XML 31 R19.htm IDEA: XBRL DOCUMENT
v3.22.2.2

DERIVATIVES | 9 Months Ended
--- | ---
Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES | NOTE 10 - DERIVATIVES In the normal course of business, Citizens enters into a variety of derivative transactions to meet the financing and hedging needs of its customers and to reduce its own exposure to fluctuations in interest rates and foreign currency exchange rates. These transactions include interest rate swap contracts, interest rate options, foreign exchange contracts, residential loan commitment rate locks, interest rate future contracts, swaptions, certain commodities, forward commitments to sell TBAs, forward sale contracts and purchase options. The Company does not use derivatives for speculative purposes. Information regarding the valuation methodology and inputs used to estimate the fair value of the Company’s derivative instruments is described in Note 20 in the Company’s 2021 Form 10-K. The following table presents derivative instruments included in the Consolidated Balance Sheets:
| September 30, 2022 |  | December 31, 2021
(in millions) | Notional Amount | Derivative Assets | Derivative Liabilities |  | Notional Amount | Derivative Assets | Derivative Liabilities
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate contracts | $39,687 |  | $14 |  | $131 |  |  | $23,450 |  | $12 |  | $2 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Interest rate contracts | 190,631 |  | 371 |  | 1,699 |  |  | 142,987 |  | 680 |  | 174 |
Foreign exchange contracts | 28,509 |  | 907 |  | 879 |  |  | 21,336 |  | 263 |  | 231 |
Commodities contracts | 1,024 |  | 1,382 |  | 1,380 |  |  | 514 |  | 508 |  | 505 |
TBA contracts | 4,381 |  | 95 |  | 23 |  |  | 7,776 |  | 8 |  | 8 |
Other contracts | 1,627 |  | 2 |  | 35 |  |  | 3,555 |  | 38 |  | 2 |
Total derivatives not designated as hedging instruments |  | 2,757 |  | 4,016 |  |  |  | 1,497 |  | 920 |
Gross derivative fair values |  | 2,771 |  | 4,147 |  |  |  | 1,509 |  | 922 |
Less: Gross amounts offset in the Consolidated Balance Sheets(1) |  | (775) |  | (775) |  |  |  | (235) |  | (235) |
Less: Cash collateral applied(1) |  | (644) |  | (1,145) |  |  |  | (58) |  | (490) |
Total net derivative fair values presented in the Consolidated Balance Sheets |  | $1,352 |  | $2,227 |  |  |  | $1,216 |  | $197 |
(1) Amounts represent the impact of enforceable master netting agreements that allow the Company to net settle positive and negative positions as well as collateral paid and received. The Company’s derivative transactions are internally divided into three sub-groups: institutional, customer and residential loan. Certain derivative transactions within these sub-groups are designated as fair value or cash flow hedges, as described below: Derivatives Designated As Hedging Instruments The Company’s institutional derivatives qualify for hedge accounting treatment. The net interest accruals on interest rate swaps designated in a fair value or cash flow hedge relationship are treated as an adjustment to interest income or interest expense of the item being hedged. The Company formally documents all hedging relationships at inception, as well as risk management objectives and strategies for undertaking various accounting hedges. Additionally, the Company monitors the effectiveness of its hedge relationships during the duration of the hedge period. The methods utilized to assess hedge effectiveness vary based on the hedge relationship and the Company monitors each relationship to ensure that management’s initial intent continues to be satisfied. The Company discontinues hedge accounting treatment when it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge and subsequently reflects changes in the fair value of the derivative in earnings after termination of the hedge relationship. Fair Value Hedges As of September 30, 2022, Citizens has outstanding interest rate swap agreements utilized to manage the interest rate exposure on its long-term borrowings and loans held for sale. Certain fair value hedges were designated as a last-of-layer hedge during the nine months ended September 30, 2022, but are no longer active as of September 30, 2022. These hedges afforded the Company the ability to execute a fair value hedge of the interest rate risk associated with a portfolio of similar prepayable assets whereby the last dollar amount estimated to remain in the portfolio of assets is identified as the hedged item. The following table presents the change in fair value of interest rate contracts designated as fair value hedges, as well as the change in fair value of the related hedged items attributable to the risk being hedged, included in the Consolidated Statements of Operations:
| Three Months Ended September 30, |  | Nine Months Ended September 30, |
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021 | Affected Line Item in the Consolidated Statements of Operations
Interest rate swaps hedging borrowed funds | ($19) |  |  | ($13) |  |  | ($71) |  |  | ($51) |  | Interest expense - long-term borrowed funds
Hedged long-term borrowed funds attributable to the risk being hedged | 19 |  |  | 13 |  |  | 70 |  |  | 50 |  | Interest expense - long-term borrowed funds
Interest rate swaps hedging loans held for sale | 18 |  |  | — |  |  | 15 |  |  | — |  | Interest and fees on loans and leases
Hedged loans held for sale attributable to the risk being hedged | (19) |  |  | — |  |  | (15) |  |  | — |  | Interest and fees on loans and leases
Interest rate swaps hedging debt securities available for sale | — |  |  | 7 |  |  | 29 |  |  | 39 |  | Interest income - investment securities
Hedged debt securities available for sale attributable to risk being hedged | — |  |  | (7) |  |  | (29) |  |  | (39) |  | Interest income - investment securities
The following table reflects amounts recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:
| September 30, 2022 |  | December 31, 2021
(in millions) | Debt securities available for sale | Long-term borrowed funds | Loans and leases held for sale |  | Debt securities available for sale(1) | Long-term borrowed funds
Carrying amount of hedged assets | $— |  | $— |  | $484 |  |  | $6,042 |  | $— |
Carrying amount of hedged liabilities | — |  | 970 |  | — |  |  | — |  | 2,239 |
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items | — |  | (29) |  | (15) |  |  | 29 |  | 42 |
(1) The Company designated $2.0 billion as the hedged amount (from a closed portfolio of prepayable financial assets with an amortized cost basis of $6.0 billion as of December 31, 2021) in a last-of-layer hedging relationship, which commenced in the third quarter of 2019 and was terminated in the first quarter of 2022. Cash Flow Hedges Citizens has outstanding interest rate swap agreements designed to hedge a portion of the Company’s floating-rate assets and liabilities. All of these swaps have been deemed highly effective cash flow hedges. During the next 12 months, there are $624 million in pre-tax net losses on derivative instruments included in OCI expected to be reclassified to net interest income in the Consolidated Statements of Operations. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to September 30, 2022. During the three months ended September 30, 2022 the Company entered into zero-cost collar instruments with a notional amount of $1.5 billion comprised of purchasing an interest rate floor and selling an interest rate cap. These instruments expose Citizens to the variability in cash flows within the option strike rates and were structured so that the premium paid on the floor is equal and offsetting to the premium received on the cap. The net amount paid is excluded from the assessment of hedge effectiveness and will be amortized over the life of the instruments. The following table presents the pre-tax net gains (losses) recorded in the Consolidated Statements of Operations and in the Consolidated Statements of Comprehensive Income related to derivative instruments designated as cash flow hedges:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Amount of pre-tax net gains (losses) recognized in OCI | ($996) |  |  | ($15) |  |  | ($1,901) |  |  | $19 |
Amount of pre-tax net gains (losses) reclassified from OCI into interest income | (48) |  |  | 46 |  |  | 1 |  |  | 141 |
Amount of pre-tax net gains (losses) reclassified from OCI into interest expense | 2 |  |  | (13) |  |  | (4) |  |  | (37) |
Derivatives Not Designated As Hedging Instruments Economic Hedges The Company’s economic hedges include those related to offsetting customer derivatives, residential mortgage loan derivatives (including interest rate lock commitments and forward sales commitments) and derivatives to hedge its residential MSR portfolio. Customer derivatives include interest rate, foreign exchange and commodity derivative contracts designed to meet the hedging and financing needs of the Company’s customers, and are economically hedged by the Company to offset its market exposure. Interest rate lock commitments on residential mortgage loans that will be held for sale are considered derivative instruments, and are economically hedged by entering into forward sale commitments to manage changes in fair value due to interest rate risk. Residential MSR portfolio derivatives are entered to hedge the risk of changes in the fair value of the Company’s MSRs. The following table presents the effect of economic hedges on noninterest income:
| Amounts Recognized in Noninterest Income for the |
| Three Months Ended September 30, |  | Nine Months Ended September 30, | Affected Line Item in the Consolidated Statements of Operations
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Economic hedge type: |  |  |  |  |  |  |  |
Customer interest rate contracts | ($840) |  |  | ($10) |  |  | ($2,015) |  |  | ($225) |  | Foreign exchange and derivative products
Derivatives hedging interest rate risk | 852 |  |  | 17 |  |  | 2,073 |  |  | 244 |  | Foreign exchange and derivative products
Customer foreign exchange contracts | (174) |  |  | (61) |  |  | (297) |  |  | (158) |  | Foreign exchange and derivative products
Derivatives hedging foreign exchange risk | 271 |  |  | 95 |  |  | 520 |  |  | 234 |  | Foreign exchange and derivative products
Customer commodity contracts | (71) |  |  | 468 |  |  | 1,453 |  |  | 881 |  | Foreign exchange and derivative products
Derivatives hedging commodity price risk | 77 |  |  | (465) |  |  | (1,436) |  |  | (874) |  | Foreign exchange and derivative products
Residential loan commitments | (66) |  |  | (13) |  |  | (289) |  |  | (184) |  | Mortgage banking fees
Derivatives hedging residential loan commitments and mortgage loans held for sale, at fair value | 105 |  |  | 4 |  |  | 502 |  |  | 138 |  | Mortgage banking fees
Derivative contracts used to hedge residential MSRs | (68) |  |  | (20) |  |  | (310) |  |  | (149) |  | Mortgage banking fees
Total | $86 |  |  | $15 |  |  | $201 |  |  | ($93) |  |

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration