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FAIR VALUE MEASUREMENTS | 3 Months Ended
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Mar. 31, 2024
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. Fair value is also 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. Fair value measurement guidance is also applied 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:
| March 31, 2024 |  | December 31, 2023
(dollars in millions) | Aggregate Fair Value | Aggregate Unpaid Principal | Aggregate Fair Value Greater (Less) Than Aggregate Unpaid Principal |  | Aggregate Fair Value | Aggregate Unpaid Principal | Aggregate Fair Value Greater (Less) Than Aggregate Unpaid Principal
Residential mortgage loans held for sale, at fair value | $437 |  | $427 |  | $10 |  |  | $614 |  | $593 |  | $21 |
Commercial and industrial, and commercial real estate loans held for sale, at fair value | 68 |  | 74 |  | (6) |  |  | 62 |  | 69 |  | (7) |
For more information on the election of the fair value option for these assets see Note 20 in the Company’s 2023 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 fair value on a recurring basis, see Note 20 in the Company’s 2023 Form 10-K. Short-term investments Short-term investments include corporate bonds and U.S. Treasury securities managed by the Company’s trading desks. U.S. Treasury securities are classified as Level 1 in the fair value hierarchy as quoted prices in active markets are readily available. The fair value of corporate bonds is estimated using a combination of direct market quotes for a particular bond, or a comparable bond if recent market data is not available, and a discounted cash flow model that incorporates certain credit attributes of the bond issuer. External pricing services are utilized to corroborate the fair value of corporate bonds, which may result in an adjustment to the underlying bond’s valuation if price differences exceed certain thresholds. Corporate bonds are classified as Level 2 in the fair value hierarchy given the observable market inputs utilized to value these instruments. Short-term investments are included in interest-bearing deposits in banks in the Consolidated Balance Sheets. Short-term borrowed funds Short-term borrowed funds include short positions in corporate bonds held by the Company’s trading desks and are classified as Level 2 in the fair value hierarchy. See “Short-term investments” above for more information regarding the valuation technique utilized to value corporate bonds. The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at March 31, 2024:
(dollars in millions) | Total | Level 1 | Level 2 | Level 3
Debt securities available for sale: |  |  |  |
Mortgage-backed securities | $26,122 |  | $— |  | $26,122 |  | $— |
Collateralized loan obligations | 294 |  | — |  | 294 |  | — |
State and political subdivisions | 1 |  | — |  | 1 |  | — |
U.S. Treasury and other | 4,770 |  | 4,770 |  | — |  | — |
Total debt securities available for sale | 31,187 |  | 4,770 |  | 26,417 |  | — |
Loans held for sale, at fair value: |  |  |  |
Residential loans held for sale | 437 |  | — |  | 437 |  | — |
Commercial loans held for sale | 68 |  | — |  | 68 |  | — |
Total loans held for sale, at fair value | 505 |  | — |  | 505 |  | — |
Mortgage servicing rights | 1,564 |  | — |  | — |  | 1,564 |
Derivative assets: |  |  |  |
Interest rate contracts | 481 |  | — |  | 481 |  | — |
Foreign exchange contracts | 389 |  | — |  | 389 |  | — |
Commodities contracts | 711 |  | — |  | 711 |  | — |
TBA contracts | 2 |  | — |  | 2 |  | — |
Other contracts | 8 |  | — |  | — |  | 8 |
Total derivative assets | 1,591 |  | — |  | 1,583 |  | 8 |
Equity securities, at fair value(1) | 118 |  | 118 |  | — |  | — |
Short-term investments | 21 |  | 10 |  | 11 |  | — |
Total assets | $34,986 |  | $4,898 |  | $28,516 |  | $1,572 |
Derivative liabilities: |  |  |  |
Interest rate contracts | $1,316 |  | $— |  | $1,316 |  | $— |
Foreign exchange contracts | 290 |  | — |  | 290 |  | — |
Commodities contracts | 665 |  | — |  | 665 |  | — |
TBA contracts | 5 |  | — |  | 5 |  | — |
Other contracts | — |  | — |  | — |  | — |
Total derivative liabilities | 2,276 |  | — |  | 2,276 |  | — |
Short-term borrowed funds | 9 |  | — |  | 9 |  | — |
Total liabilities | $2,285 |  | $— |  | $2,285 |  | $— |
(1) Excludes investments of $60 million included in other assets in the Consolidated Balance Sheets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient. These investments include capital contributions to private investment funds and have unfunded capital commitments of $25 million at March 31, 2024, which may be called at any time during prescribed time periods. The credit exposure is generally limited to the carrying amount of investments made and unfunded capital commitments. The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at December 31, 2023:
(dollars in millions) | Total | Level 1 | Level 2 | Level 3
Debt securities available for sale: |  |  |  |
Mortgage-backed securities | $24,732 |  | $— |  | $24,732 |  | $— |
Collateralized loan obligations | 664 |  | — |  | 664 |  | — |
State and political subdivisions | 1 |  | — |  | 1 |  | — |
U.S. Treasury and other | 4,380 |  | 4,380 |  | — |  | — |
Total debt securities available for sale | 29,777 |  | 4,380 |  | 25,397 |  | — |
Loans held for sale, at fair value: |  |  |  |
Residential loans held for sale | 614 |  | — |  | 614 |  | — |
Commercial loans held for sale | 62 |  | — |  | 62 |  | — |
Total loans held for sale, at fair value | 676 |  | — |  | 676 |  | — |
Mortgage servicing rights | 1,552 |  | — |  | — |  | 1,552 |
Derivative assets: |  |  |  |
Interest rate contracts | 464 |  | — |  | 464 |  | — |
Foreign exchange contracts | 434 |  | — |  | 434 |  | — |
Commodities contracts | 685 |  | — |  | 685 |  | — |
TBA contracts | 3 |  | — |  | 3 |  | — |
Other contracts | 7 |  | — |  | — |  | 7 |
Total derivative assets | 1,593 |  | — |  | 1,586 |  | 7 |
Equity securities, at fair value(1) | 115 |  | 115 |  | — |  | — |
Total assets | $33,713 |  | $4,495 |  | $27,659 |  | $1,559 |
Derivative liabilities: |  |  |  |
Interest rate contracts | $1,149 |  | $— |  | $1,149 |  | $— |
Foreign exchange contracts | 378 |  | — |  | 378 |  | — |
Commodities contracts | 640 |  | — |  | 640 |  | — |
TBA contracts | 16 |  | — |  | 16 |  | — |
Other contracts | — |  | — |  | — |  | — |
Total derivative liabilities | 2,183 |  | — |  | 2,183 |  | — |
Total liabilities | $2,183 |  | $— |  | $2,183 |  | $— |
(1) Excludes investments of $58 million included in other assets in the Consolidated Balance Sheets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient. These investments include capital contributions to private investment funds and have unfunded capital commitments of $28 million at December 31, 2023, which may be called at any time during prescribed time periods. The credit exposure is generally limited to the carrying amount of investments made and unfunded capital commitments. The following tables present a roll forward of the balance sheet amounts for assets and liabilities measured at fair value on a recurring basis and classified as Level 3:
| Three Months Ended March 31, 2024 |  |
(dollars in millions) | Mortgage Servicing Rights | Other Derivative Contracts |  |  |
Beginning balance | $1,552 |  | $7 |  |  |  |
Issuances | 18 |  | 13 |  |  |  |
Settlements(1) | (46) |  | (10) |  |  |  |
Changes in fair value during the period recognized in earnings(2) | 40 |  | (2) |  |  |  |
Ending balance | $1,564 |  | $8 |  |  |  |
| Three Months Ended March 31, 2023 |  |
(dollars in millions) | Mortgage Servicing Rights | Other Derivative Contracts |  |  |
Beginning balance | $1,530 |  | $1 |  |  |  |
Issuances | 21 |  | 15 |  |  |  |
Settlements(1) | (41) |  | (5) |  |  |  |
Changes in fair value during the period recognized in earnings(2) | (14) |  | 2 |  |  |  |
Ending balance | $1,496 |  | $13 |  |  |  |
(1) For MSRs, 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. For other derivative contracts, represents the closeout of interest rate lock commitments. (2) 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 significant unobservable inputs utilized to measure the fair value of Level 3 assets and liabilities.
|  |  | As of March 31, 2024 |  | As of December 31, 2023
Financial Instrument | Valuation Technique | Unobservable Input | Range (Weighted Average) |  | Range (Weighted Average)
Mortgage servicing rights | Discounted Cash Flow | Constant prepayment rate | 5.76-17.58% CPR (6.96% CPR) |  | 6.70-14.55% CPR (7.23% CPR)
Option adjusted spread | 398-1,058 bps (632 bps) |  | 398-1,058 bps (630 bps)
Other derivative contracts | Internal Model | Pull through rate | 24.12-100.00% (76.07%) |  | 24.90-99.70% (80.34%)
MSR value | 7.20-153.60 bps (100.58 bps) |  | (8.90)-141.24 bps (88.04 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 fair value on a nonrecurring basis, see Note 20 in the Company’s 2023 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 March 31, |  |
(dollars in millions) | 2024 |  | 2023 |  |  |  |
Collateral-dependent loans | ($56) |  |  | ($4) |  |  |  |  |
The following table presents assets measured at fair value on a nonrecurring basis:
| March 31, 2024 |  | December 31, 2023
(dollars in millions) | Total | Level 1 | Level 2 | Level 3 |  | Total | Level 1 | Level 2 | Level 3
Collateral-dependent loans | $881 |  | $— |  | $881 |  | $— |  |  | $789 |  | $— |  | $789 |  | $— |
Fair Value of Financial Instruments The following tables present the estimated fair value for financial instruments not recorded at fair value in the Consolidated Financial Statements. The carrying amounts are recorded in the Consolidated Balance Sheets under the indicated captions:
| March 31, 2024
| Total |  | Level 1 |  | Level 2 |  | Level 3
(dollars in millions) | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value
Financial assets: |  |  |  |  |  |  |  |  |  |  |
Debt securities held to maturity | $9,054 |  | $8,132 |  |  | $— |  | $— |  |  | $8,587 |  | $7,682 |  |  | $467 |  | $450 |
Other loans held for sale | 50 |  | 50 |  |  | — |  | — |  |  | — |  | — |  |  | 50 |  | 50 |
Net loans and leases | 141,102 |  | 137,760 |  |  | — |  | — |  |  | 881 |  | 881 |  |  | 140,221 |  | 136,879 |
Other assets | 791 |  | 791 |  |  | — |  | — |  |  | 768 |  | 768 |  |  | 23 |  | 23 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |
Deposits | 176,428 |  | 176,162 |  |  | — |  | — |  |  | 176,428 |  | 176,162 |  |  | — |  | — |
Short-term borrowed funds | 9 |  | 9 |  |  | — |  | — |  |  | 9 |  | 9 |  |  | — |  | — |
Long-term borrowed funds | 13,804 |  | 13,421 |  |  | — |  | — |  |  | 13,804 |  | 13,421 |  |  | — |  | — |
| December 31, 2023
| Total |  | Level 1 |  | Level 2 |  | Level 3
(dollars in millions) | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value
Financial assets: |  |  |  |  |  |  |  |  |  |  |
Debt securities held to maturity | $9,184 |  | $8,350 |  |  | $— |  | $— |  |  | $8,696 |  | $7,887 |  |  | $488 |  | $463 |
Other loans held for sale | 103 |  | 103 |  |  | — |  | — |  |  | — |  | — |  |  | 103 |  | 103 |
Net loans and leases | 143,861 |  | 140,504 |  |  | — |  | — |  |  | 789 |  | 789 |  |  | 143,072 |  | 139,715 |
Other assets | 869 |  | 869 |  |  | — |  | — |  |  | 851 |  | 851 |  |  | 18 |  | 18 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |
Deposits | 177,342 |  | 177,096 |  |  | — |  | — |  |  | 177,342 |  | 177,096 |  |  | — |  | — |
Short-term borrowed funds | 505 |  | 505 |  |  | — |  | — |  |  | 505 |  | 505 |  |  | — |  | — |
Long-term borrowed funds | 13,467 |  | 13,012 |  |  | — |  | — |  |  | 13,467 |  | 13,012 |  |  | — |  | — |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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