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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 12 - FAIR VALUE MEASUREMENTS
Citizens measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities for which fair value is the required or elected measurement basis of accounting. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or for disclosure purposes. Nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets. Citizens also applies the fair value measurement guidance to determine amounts reported for certain disclosures in this Note for assets and liabilities that are not required to be reported at fair value in the financial statements.
Fair Value Option
Citizens elected to account for residential mortgage LHFS and certain commercial and industrial, and commercial real estate LHFS at fair value. The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of LHFS measured at fair value:
September 30, 2021December 31, 2020
(in millions)Aggregate Fair ValueAggregate Unpaid PrincipalAggregate Fair Value Greater (Less) Than Aggregate Unpaid PrincipalAggregate Fair ValueAggregate Unpaid PrincipalAggregate Fair Value Greater (Less) Than Aggregate Unpaid Principal
Residential mortgage loans held for sale, at fair value$3,104 $3,029 $75 $3,416 $3,260 $156 
Commercial and industrial, and commercial real estate loans held for sale, at fair value73 75 (2)148 153 (5)
For more information on the election of the fair value option for these assets see Note 19 in the Company’s 2020 Form 10-K.

Recurring Fair Value Measurements
Citizens utilizes a variety of valuation techniques to measure its assets and liabilities at fair value on a recurring basis. For more information on the valuation techniques utilized to measure recurring fair value see Note 19 in the Company’s 2020 Form 10-K.
Collateralized Loan Obligations
The fair value of CLOs is estimated using observable inputs, including prices of similar securities that trade in the market. The Company classifies these securities in Level 2 of the fair value hierarchy using these observable inputs.
Derivatives - Commodities Contracts
The fair value of commodity derivatives uses the mid-point of market observable quoted prices as an input into the fair value model. The model uses the observed market prices combined with other market observed inputs to derive the fair value of the instrument, which generally classifies it as Level 2 instrument.
The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at September 30, 2021:
(in millions)TotalLevel 1Level 2Level 3
Debt securities available for sale:
Mortgage-backed securities$24,131 $— $24,131 $— 
Collateralized loan obligations767 — 767 — 
State and political subdivisions2 — 2 — 
U.S. Treasury and other11 11 — — 
Total debt securities available for sale24,911 11 24,900 — 
Loans held for sale, at fair value:
Residential loans held for sale3,104 — 3,104 — 
Commercial loans held for sale73 — 73 — 
Total loans held for sale, at fair value3,177 — 3,177 — 
Mortgage servicing rights978 — — 978 
Derivative assets:
Interest rate contracts930 — 930 — 
Foreign exchange contracts249 — 249 — 
Commodities contracts822 — 822 — 
TBA contracts44 — 44 — 
Other contracts53 — — 53 
Total derivative assets2,098 — 2,045 53 
Equity securities, at fair value88 88 — — 
Total assets$31,252 $99 $30,122 $1,031 
Derivative liabilities:
Interest rate contracts$169 $— $169 $— 
Foreign exchange contracts205 — 205 — 
Commodities contracts822 — 822 — 
TBA contracts9 — 9 — 
Total derivative liabilities1,205 — 1,205 — 
Total liabilities$1,205 $— $1,205 $— 
The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at December 31, 2020:
(in millions)TotalLevel 1Level 2Level 3
Debt securities available for sale:
Mortgage-backed securities$22,928 $— $22,928 $— 
State and political subdivisions3 — 3 — 
U.S. Treasury and other11 11 — — 
Total debt securities available for sale22,942 11 22,931 — 
Loans held for sale, at fair value:
Residential loans held for sale3,416 — 3,416 — 
Commercial loans held for sale148 — 148 — 
Total loans held for sale, at fair value3,564 — 3,564 — 
Mortgage servicing rights658 — — 658 
Derivative assets:
Interest rate contracts1,566 — 1,566 — 
Foreign exchange contracts320 — 320 — 
Commodities contracts62 — 62 — 
TBA contracts8 — 8 — 
Other contracts197 — — 197 
Total derivative assets2,153 — 1,956 197 
Equity securities, at fair value66 66 — — 
Total assets$29,383 $77 $28,451 $855 
Derivative liabilities:
Interest rate contracts$217 $— $217 $— 
Foreign exchange contracts291 — 291 — 
Commodities contracts61 — 61 — 
TBA contracts65 — 65 — 
Total derivative liabilities634 — 634 — 
Total liabilities$634 $— $634 $— 
The following tables present a roll forward of the balance sheet amounts for assets measured at fair value on a recurring basis and classified as Level 3:
Three Months Ended September 30, 2021Nine Months Ended September 30, 2021
(in millions)Mortgage Servicing RightsOther Derivative ContractsMortgage Servicing RightsOther Derivative Contracts
Beginning balance$902 $89 $658 $197 
Issuances109 81 318 323 
Settlements(2)
(54)(104)(159)(283)
Changes in fair value during the period recognized in earnings(3)
21 (13)161 (184)
Ending balance$978 $53 $978 $53 

Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
(in millions)Mortgage Servicing RightsAsset-Backed SecuritiesOther Derivative ContractsMortgage Servicing RightsAsset-Backed SecuritiesOther Derivative Contracts
Beginning balance$568 $— $173 $642 $— $19 
Transfers upon election of fair value method(1)
— — — 190 — — 
Beginning balance, adjusted568 — 173 832 — 19 
Purchases— 813 — — 813 — 
Issuances85 — 283 238 — 688 
Settlements(2)
(55)— (372)(141)— (792)
Changes in fair value during the period recognized in earnings(3)
8 — 125 (323)— 294 
Ending balance$606 $813 $209 $606 $813 $209 
(1) Effective January 1, 2020, the Company elected to account for all MSRs previously accounted for under the amortization method under the fair value method.
(2) Represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial
paydowns, and ii) loans that paid off during the period.
(3) Represents changes in value primarily driven by market conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.
The following table presents quantitative information about the Company’s Level 3 assets, including the range and weighted-average of the significant unobservable inputs used to fair value these assets, as well as valuation techniques used.
As of September 30, 2021
Valuation TechniqueUnobservable InputRange (Weighted Average)
Mortgage servicing rightsDiscounted Cash FlowConstant prepayment rate
9.96-27.98% CPR (11.3% CPR)
Option adjusted spread
350-1,318 bps (582 bps)
Other derivative contractsInternal ModelPull through rate
10.96-100.00% (83.30%)
MSR value
(10.00)-145.29 bps (99.79 bps)
Nonrecurring Fair Value Measurements
Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. For more information on the valuation techniques utilized to measure nonrecurring fair value see Note 19 in the Company’s 2020 Form 10-K.
The following table presents losses on assets measured at fair value on a nonrecurring basis and recorded in earnings:
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2021202020212020
Collateral-dependent loans ($4)($21)($23)($65)
The following table presents assets measured at fair value on a nonrecurring basis:
September 30, 2021December 31, 2020
(in millions)TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Collateral-dependent loans $585 $— $585 $— $758 $— $758 $— 
The following tables present the estimated fair value for financial instruments not recorded at fair value in the unaudited interim Consolidated Financial Statements. The carrying amounts are recorded in the Consolidated Balance Sheets under the indicated captions:
September 30, 2021
TotalLevel 1Level 2Level 3
(in millions)Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
Financial assets:
Debt securities held to maturity$2,492 $2,567 $— $— $1,705 $1,778 $787 $789 
Other loans held for sale93 93 — — — — 93 93 
Loans and leases123,318 123,318 — — 585 585 122,733 122,733 
Other assets616 616 — — 593 593 23 23 
Financial liabilities:
Deposits152,221 152,237 — — 152,221 152,237 — — 
Short-term borrowed funds8 8 — — 8 8 — — 
Long-term borrowed funds6,947 7,260 — — 6,947 7,260 — — 
December 31, 2020
TotalLevel 1Level 2Level 3
(in millions)Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
Financial assets:
Debt securities held to maturity $3,235 $3,357 $— $— $2,342 $2,464 $893 $893 
Other loans held for sale439 439 — — — — 439 439 
Loans and leases123,090 123,678 — — 758 758 122,332 122,920 
Other assets604 604 — — 596 596 8 8 
Financial liabilities:
Deposits147,164 147,223 — — 147,164 147,223 — — 
Short-term borrowed funds243 243 — — 243 243 — — 
Long-term borrowed funds8,346 8,850 — — 8,346 8,850 — —