

 
—

—

—

Provision charged to income
15

58

73

 
21

192

213

Allowance for loan and lease losses, end of period
575

626

1,201

 
575

626

1,201

Reserve for unfunded lending commitments, beginning of period
56

—

56

 
61

—

61

Provision for unfunded lending commitments
3

—

3

 
(2
)
—

(2
)
Reserve for unfunded lending commitments as of period end
59

—

59

 
59

—

59

Total allowance for credit losses as of period end

$634


$626


$1,260

 

$634


$626


$1,260



18
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The recorded investment in loans and leases based on the Company’s evaluation methodology is presented below:
 
September 30, 2016
 
December 31, 2015
(in millions)
Commercial

Retail

Total

 
Commercial

Retail

Total

Individually evaluated

$438


$812


$1,250

 

$218


$1,165


$1,383

Formula-based evaluation
49,951

54,266

104,217

 
45,996

51,663

97,659

Total

$50,389


$55,078


$105,467

 

$46,214


$52,828


$99,042


A summary of the allowance for credit losses by evaluation method is presented below:
 
September 30, 2016
 
December 31, 2015
(in millions)
Commercial

Retail

Total

 
Commercial

Retail

Total

Individually evaluated

$55


$78


$133

 

$36


$101


$137

Formula-based evaluation
670

507

1,177

 
618

519

1,137

Allowance for credit losses

$725


$585


$1,310

 

$654


$620


$1,274


For commercial loans and leases, the Company 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 indicates 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 recorded investment in commercial loans and leases based on regulatory classification ratings is presented below:
 
September 30, 2016
 
 
Criticized
 
(in millions)
Pass

Special Mention
Substandard

Doubtful

Total

Commercial

$34,245


$883


$1,138


$183


$36,449

Commercial real estate
9,646

355

89

62

10,152

Leases
3,608

53

122

5

3,788

Total

$47,499


$1,291


$1,349


$250


$50,389


 
December 31, 2015
 
 
Criticized
 
(in millions)
Pass

Special Mention
Substandard

Doubtful