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DERIVATIVES | 3 Months Ended
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Mar. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES | NOTE 8 - DERIVATIVES In the normal course of business, Citizens enters into derivative transactions to meet the financing and hedging needs of its customers and 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 2023 Form 10-K. The following table presents derivative instruments included in the Consolidated Balance Sheets:
| March 31, 2024 |  | December 31, 2023
(dollars in millions) | Notional Amount | Derivative Assets | Derivative Liabilities |  | Notional Amount | Derivative Assets | Derivative Liabilities
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate contracts | $82,579 |  | $259 |  | $43 |  |  | $86,895 |  | $173 |  | $44 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Interest rate contracts | 193,442 |  | 222 |  | 1,273 |  |  | 185,993 |  | 291 |  | 1,105 |
Foreign exchange contracts | 30,398 |  | 389 |  | 290 |  |  | 32,528 |  | 434 |  | 378 |
Commodities contracts | 1,062 |  | 711 |  | 665 |  |  | 1,251 |  | 685 |  | 640 |
TBA contracts | 2,501 |  | 2 |  | 5 |  |  | 2,337 |  | 3 |  | 16 |
Other contracts | 729 |  | 8 |  | — |  |  | 549 |  | 7 |  | — |
Total derivatives not designated as hedging instruments | 228,132 |  | 1,332 |  | 2,233 |  |  | 222,658 |  | 1,420 |  | 2,139 |
Total gross derivatives | 310,711 |  | 1,591 |  | 2,276 |  |  | 309,553 |  | 1,593 |  | 2,183 |
Less: Gross amounts offset in the Consolidated Balance Sheets(1) |  | (480) |  | (480) |  |  |  | (471) |  | (471) |
Less: Cash collateral applied(1) |  | (642) |  | (91) |  |  |  | (682) |  | (150) |
Total net derivatives presented in the Consolidated Balance Sheets |  | $469 |  | $1,705 |  |  |  | $440 |  | $1,562 |
(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 facilitation 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. All hedging relationships are formally documented at inception, as well as risk management objectives and strategies for undertaking various accounting hedges. In addition, the effectiveness of hedge relationships is monitored during the duration of the hedge period. The methods utilized to assess hedge effectiveness vary based on the hedge relationship and each relationship is monitored to ensure that management’s initial intent continues to be satisfied. Hedge accounting treatment is discontinued when the derivative is terminated or when it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge. Changes in the fair value of a derivative are reflected in earnings after termination of the hedge relationship. Fair Value Hedges In a fair value hedge, changes in the fair value of both the derivative instrument and the hedged asset or liability attributable to the risk being hedged are recognized in the same income statement line item in the Consolidated Statements of Operations when the changes in fair value occur. During 2023, the Company entered into fair value hedges to manage interest rate risk within the AFS securities portfolio. The following table presents the effect of fair value hedges on the Consolidated Statements of Operations and the respective line items affected for each hedged item:
|  | Location and Amount of Gains (Losses) Recognized
|  | Interest Income | Interest Expense
(dollars in millions) |  | Investment Securities | Long-Term Borrowed Funds
Three Months Ended March 31, 2024 |  |  |
Gains (losses) on fair value hedges recognized on: |  |  |
Hedged items |  | ($135) |  | $3 |
Derivatives |  | 139 |  | (3) |
Amounts related to interest settlements on derivatives |  | 25 |  | (4) |
Total income (expense) recognized on fair value hedges |  | $29 |  | ($4) |
Three Months Ended March 31, 2023 |  |  |
Gains (losses) on fair value hedges recognized on: |  |  |
Hedged items |  | $— |  | ($8) |
Derivatives |  | — |  | 8 |
Amounts related to interest settlements on derivatives |  | — |  | (5) |
Total income (expense) recognized on fair value hedges |  | $— |  | ($5) |
The following table reflects amounts recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:
(dollars in millions) | March 31, 2024 |  | December 31, 2023
| Debt securities available for sale(1) | Long-term borrowed funds |  |  | Debt securities available for sale(1) | Long-term borrowed funds
Carrying amount of hedged assets | $9,125 |  | $— |  |  |  | $7,253 |  | $— |
Carrying amount of hedged liabilities | — |  | 480 |  |  |  | — |  | 483 |
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items | (74) |  | (19) |  |  |  | 60 |  | (17) |
(1) Includes the amortized cost basis of closed portfolios used to designate hedging relationships under the portfolio layer method. The hedged item is a layer of the closed portfolio which is expected to be remaining at the end of the hedging relationship. As of March 31, 2024 and December 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $6.8 billion and $5.9 billion, respectively, including associated cumulative basis adjustments of $(58) million and $39 million, respectively. The amount of the designated hedging instruments was $4.8 billion and $4.0 billion at March 31, 2024 and December 31, 2023, respectively. Cash Flow Hedges In a cash flow hedge the entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is initially recorded in OCI and is subsequently reclassified from AOCI into earnings in the period during which the hedged item affects earnings. Citizens has entered into interest rate swap agreements designed to hedge a portion of the Company’s floating-rate assets and liabilities. All of these swaps are deemed highly effective cash flow hedges. The Company has also entered into certain interest rate option agreements that utilize interest rate floors and caps, or some combination thereof, providing the ability to hedge the variability in cash flows within different interest rate bands. Option premiums paid and received are excluded from the assessment of hedge effectiveness and are 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 March 31, |  |
(dollars in millions) | 2024 |  | 2023 |  |  |  |
Amount of pre-tax net gains (losses) recognized in OCI | ($550) |  |  | $233 |  |  |  |  |
Amount of pre-tax net gains (losses) reclassified from AOCI into interest income | (203) |  |  | (127) |  |  |  |  |
Amount of pre-tax net gains (losses) reclassified from AOCI into interest expense | — |  |  | — |  |  |  |  |
Using the interest rate curve at March 31, 2024 with respect to cash flow hedge strategies, the Company estimates that approximately $938 million in pre-tax net losses will be reclassified from AOCI to net interest income over the next 12 months, including $456 million related to terminated swaps. 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 March 31, 2024. Derivatives Not Designated As Hedging Instruments The Company offers derivatives to customers in connection with their risk management needs consisting primarily of interest rate, foreign exchange and commodity contracts. Market risk exposure from customer transactions is primarily managed by entering into a variety of hedging transactions with third-party dealers. Gains and losses on customer-related derivatives are reported in foreign exchange and derivatives products in the Consolidated Statements of Operations. Residential mortgage loans that will be sold in the secondary market and the related loan commitments, which are considered derivatives, are accounted for at fair value. Forward contracts to sell mortgage-backed securities are utilized to hedge the fair value of the loans and related commitments. Gains and losses on the loans and related commitments, and the derivatives used to economically hedge them, are reported in mortgage banking fees in the Consolidated Statements of Operations. Residential MSRs are accounted for at fair value. Derivatives utilized to hedge the fair value of residential MSRs include interest rate futures, swaps, options, and forward contracts to purchase mortgage-backed securities. Gains and losses on residential MSRs and the related derivatives are reported in mortgage banking fees in the Consolidated Statements of Operations. The following table presents the effect of economic hedges on noninterest income:
| Amounts Recognized in Noninterest Income for the |
| Three Months Ended March 31, |  |  | Affected Line Item in the Consolidated Statements of Operations
(dollars in millions) | 2024 |  | 2023 |  |  |  |
Economic hedge type: |  |  |  |  |  |  |  |
Customer interest rate contracts | ($494) |  |  | $34 |  |  |  |  |  | Foreign exchange and derivative products
Derivatives hedging interest rate risk | 503 |  |  | (19) |  |  |  |  |  | Foreign exchange and derivative products
Customer foreign exchange contracts | (110) |  |  | (4) |  |  |  |  |  | Foreign exchange and derivative products
Derivatives hedging foreign exchange risk | 145 |  |  | (2) |  |  |  |  |  | Foreign exchange and derivative products
Customer commodity contracts | 35 |  |  | (475) |  |  |  |  |  | Foreign exchange and derivative products
Derivatives hedging commodity price risk | (32) |  |  | 486 |  |  |  |  |  | Foreign exchange and derivative products
Residential loan commitments | (2) |  |  | 2 |  |  |  |  |  | Mortgage banking fees
Derivatives hedging residential loan commitments and mortgage loans held for sale, at fair value | 3 |  |  | (11) |  |  |  |  |  | Mortgage banking fees
Derivative contracts used to hedge residential MSRs | (38) |  |  | 16 |  |  |  |  |  | Mortgage banking fees
Total | $10 |  |  | $27 |  |  |  |  |  |

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- 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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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