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SECURITIES | 12 Months Ended
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Dec. 31, 2021
Investments, Debt and Equity Securities [Abstract] |
SECURITIES | NOTE 4 - SECURITIES Investments include debt and equity securities and other investment securities. Citizens classifies debt securities as AFS, HTM, or trading based on management’s intent to hold to maturity at the time of purchase. Management reserves the right to change the initial classification of debt and equity securities purchased based on its intent to hold to maturity or as permitted by periodic changes in accounting guidance. Equity securities are recorded at fair value or at cost if there is not a readily determinable fair value. Debt securities that will be held for indefinite periods of time and may be sold in response to changes in interest rates, changes in prepayment risk, or other factors considered in managing the Company’s asset/liability strategy are classified as AFS and reported at fair value, with unrealized gains and losses reported in OCI, net of taxes, as a separate component of stockholders’ equity. Gains and losses on the sales of securities are recognized in noninterest income and are computed using the specific identification method. Debt securities for which the Company has the ability and intent to hold to maturity are classified as HTM and reported at amortized cost. Transfers of debt securities to the HTM classification are recognized at fair value at the date of transfer. For debt securities classified as AFS or HTM, interest income is recorded on the accrual basis including the amortization of premiums and the accretion of discounts. Premiums and discounts on debt securities are amortized or accreted using the effective interest method over the estimated lives of the individual securities. Citizens uses actual prepayment experience and estimates of future prepayments to determine the constant effective yield necessary to apply the effective interest method of income recognition. Estimates of future prepayments are based on the underlying collateral characteristics of each security and are derived from market sources. Judgment is involved in making determinations about prepayment expectations and in changing those expectations in response to changes in interest rates and macroeconomic conditions. The amortization of premiums and discounts associated with mortgage-backed securities may be significantly impacted by changes in prepayment assumptions. Securities classified as trading are bought and held principally for selling them in the near term and carried at fair value, with changes in fair value recognized in earnings. When applicable, realized and unrealized gains and losses on such assets are reported in noninterest income in the Consolidated Statements of Operations. Equity securities are primarily composed of FHLB and FRB stock (which are carried at cost) and money market mutual fund investments held by the Company’s broker-dealers (which are carried at fair value, with changes in fair value recognized in noninterest income) and are recorded in other assets on the Consolidated Balance Sheets. Equity securities that are carried at cost are reviewed at least annually for impairment, with valuation adjustments recognized in noninterest income. The following table presents the major components of securities at amortized cost and fair value:
| December 31, 2021 |  | December 31, 2020
(in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |  | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value
U.S. Treasury and other | $11 |  | $— |  | $— |  | $11 |  |  | $11 |  | $— |  | $— |  | $11 |
State and political subdivisions | 2 |  | — |  | — |  | 2 |  |  | 3 |  | — |  | — |  | 3 |
Mortgage-backed securities, at fair value: |  |  |  |  |  |  |  |  |
Federal agencies and U.S. government sponsored entities | 24,607 |  | 210 |  | (375) |  | 24,442 |  |  | 21,954 |  | 571 |  | (19) |  | 22,506 |
Other/non-agency | 397 |  | 9 |  | (1) |  | 405 |  |  | 396 |  | 26 |  | — |  | 422 |
Total mortgage-backed securities, at fair value | 25,004 |  | 219 |  | (376) |  | 24,847 |  |  | 22,350 |  | 597 |  | (19) |  | 22,928 |
Collateralized loan obligations, at fair value | 1,208 |  | — |  | (1) |  | 1,207 |  |  | — |  | — |  | — |  | — |
Total debt securities available for sale, at fair value | $26,225 |  | $219 |  | ($377) |  | $26,067 |  |  | $22,364 |  | $597 |  | ($19) |  | $22,942 |
Federal agencies and U.S. government sponsored entities | $1,505 |  | $52 |  | $— |  | $1,557 |  |  | $2,342 |  | $122 |  | $— |  | $2,464 |
Total mortgage-backed securities, at cost | 1,505 |  | 52 |  | — |  | 1,557 |  |  | 2,342 |  | 122 |  | — |  | 2,464 |
Asset-backed securities, at cost | 737 |  | 2 |  | (7) |  | 732 |  |  | 893 |  | — |  | — |  | 893 |
Total debt securities held to maturity | $2,242 |  | $54 |  | ($7) |  | $2,289 |  |  | $3,235 |  | $122 |  | $— |  | $3,357 |
Equity securities, at fair value | $109 |  | $— |  | $— |  | $109 |  |  | $66 |  | $— |  | $— |  | $66 |
Equity securities, at cost | 624 |  | — |  | — |  | 624 |  |  | 604 |  | — |  | — |  | 604 |
Accrued interest receivable on debt securities totaled $56 million and $55 million as of December 31, 2021 and 2020, respectively, and is included in other assets in the Consolidated Balance Sheets. The following table presents the amortized cost and fair value of debt securities by contractual maturity as of December 31, 2021. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.
| Distribution of Maturities
(in millions) | 1 Year or Less | After 1 Year through 5 Years | After 5 Years through 10 Years | After 10 Years | Total
Amortized cost: |  |  |  |  |
U.S. Treasury and other | $11 |  | $— |  | $— |  | $— |  | $11 |
State and political subdivisions | — |  | — |  | — |  | 2 |  | 2 |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | 7 |  | 66 |  | 1,914 |  | 22,620 |  | 24,607 |
Other/non-agency | — |  | — |  | — |  | 397 |  | 397 |
Collateralized loan obligations | — |  | — |  | 24 |  | 1,184 |  | 1,208 |
Total debt securities available for sale | 18 |  | 66 |  | 1,938 |  | 24,203 |  | 26,225 |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | — |  | — |  | — |  | 1,505 |  | 1,505 |
Asset-backed securities | — |  | — |  | 737 |  | — |  | 737 |
Total debt securities held to maturity | — |  | — |  | 737 |  | 1,505 |  | 2,242 |
Total amortized cost of debt securities | $18 |  | $66 |  | $2,675 |  | $25,708 |  | $28,467 |
Fair value: |  |  |  |  |
U.S. Treasury and other | $11 |  | $— |  | $— |  | $— |  | $11 |
State and political subdivisions | — |  | — |  | — |  | 2 |  | 2 |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | 7 |  | 68 |  | 1,957 |  | 22,410 |  | 24,442 |
Other/non-agency | — |  | — |  | — |  | 405 |  | 405 |
Collateralized loan obligations | — |  | — |  | 24 |  | 1,183 |  | 1,207 |
Total debt securities available for sale | 18 |  | 68 |  | 1,981 |  | 24,000 |  | 26,067 |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | — |  | — |  | — |  | 1,557 |  | 1,557 |
Asset-backed securities | — |  | — |  | 732 |  | — |  | 732 |
Total debt securities held to maturity | — |  | — |  | 732 |  | 1,557 |  | 2,289 |
Total fair value of debt securities | $18 |  | $68 |  | $2,713 |  | $25,557 |  | $28,356 |
Taxable interest income from investment securities as presented in the Consolidated Statements of Operations was $487 million, $519 million and $642 million for the years ended December 31, 2021, 2020 and 2019, respectively. The following table presents realized gains and losses on securities:
| Year Ended December 31,
(in millions) | 2021 |  | 2020 |  | 2019
Gains on sale of debt securities(1) | $15 |  |  | $6 |  |  | $41 |
Losses on sale of debt securities | (5) |  |  | (2) |  |  | (16) |
Debt securities gains, net | $10 |  |  | $4 |  |  | $25 |
(1) For the year ended December 31, 2019, $6 million of gains on sale of debt securities were recognized in mortgage banking fees in the Consolidated Statements of Operations, as they related to AFS securities held as economic hedges of the value of the MSR portfolio recognized using the amortization method. The following table presents the amortized cost and fair value of debt securities pledged:
| December 31, 2021 |  | December 31, 2020
(in millions) | Amortized Cost | Fair Value |  | Amortized Cost | Fair Value
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law | $4,816 |  | $4,782 |  |  | $3,818 |  | $3,937 |
Pledged against FHLB borrowed funds | 325 |  | 333 |  |  | 394 |  | 423 |
Pledged against repurchase agreements | 1 |  | 1 |  |  | 224 |  | 231 |
The Company regularly enters into security repurchase agreements with unrelated counterparties, which involve the transfer of a security from one party to another, and a subsequent transfer of substantially the same security back to the original party. These repurchase agreements are typically short-term in nature and are accounted for as secured borrowed funds in the Company’s Consolidated Balance Sheets. The Company recognized no offsetting of short-term receivables or payables as of December 31, 2021 or 2020. The Company offsets certain derivative assets and derivative liabilities in the Consolidated Balance Sheets. For further information see Note 14. Securitizations of mortgage loans retained in the investment portfolio for the years ended December 31, 2021, 2020 and 2019, were $260 million, $144 million and $150 million, respectively. These securitizations include a substantive guarantee by a third party. In 2021, 2020 and 2019 the guarantors were FNMA, FHLMC, and GNMA. The debt securities received from the guarantors are classified as AFS. Impairment Upon purchase of HTM investment securities and at each subsequent measurement date, Citizens is required to evaluate the securities for risk of loss over their life and, if necessary, establish an associated reserve. Recognition of a reserve for expected credit losses is not required if the amount the Company expects to realize is zero (commonly referred to as “zero expected credit losses”). The Company evaluated its existing HTM portfolio as of December 31, 2021 and concluded that 67% of HTM securities met the zero expected credit loss criteria; therefore, no ACL was recognized. For the remainder, the lifetime expected credit losses were determined to be insignificant based on the modeling of the Company’s credit loss position in the securities. The Company monitors the credit exposure through the use of credit quality indicators. For these securities, the Company uses external credit ratings or an internally derived credit rating when an external rating is not available. All securities were determined to be investment grade at December 31, 2021. Citizens reviews its AFS debt securities for impairment at the individual security level on a quarterly basis, or more frequently if a potential loss triggering event occurs. The initial indicator of impairment for debt securities classified as AFS is a decline in fair value below its amortized cost basis. For any security that has declined in fair value below the amortized cost basis, the Company recognizes an impairment loss in current period earnings if management has the intent to sell the security or if it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. Estimating the recovery of the amortized cost basis of a debt security is based upon an assessment of the cash flows expected to be collected. If the present value of cash flows expected to be collected, discounted at the security’s original effective yield, is less than the amortized cost basis, impairment equal to the shortfall in cash flows has occurred. Citizens evaluates whether any portion of the impairment is attributable to credit-related factors or various other market factors affecting the fair value of the security (e.g., interest rates, spread levels, liquidity in the sector, etc.), and the public credit rating of the security. If credit-related factors exist, credit-related impairment has occurred regardless of the Company’s intent to hold the security until it recovers. The credit-related portion of impairment is recognized in current period earnings as provision expense through the establishment of an allowance for AFS securities, to the extent the allowance does not reduce the value of the AFS security below its current fair value. The remaining non-credit related portion of impairment is recognized in OCI. Improvement in credit losses in subsequent periods results in a reversal of the allowance for AFS securities and a corresponding decrease to provision expense, to the extent the allowance does not become negative. Accrued interest receivable on AFS debt securities is excluded from the balances used to calculate the allowance for AFS securities. All accrued and uncollected interest is immediately reversed against interest income when it is deemed uncollectible. The Company has evaluated any AFS security in an unrealized loss position at December 31, 2021 and concluded that all unrealized losses are due to non-credit related factors. As such, the Company does not have an allowance for AFS securities as of December 31, 2021. The following tables present AFS debt securities with fair values below their respective carrying values, separated by the duration the securities have been in a continuous unrealized loss position:
|  | December 31, 2021
|  | Less than 12 Months |  |  | 12 Months or Longer |  |  | Total
(dollars in millions) |  | Fair Value | Gross Unrealized Losses |  |  | Fair Value | Gross Unrealized Losses |  |  | Fair Value | Gross Unrealized Losses
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |
Federal agencies and U.S. government sponsored entities |  | $14,131 |  | ($320) |  |  |  | $1,236 |  | ($55) |  |  |  | $15,367 |  | ($375) |
Other/non-agency |  | 123 |  | (1) |  |  |  | — |  | — |  |  |  | 123 |  | (1) |
Total mortgage-backed securities |  | 14,254 |  | (321) |  |  |  | 1,236 |  | (55) |  |  |  | 15,490 |  | (376) |
Collateralized loan obligations, at fair value |  | 736 |  | (1) |  |  |  | — |  | — |  |  |  | 736 |  | (1) |
Total |  | $14,990 |  | ($322) |  |  |  | $1,236 |  | ($55) |  |  |  | $16,226 |  | ($377) |
|  | December 31, 2020
|  | Less than 12 Months |  |  | 12 Months or Longer |  |  | Total
(dollars in millions) |  | Fair Value | Gross Unrealized Losses |  |  | Fair Value | Gross Unrealized Losses |  |  | Fair Value | Gross Unrealized Losses
Federal agencies and U.S. government sponsored entities |  | $1,991 |  | ($19) |  |  |  | $— |  | $— |  |  |  | $1,991 |  | ($19) |

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- Definition The entire disclosure for investments in certain debt and equity securities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2209399 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2324412 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -URI http://asc.fasb.org/topic&trid=2196928 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 940 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2176304 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher SEC -Name Regulation S-K (SK) -Number 229 -Section 1403 -Paragraph (b) + Details
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