Citizens Financial Group, Inc. | 38
Accounting Pronouncements Adopted in 2023
| | | | | | | | |
Pronouncement | Summary of Guidance | Effects on Financial Statements |
Troubled Debt Restructurings and Vintage Disclosures
Issued March 2022 | •Effective date: January 1, 2023.
•Eliminates the separate recognition and measurement guidance for TDRs.
•Requires evaluation of all modifications to borrowers experiencing financial difficulty (or FDMs) to determine whether the modification results in a new loan or continuation of an existing loan.
•Requires expected credit losses measured under a discounted cash flow method to be determined using an effective interest rate based on the modified (not original) contractual terms of the loan.
•Enhances disclosures by creditors for modifications of receivables from borrowers experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay or a term extension.
•Requires disclosure of current period gross charge-offs by vintage year for loans and net investments in leases.
•Transition is prospective, with an option to adopt the recognition and measurement guidance for TDRs on a modified retrospective basis, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. | •The Company adopted the new standard on January 1, 2023, and elected to apply the new measurement and recognition guidance for TDRs under the modified retrospective transition method.
•Adoption did not have a material impact on the Company’s Consolidated Financial Statements. Required disclosures and discussion of significant accounting policies for modifications to borrowers experiencing financial difficulty are included in Note 4.
•Disclosure of gross charge-offs by vintage year did not have a material impact on the Company’s Consolidated Financial Statements.
|
Fair Value Hedging - Portfolio Layer Method
Issued March 2022 | •Effective date: January 1, 2023.
•Replaces the ‘last-of-layer’ method.
•Allows the designation of multiple layers in a closed portfolio of financial assets.
•Permits hedging of non-prepayable and prepayable assets.
•Prohibits the consideration of basis adjustments when measuring expected credit losses of assets in the closed portfolio or determining whether an AFS security is impaired.
•The guidance on hedging multiple layers in a closed portfolio is applied prospectively. The guidance on the accounting for fair value basis adjustments is applied on a modified retrospective basis. | •The Company adopted the new standard on January 1, 2023.
•Adoption did not have a material impact on the Company’s Consolidated Financial Statements. |
Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
Issued March 2023 | •Effective date: January 1, 2024.
•Permits use of the proportional amortization method of accounting for all tax equity investments provided that certain conditions are met.
•Proportional amortization method is elected on a tax-credit-program-by-tax-credit-program basis.
•Permits adoption under the modified retrospective method or retrospective method through a cumulative-effect adjustment to retained earnings as of the beginning of the current period or first period presented, respectively. Early adoption is permitted. | •The Company adopted the new standard on January 1, 2023 for renewable energy wind and new markets tax credit investments, under the modified retrospective approach.
•Adoption resulted in a cumulative-effect reduction of $26 million, net of taxes, to retained earnings and a corresponding reduction to other assets of $101 million and other liabilities of $75 million, reflecting the elimination of deferred tax liabilities associated with renewable energy wind investments that qualify for the proportional amortization method of accounting.
•Refer to Note 6 for additional information. |
Citizens Financial Group, Inc. | 39
NOTE 2 - SECURITIES
The following table presents the major components of securities at amortized cost and fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(dollars 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 | $3,378 | | $— | | ($126) | | $3,252 | | | $3,678 | | $1 | | ($193) | | $3,486 | |
State and political subdivisions | 2 | | — | | — | | 2 | | | 2 | | — | | — | | 2 | |
Mortgage-backed securities: | | | | | | | | | |
Federal agencies and U.S. government sponsored entities | 20,957 | | 20 | | (1,852) | | 19,125 | | | 21,250 | | 10 | | (2,198) | | 19,062 | |
Other/non-agency | 280 | | — | | (29) | | 251 | | | 280 | | — | | (29) | | 251 | |
Total mortgage-backed securities | 21,237 | | 20 | | (1,881) | | 19,376 | | | 21,530 | | 10 | | (2,227) | | 19,313 | |
Collateralized loan obligations | 1,248 | | — | | (33) | | 1,215 | | | 1,248 | | — | | (42) | | 1,206 | |
Total debt securities available for sale, at fair value | $25,865 | | $20 | | ($2,040) | | $23,845 | | | $26,458 | | $11 | | ($2,462) | | $24,007 | |
Mortgage-backed securities: | | | | | | | | | |
Federal agencies and U.S. government sponsored entities | $9,125 | | $14 | | ($599) | | $8,540 | | | $9,253 | | $4 | | ($751) | | $8,506 | |
Total mortgage-backed securities | 9,125 | | 14 | | (599) | | 8,540 | | | 9,253 | | 4 | | (751) | | 8,506 | |
Asset-backed securities | 552 | | 2 | | (30) | | 524 | | | 581 | | — | | (45) | | 536 | |
Total debt securities held to maturity | $9,677 | | $16 | | ($629) | | $9,064 | | | $9,834 | | $4 | | ($796) | | $9,042 | |
Equity securities, at cost | $1,228 | | $— | | $— | | $1,228 | | | $1,058 | | $— | | $— | | $1,058 | |
Equity securities, at fair value | 143 | | — | | — | | 143 | | | 153 | | — | | — | | 153 | |
Accrued interest receivable on debt securities totaled $96 million and $107 million as of March 31, 2023 and December 31, 2022, respectively, and is included in other assets in the Consolidated Balance Sheets.
Citizens Financial Group, Inc. | 40
The following table presents the amortized cost and fair value of debt securities by contractual maturity as of March 31, 2023. 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 |
(dollars 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 | $— | | $2,137 | | $1,241 | | $— | | $3,378 | |
State and political subdivisions | | — | | — | | 2 | | 2 | |
Mortgage-backed securities: | | | | | |
Federal agencies and U.S. government sponsored entities | — | | 1,145 | | 2,670 | | 17,142 | | 20,957 | |
Other/non-agency | — | | — | | — | | 280 | | 280 | |
Collateralized loan obligations | — | | — | | 24 | | 1,224 | | 1,248 | |
Total debt securities available for sale | — | | 3,282 | | 3,935 | | 18,648 | | 25,865 | |
Mortgage-backed securities: | | | | | |
Federal agencies and U.S. government sponsored entities | — | | — | | — | | 9,125 | | 9,125 | |
Asset-backed securities | — | | 552 | | — | | — | | 552 | |
Total debt securities held to maturity | — | | 552 | | — | | 9,125 | | 9,677 | |
Total amortized cost of debt securities | $— | | $3,834 | | $3,935 | | $27,773 | | $35,542 | |
| | | | | |
Fair value: | | | | | |
U.S. Treasury and other | $— | | $2,059 | | $1,193 | | $— | | $3,252 | |
State and political subdivisions | — | | — | | — | | 2 | | 2 | |
Mortgage-backed securities: | | | | | |
Federal agencies and U.S. government sponsored entities | — | | 1,102 | | 2,532 | | 15,491 | | 19,125 | |
Other/non-agency | — | | — | | — | | 251 | | 251 | |
Collateralized loan obligations | — | | — | | 24 | | 1,191 | | 1,215 | |
Total debt securities available for sale | — | | 3,161 | | 3,749 | | 16,935 | | 23,845 | |
Mortgage-backed securities: | | | | | |
Federal agencies and U.S. government sponsored entities | — | | — | | — | | 8,540 | | 8,540 | |
Asset-backed securities | — | | 524 | | — | | — | | 524 | |
Total debt securities held to maturity | — | | 524 | | — | | 8,540 | | 9,064 | |
Total fair value of debt securities | $— | | $3,685 | | $3,749 | | $25,475 | | $32,909 | |
Taxable interest income from investment securities as presented in the Consolidated Statements of Operations was $266 million and $138 million for the three months ended March 31, 2023 and 2022, respectively.
The following table presents realized gains and losses on sale of securities:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(dollars in millions) | | | | | 2023 | | 2022 |
Gains | | | | | $9 | | | $7 | |
Losses | | | | | (4) | | | (3) | |
Securities gains, net | | | | | $5 | | | $4 | |
| | | | | | | |
The following table presents the amortized cost and fair value of debt securities pledged:
| | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(dollars in millions) | Amortized Cost | Fair Value | | Amortized Cost | Fair Value |
Pledged against derivatives, to qualify for fiduciary powers, or to secure public and other deposits as required by law | $4,079 | | $3,701 | | | $3,966 | | $3,527 | |
Pledged as collateral for FHLB borrowing capacity | 243 | | 217 | | | 244 | | 217 | |
Pledged against repurchase agreements | 1,162 | | 1,132 | | | — | | — | |
Citizens Financial Group, Inc. | 41
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 March 31, 2023 or December 31, 2022. The Company offsets certain derivative assets and liabilities in the Consolidated Balance Sheets. For further information see Note 8.
There were no securitizations of mortgage loans retained in the investment portfolio for the three months ended March 31, 2023 and 2022.
Impairment
The Company evaluated its existing HTM portfolio as of March 31, 2023 and concluded that 94% of HTM securities met the zero expected credit loss criteria and, therefore, no ACL was recognized. Lifetime expected credit losses on the remainder of the HTM portfolio 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 March 31, 2023.
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| 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 |
U.S. Treasury and other | $3,114 | | ($116) | | | $138 | | ($10) | | | $3,252 | | ($126) | |
State and political subdivisions | 1 | | — | | | — | | — | | | 1 | | — | |
Mortgage-backed securities: | | | | | | | | |
Federal agencies and U.S. government sponsored entities | 7,101 | | (302) | | | 11,185 | | (1,550) | | | 18,286 | | (1,852) | |
Other/non-agency | 34 | | (3) | | | 217 | | (26) | | | 251 | | (29) | |
Total mortgage-backed securities | 7,135 | | (305) | | | 11,402 | | (1,576) | | | 18,537 | | (1,881) | |
Collateralized loan obligations | 39 | | — | | | 1,176 | | (33) | | | 1,215 | | (33) | |
Total | $10,289 | | ($421) | | | $12,716 | | ($1,619) | | | $23,005 | | ($2,040) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| 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 |
U.S. Treasury and other | $3,356 | | ($193) | | | $— | | $— | | | $3,356 | | ($193) | |
Mortgage-backed securities: | | | | | | | | |
Federal agencies and U.S. government sponsored entities | 13,353 | | (1,136) | | | 5,042 | | (1,062) | | | 18,395 | | (2,198) | |
Other/non-agency | 80 | | (8) | | | 171 | | (21) | | | 251 | | (29) | |
Total mortgage-backed securities | 13,433 | | (1,144) | | | 5,213 | | (1,083) | | | 18,646 | | (2,227) | |
Collateralized loan obligations | 785 | | (26) | | | 421 | | (16) | | | 1,206 | | (42) | |
Total | $17,574 | | ($1,363) | | | $5,634 | | ($1,099) | | | $23,208 | | ($2,462) | |
Citizens does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to recovery of their amortized cost bases. Citizens has determined that credit losses are not expected to be incurred on the AFS debt securities identified with unrealized losses as of March 31, 2023. The unrealized losses on these debt securities reflect non-credit-related factors driven by changes in interest rates. Therefore, the Company has determined that these debt securities are not impaired.
Citizens Financial Group, Inc. | 42
NOTE 3 - LOANS AND LEASES
Loans held for investment are reported at the amount of their outstanding principal, net of charge-offs, unearned income, deferred loan origination fees and costs, and unamortized premiums or discounts on purchased loans.
The following table presents loans and leases, excluding LHFS:
| | | | | | | | | | | |
(dollars in millions) | March 31, 2023 | | December 31, 2022 |
Commercial and industrial | $50,450 | | | $51,836 | |
Commercial real estate | 28,999 | | | 28,865 | |
Leases | 1,417 | | | 1,479 | |
Total commercial | 80,866 | | | 82,180 | |
Residential mortgages | 30,362 | | | 29,921 | |
Home equity | 14,135 | | | 14,043 | |
Automobile | 11,535 | | | 12,292 | |
Education | 12,634 | | | 12,808 | |
Other retail | 5,156 | | | 5,418 | |
Total retail | 73,822 | | | 74,482 | |
Total loans and leases | $154,688 | | | $156,662 | |
Accrued interest receivable on loans and leases held for investment totaled $841 million and $820 million as of March 31, 2023 and December 31, 2022, respectively, and is included in other assets in the Consolidated Balance Sheets.
Loans pledged as collateral for FHLB borrowing capacity, primarily residential mortgages and home equity products, totaled $36.7 billion and $38.4 billion at March 31, 2023 and December 31, 2022, respectively. Loans pledged as collateral to support the contingent ability to borrow at the FRB discount window, if necessary, were primarily comprised of education, automobile, commercial and industrial, and commercial real estate loans, and totaled $36.2 billion and $34.8 billion at March 31, 2023 and December 31, 2022, respectively.
Interest income on direct financing and sales-type leases for the three months ended March 31, 2023 and 2022 was $12 million and $11 million, respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations.
The following table presents the composition of LHFS:
| | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(dollars in millions) | Residential Mortgages(1) | Commercial(2) | Total | | Residential Mortgages(1) | | Commercial(2) | Total |
Loans held for sale at fair value | $767 | | $88 | | $855 | | | $666 | | | $108 | | $774 | |
Other loans held for sale | — | | 1,000 | | 1,000 | | | — | | | 208 | | 208 | |
(1) Residential mortgage LHFS are originated for sale.
(2) Commercial LHFS at fair value consist of loans managed by the Company’s commercial secondary loan desk. Other commercial LHFS primarily consist of loans associated with the Company’s syndication business and, at March 31, 2023, also includes loans transferred to LHFS as part of the Company’s balance sheet optimization actions during the first quarter of 2023.
NOTE 4 - ALLOWANCE FOR CREDIT LOSSES, NONACCRUAL LOANS AND LEASES, AND CONCENTRATIONS OF CREDIT RISK
Allowance for Credit Losses
Management’s estimate of expected credit losses in the Company’s loan and lease portfolios is recorded in the ALLL and the allowance for unfunded lending commitments (collectively the ACL). The Company’s estimate of expected credit losses considers extensive historical loss experience, including the impact of loss mitigation and restructuring programs that the Company offers to borrowers experiencing financial difficulty, as well as projected loss severity as a result of loan default.
Effective January 1, 2023, the Company adopted new accounting guidance that eliminates the separate recognition and measurement of TDRs. Upon adoption of this guidance, the ACL for loans previously identified as TDRs is measured at the product level based on post-modification credit attributes and use of an econometric model.
Citizens Financial Group, Inc. | 43
For a detailed discussion of the ACL reserve methodology and estimation techniques as of December 31, 2022, see Note 6 in the Company’s 2022 Form 10-K. There were no significant changes to the ACL reserve methodology during the three months ended March 31, 2023.
The following table presents a summary of changes in the ACL for the three months ended March 31, 2023:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | |
(dollars in millions) | Commercial | Retail | Total | | | | |
Allowance for loan and lease losses, beginning of period | $1,060 | | $923 | | $1,983 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Charge-offs | (59) | | (112) | | (171) | | | | | |
Recoveries | 7 | | 31 | | 38 | | | | | |
Net charge-offs | (52) | | (81) | | (133) | | | | | |
Provision expense (benefit) for loans and leases | 103 | | 64 | | 167 | | | | | |
Allowance for loan and lease losses, end of period | 1,111 | | 906 | | 2,017 | | | | | |
Allowance for unfunded lending commitments, beginning of period | 207 | | 50 | | 257 | | | | | |
| | | | | | | |
| | | | | | | |
Provision expense (benefit) for unfunded lending commitments | 8 | | (7) | | 1 | | | | | |
| | | | | | | |
Allowance for unfunded lending commitments, end of period | 215 | | 43 | | 258 | | | | | |
Total allowance for credit losses, end of period | $1,326 | | $949 | | $2,275 | | | | | |
During the three months ended March 31, 2023, net charge-offs of $133 million and a credit provision of $168 million resulted in an increase of $35 million to the ACL.
Our ACL as of March 31, 2023 accounts for an economic forecast over our two-year reasonable and supportable period with peak unemployment of approximately 6% and peak-to-trough GDP decline of approximately 1%. This forecast reflects a moderate recession over the two-year reasonable and supportable period.
The following table presents a summary of changes in the ACL for the three months ended March 31, 2022:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | |
(dollars in millions) | Commercial | Retail | Total | | | | |
Allowance for loan and lease losses, beginning of period | $821 | | $937 | | $1,758 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Charge-offs | (14) | | (87) | | (101) | | | | | |
Recoveries | 3 | | 39 | | 42 | | | | | |
Net charge-offs | (11) | | (48) | | (59) | | | | | |
Provision expense (benefit) for loans and leases(1) | (32) | | 53 | | 21 | | | | | |
Allowance for loan and lease losses, end of period | 778 | | 942 | | 1,720 | | | | | |
Allowance for unfunded lending commitments, beginning of period | 153 | | 23 | | 176 | | | | | |
| | | | | | | |
| | | | | | | |
Provision expense (benefit) for unfunded lending commitments | (6) | | (12) | | (18) | | | | | |
| | | | | | | |
Allowance for unfunded lending commitments, end of period | 147 | | 11 | | 158 | | | | | |
Total allowance for credit losses, end of period | $925 | | $953 | | $1,878 | | | | | |
(1) Includes $24 million of initial provision expense related to non-PCD loans and leases acquired from HSBC for the three months ended March 31, 2022.
Credit Quality Indicators
The Company presents loan and lease portfolio segments and classes by credit quality indicator and vintage year. Citizens defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. In general, renewals are categorized as new credit decisions and reflect the renewal date as the vintage date.
Citizens utilizes regulatory classification ratings to monitor credit quality for commercial loans and leases. For more information on regulatory classification ratings see Note 6 in the Company’s 2022 Form 10-K.
Citizens Financial Group, Inc. | 44
The following table presents the amortized cost basis of commercial loans and leases by vintage date and regulatory classification rating as of March 31, 2023, and gross charge-offs by vintage date for the three months ended March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | Revolving Loans | | |
(dollars in millions) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Within the Revolving Period | Converted to Term | | Total |
Commercial and industrial | | | | | | | | | | | | | | | | |
Pass | $1,357 | | | $7,665 | | | $7,610 | | | $1,832 | | | $1,766 | | | $2,791 | | | $23,680 | | $129 | | | $46,830 | |
Special Mention | — | | | 192 | | | 242 | | | 127 | | | 15 | | | 196 | | | 382 | | — | | | 1,154 | |
Substandard | 36 | | | 286 | | | 279 | | | 216 | | | 178 | | | 397 | | | 811 | | 12 | | | 2,215 | |
Doubtful | 18 | | | 34 | | | 23 | | | 3 | | | 7 | | | 88 | | | 74 | | 4 | | | 251 | |
Total commercial and industrial | 1,411 | | | 8,177 | | | 8,154 | | | 2,178 | | | 1,966 | | | 3,472 | | | 24,947 | | 145 | | | 50,450 | |
Gross charge-offs | — | | | — | | | 27 | | | 4 | | | — | | | — | | | 24 | | — | | | 55 | |
Commercial real estate | | | | | | | | | | | | | | | | |
Pass | 603 | | | 5,375 | | | 6,486 | | | 3,284 | | | 2,827 | | | 5,124 | | | 1,585 | | 4 | | | 25,288 | |
Special Mention | — | | | 489 | | | 95 | | | 309 | | | 274 | | | 279 | | | 11 | | — | | | 1,457 | |
Substandard | — | | | 154 | | | 82 | | | 160 | | | 574 | | | 1,119 | | | 25 | | — | | | 2,114 | |
Doubtful | — | | | 8 | | | 1 | | | 6 | | | 88 | | | 37 | | | — | | — | | | 140 | |
Total commercial real estate | 603 | | | 6,026 | | | 6,664 | | | 3,759 | | | 3,763 | | | 6,559 | | | 1,621 | | 4 | | | 28,999 | |
Gross charge-offs | — | | | — | | | — | | | — | | | 1 | | | 3 | | | — | | — | | | 4 | |
Leases | | | | | | | | | | | | | | | | |
Pass | 59 | | | 240 | | | 331 | | | 230 | | | 85 | | | 421 | | | — | | — | | | 1,366 | |
Special Mention | 3 | | | 2 | | | 6 | | | 4 | | | 2 | | | — | | | — | | — | | | 17 | |
Substandard | — | | | 9 | | | 11 | | | 3 | | | 8 | | | 3 | | | — | | — | | | 34 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | |
Total leases | 62 | | | 251 | | | 348 | | | 237 | | | 95 | | | 424 | | | — | | — | | | 1,417 | |
Gross charge-offs | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | |
Total commercial | | | | | | | | | | | | | | | | |
Pass | 2,019 | | | 13,280 | | | 14,427 | | | 5,346 | | | 4,678 | | | 8,336 | | | 25,265 | | 133 | | | 73,484 | |
Special Mention | 3 | | | 683 | | | 343 | | | 440 | | | 291 | | | 475 | | | 393 | | — | | | 2,628 | |
Substandard | 36 | | | 449 | | | 372 | | | 379 | | | 760 | | | 1,519 | | | 836 | | 12 | | | 4,363 | |
Doubtful | 18 | | | 42 | | | 24 | | | 9 | | | 95 | | | 125 | | | 74 | | 4 | | | 391 | |
Total commercial | $2,076 | | | $14,454 | | | $15,166 | | | $6,174 | | | $5,824 | | | $10,455 | | | $26,568 | | $149 | | | $80,866 | |
Gross charge-offs | $— | | | $— | | | $27 | | | $4 | | | $1 | | | $3 | | | $24 | | $— | | | $59 | |
Citizens Financial Group, Inc. | 45
The following table presents the amortized cost basis of commercial loans and leases by vintage date and regulatory classification rating as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | Revolving Loans | | |
(dollars in millions) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Within the Revolving Period | Converted to Term | | Total |
Commercial and industrial | | | | | | | | | | | | | | | | |
Pass | $8,304 | | | $8,469 | | | $2,224 | | | $2,074 | | | $1,334 | | | $1,952 | | | $24,211 | | $148 | | | $48,716 | |
Special Mention | 124 | | | 189 | | | 120 | | | 74 | | | 48 | | | 153 | | | 364 | | — | | | 1,072 | |
Substandard | 150 | | | 218 | | | 203 | | | 255 | | | 99 | | | 349 | | | 597 | | 14 | | | 1,885 | |
Doubtful | 10 | | | 14 | | | 1 | | | 5 | | | 41 | | | 14 | | | 76 | | 2 | | | 163 | |
Total commercial and industrial | 8,588 | | | 8,890 | | | 2,548 | | | 2,408 | | | 1,522 | | | 2,468 | | | 25,248 | | 164 | | | 51,836 | |
| | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | | |
Pass | 5,767 | | | 6,442 | | | 3,639 | | | 3,066 | | | 2,145 | | | 3,536 | | | 1,888 | | 3 | | | 26,486 | |
Special Mention | 1 | | | 119 | | | 103 | | | 390 | | | 99 | | | 113 | | | 62 | | — | | | 887 | |
Substandard | 92 | | | 18 | | | 79 | | | 253 | | | 350 | | | 610 | | | 23 | | — | | | 1,425 | |
Doubtful | — | | | 2 | | | 9 | | | 55 | | | — | | | 1 | | | — | | — | | | 67 | |
Total commercial real estate | 5,860 | | | 6,581 | | | 3,830 | | | 3,764 | | | 2,594 | | | 4,260 | | | 1,973 | | 3 | | | 28,865 | |
| | | | | | | | | | | | | | | | |
Leases | | | | | | | | | | | | | | | | |
Pass | 263 | | | 363 | | | 250 | | | 99 | | | 128 | | | 345 | | | — | | — | | | 1,448 | |
Special Mention | 4 | | | 5 | | | 2 | | | 6 | | | 1 | | | 3 | | | — | | — | | | 21 | |
Substandard | — | | | 4 | | | 3 | | | 3 | | | — | | | — | | | — | | — | | | 10 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | |
Total leases | 267 | | | 372 | | | 255 | | | 108 | | | 129 | | | 348 | | | — | | — | | | 1,479 | |
| | | | | | | | | | | | | | | | |
Total commercial | | | | | | | | | | | | | | | | |
Pass | 14,334 | | | 15,274 | | | 6,113 | | | 5,239 | | | 3,607 | | | 5,833 | | | 26,099 | | 151 | | | 76,650 | |
Special Mention | 129 | | | 313 | | | 225 | | | 470 | | | 148 | | | 269 | | | 426 | | — | | | 1,980 | |
Substandard | 242 | | | 240 | | | 285 | | | 511 | | | 449 | | | 959 | | | 620 | | 14 | | | 3,320 | |
Doubtful | 10 | | | 16 | | | 10 | | | 60 | | | 41 | | | 15 | | | 76 | | 2 | | | 230 | |
Total commercial | $14,715 | | | $15,843 | | | $6,633 | | | $6,280 | | | $4,245 | | | $7,076 | | | $27,221 | | $167 | | | $82,180 | |
| | | | | | | | | | | | | | | | |
For retail loans, Citizens utilizes FICO credit scores and the loan’s payment and delinquency status to monitor credit quality. Management believes FICO scores are the strongest indicator of credit losses over the contractual life of the loan and assist management in predicting the borrower’s future payment performance. Scores are based on current and historical national industry-wide consumer level credit performance data.
Citizens Financial Group, Inc. | 46
The following table presents the amortized cost basis of retail loans by vintage date and current FICO score as of March 31, 2023, and gross charge-offs by vintage date for the three months ended March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | Revolving Loans | | |
(dollars in millions) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Within the Revolving Period | Converted to Term | | Total |
Residential mortgages | | | | | | | | | | | | | | | | |
800+ | $133 | | | $2,528 | | | $5,105 | | | $3,202 | | | $1,167 | | | $3,289 | | | $— | | $— | | | $15,424 | |
740-799 | 344 | | | 2,225 | | | 2,850 | | | 1,566 | | | 628 | | | 1,747 | | | — | | — | | | 9,360 | |
680-739 | 87 | | | 671 | | | 863 | | | 493 | | | 293 | | | 955 | | | — | | — | | | 3,362 | |
620-679 | 18 | | | 139 | | | 158 | | | 99 | | | 139 | | | 492 | | | — | | — | | | 1,045 | |
<620 | — | | | 25 | | | 81 | | | 92 | | | 167 | | | 588 | | | — | | — | | | 953 | |
No FICO available(1) | 1 | | | — | | | 2 | | | 2 | | | 3 | | | 210 | | | — | | — | | | 218 | |
Total residential mortgages | 583 | | | 5,588 | | | 9,059 | | | 5,454 | | | 2,397 | | | 7,281 | | | — | | — | | | 30,362 | |
Gross charge-offs | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | — | | | 1 | |
Home equity | | | | | | | | | | | | | | | | |
800+ | — | | | 4 | | | 5 | | | 2 | | | 5 | | | 108 | | | 4,957 | | 257 | | | 5,338 | |
740-799 | — | | | 1 | | | 2 | | | 1 | | | 4 | | | 98 | | | 4,306 | | 263 | | | 4,675 | |
680-739 | — | | | 1 | | | 1 | | | 1 | | | 6 | | | 115 | | | 2,386 | | 229 | | | 2,739 | |
620-679 | — | | | — | | | 1 | | | 2 | | | 10 | | | 98 | | | 628 | | 144 | | | 883 | |
<620 | — | | | — | | | — | | | 2 | | | 10 | | | 100 | | | 219 | | 169 | | | 500 | |
| | | | | | | | | | | | | | | | |
Total home equity | — | | | 6 | | | 9 | | | 8 | | | 35 | | | 519 | | | 12,496 | | 1,062 | | | 14,135 | |
Gross charge-offs | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | | — | | | 2 | |
Automobile | | | | | | | | | | | | | | | | |
800+ | 95 | | | 625 | | | 1,362 | | | 524 | | | 276 | | | 130 | | | — | | — | | | 3,012 | |
740-799 | 141 | | | 877 | | | 1,434 | | | 567 | | | 290 | | | 141 | | | — | | — | | | 3,450 | |
680-739 | 154 | | | 820 | | | 1,054 | | | 400 | | | 214 | | | 110 | | | — | | — | | | 2,752 | |
620-679 | 94 | | | 502 | | | 519 | | | 183 | | | 114 | | | 69 | | | — | | — | | | 1,481 | |
<620 | 14 | | | 217 | | | 316 | | | 125 | | | 97 | | | 69 | | | — | | — | | | 838 | |
No FICO available(1) | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | 2 | |
Total automobile | 500 | | | 3,041 | | | 4,685 | | | 1,799 | | | 991 | | | 519 | | | — | | — | | | 11,535 | |
Gross charge-offs | — | | | 7 | | | 11 | | | 4 | | | 4 | | | 4 | | | — | | — | | | 30 | |
Education | | | | | | | | | | | | | | | | |
800+ | 74 | | | 652 | | | 1,710 | | | 1,522 | | | 668 | | | 1,391 | | | — | | — | | | 6,017 | |
740-799 | 106 | | | 771 | | | 1,248 | | | 1,042 | | | 442 | | | 808 | | | — | | — | | | 4,417 | |
680-739 | 53 | | | 361 | | | 396 | | | 331 | | | 159 | | | 362 | | | — | | — | | | 1,662 | |
620-679 | 7 | | | 69 | | | 74 | | | 61 | | | 38 | | | 125 | | | — | | — | | | 374 | |
<620 | — | | | 12 | | | 18 | | | 21 | | | 12 | | | 57 | | | — | | — | | | 120 | |
No FICO available(1) | 3 | | | 1 | | | — | | | — | | | — | | | 40 | | | — | | — | | | 44 | |
Total education | 243 | | | 1,866 | | | 3,446 | | | 2,977 | | | 1,319 | | | 2,783 | | | — | | — | | | 12,634 | |
Gross charge-offs | — | | | 2 | | | 3 | | | 4 | | | 3 | | | 11 | | | — | | — | | | 23 | |
Other retail | | | | | | | | | | | | | | | | |
800+ | 16 | | | 163 | | | 82 | | | 74 | | | 37 | | | 40 | | | 475 | | — | | | 887 | |
740-799 | 22 | | | 195 | | | 101 | | | 94 | | | 51 | | | 44 | | | 966 | | 1 | | | 1,474 | |
680-739 | 18 | | | 149 | | | 85 | | | 82 | | | 40 | | | 27 | | | 1,000 | | 3 | | | 1,404 | |
620-679 | 13 | | | 92 | | | 50 | | | 42 | | | 14 | | | 9 | | | 435 | | 4 | | | 659 | |
<620 | 2 | | | 42 | | | 27 | | | 22 | | | 7 | | | 4 | | | 210 | | 5 | | | 319 | |
No FICO available(1) | 2 | | | 5 | | | 1 | | | 2 | | | — | | | — | | | 402 | | 1 | | | 413 | |
Total other retail | 73 | | | 646 | | | 346 | | | 316 | | | 149 | | | 124 | | | 3,488 | | 14 | | | 5,156 | |
Gross charge-offs | 5 | | | 15 | | | 4 | | | 3 | | | 3 | | | 3 | | | 23 | | — | | | 56 | |
Total retail | | | | | | | | | | | | | | | | |
800+ | 318 | | | 3,972 | | | 8,264 | | | 5,324 | | | 2,153 | | | 4,958 | | | 5,432 | | 257 | | | 30,678 | |
740-799 | 613 | | | 4,069 | | | 5,635 | | | 3,270 | | | 1,415 | | | 2,838 | | | 5,272 | | 264 | | | 23,376 | |
680-739 | 312 | | | 2,002 | | | 2,399 | | | 1,307 | | | 712 | | | 1,569 | | | 3,386 | | 232 | | | 11,919 | |
620-679 | 132 | | | 802 | | | 802 | | | 387 | | | 315 | | | 793 | | | 1,063 | | 148 | | | 4,442 | |
<620 | 16 | | | 296 | | | 442 | | | 262 | | | 293 | | | 818 | | | 429 | | 174 | | | 2,730 | |
No FICO available(1) | 8 | | | 6 | | | 3 | | | 4 | | | 3 | | | 250 | | | 402 | | 1 | | | 677 | |
Total retail | $1,399 | | | $11,147 | | | $17,545 | | | $10,554 | | | $4,891 | | | $11,226 | | | $15,984 | | $1,076 | | | $73,822 | |
Gross charge-offs | $5 | | | $24 | | | $18 | | | $11 | | | $10 | | | $20 | | | $24 | | $— | | | $112 | |
(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).
Citizens Financial Group, Inc. | 47
The following table presents the amortized cost basis of retail loans by vintage date and current FICO score as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | Revolving Loans | | |
(dollars in millions) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Within the Revolving Period | Converted to Term | | Total |
Residential mortgages | | | | | | | | | | | | | | | | |
800+ | $2,132 | | | $4,943 | | | $3,143 | | | $1,180 | | | $363 | | | $3,081 | | | $— | | $— | | | $14,842 | |
740-799 | 2,376 | | | 2,991 | | | 1,660 | | | 638 | | | 257 | | | 1,635 | | | — | | — | | | 9,557 | |
680-739 | 769 | | | 899 | | | 502 | | | 308 | | | 149 | | | 851 | | | — | | — | | | 3,478 | |
620-679 | 125 | | | 168 | | | 135 | | | 138 | | | 99 | | | 422 | | | — | | — | | | 1,087 | |
<620 | 17 | | | 68 | | | 77 | | | 165 | | | 147 | | | 455 | | | — | | — | | | 929 | |
No FICO available(1) | 2 | | | 2 | | | 2 | | | 3 | | | 2 | | | 17 | | | — | | — | | | 28 | |
Total residential mortgages | 5,421 | | | 9,071 | | | 5,519 | | | 2,432 | | | 1,017 | | | 6,461 | | | — | | — | | | 29,921 | |
| | | | | | | | | | | | | | | | |
Home equity | | | | | | | | | | | | | | | | |
800+ | 4 | | | 5 | | | 2 | | | 5 | | | 6 | | | 110 | | | 4,958 | | 267 | | | 5,357 | |
740-799 | 2 | | | 2 | | | 1 | | | 4 | | | 6 | | | 97 | | | 4,350 | | 274 | | | 4,736 | |
680-739 | 1 | | | 1 | | | 1 | | | 6 | | | 11 | | | 114 | | | 2,296 | | 234 | | | 2,664 | |
620-679 | — | | | 1 | | | 2 | | | 9 | | | 16 | | | 93 | | | 558 | | 143 | | | 822 | |
<620 | — | | | — | | | 2 | | | 12 | | | 18 | | | 82 | | | 178 | | 172 | | | 464 | |
| | | | | | | | | | | | | | | | |
Total home equity | 7 | | | 9 | | | 8 | | | 36 | | | 57 | | | 496 | | | 12,340 | | 1,090 | | | 14,043 | |
| | | | | | | | | | | | | | | | |
Automobile | | | | | | | | | | | | | | | | |
800+ | 650 | | | 1,453 | | | 584 | | | 324 | | | 120 | | | 54 | | | — | | — | | | 3,185 | |
740-799 | 962 | | | 1,606 | | | 649 | | | 343 | | | 134 | | | 56 | | | — | | — | | | 3,750 | |
680-739 | 920 | | | 1,187 | | | 460 | | | 254 | | | 102 | | | 44 | | | — | | — | | | 2,967 | |
620-679 | 554 | | | 586 | | | 205 | | | 133 | | | 62 | | | 28 | | | — | | — | | | 1,568 | |
<620 | 188 | | | 309 | | | 130 | | | 106 | | | 56 | | | 31 | | | — | | — | | | 820 | |
No FICO available(1) | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | 2 | |
Total automobile | 3,276 | | | 5,141 | | | 2,028 | | | 1,160 | | | 474 | | | 213 | | | — | | — | | | 12,292 | |
| | | | | | | | | | | | | | | | |
Education | | | | | | | | | | | | | | | | |
800+ | 548 | | | 1,720 | | | 1,567 | | | 694 | | | 410 | | | 1,068 | | | — | | — | | | 6,007 | |
740-799 | 735 | | | 1,351 | | | 1,126 | | | 486 | | | 267 | | | 609 | | | — | | — | | | 4,574 | |
680-739 | 363 | | | 423 | | | 356 | | | 170 | | | 103 | | | 288 | | | — | | — | | | 1,703 | |
620-679 | 54 | | | 76 | | | 62 | | | 38 | | | 29 | | | 102 | | | — | | — | | | 361 | |
<620 | 6 | | | 16 | | | 20 | | | 12 | | | 11 | | | 50 | | | — | | — | | | 115 | |
No FICO available(1) | 6 | | | — | | | — | | | — | | | — | | | 42 | | | — | | — | | | 48 | |
Total education | 1,712 | | | 3,586 | | | 3,131 | | | 1,400 | | | 820 | | | 2,159 | | | — | | — | | | 12,808 | |
| | | | | | | | | | | | | | | | |
Other retail | | | | | | | | | | | | | | | | |
800+ | 182 | | | 105 | | | 93 | | | 48 | | | 25 | | | 27 | | | 491 | | — | | | 971 | |
740-799 | 230 | | | 134 | | | 121 | | | 68 | | | 31 | | | 25 | | | 974 | | 1 | | | 1,584 | |
680-739 | 175 | | | 109 | | | 103 | | | 52 | | | 21 | | | 14 | | | 993 | | 4 | | | 1,471 | |
620-679 | 108 | | | 65 | | | 52 | | | 18 | | | 8 | | | 4 | | | 435 | | 4 | | | 694 | |
<620 | 35 | | | 30 | | | 25 | | | 9 | | | 4 | | | 2 | | | 190 | | 6 | | | 301 | |
No FICO available(1) | 12 | | | 1 | | | 3 | | | — | | | — | | | — | | | 380 | | 1 | | | 397 | |
Total other retail | 742 | | | 444 | | | 397 | | | 195 | | | 89 | | | 72 | | | 3,463 | | 16 | | | 5,418 | |
| | | | | | | | | | | | | | | | |
Total retail | | | | | | | | | | | | | | | | |
800+ | 3,516 | | | 8,226 | | | 5,389 | | | 2,251 | | | 924 | | | 4,340 | | | 5,449 | | 267 | | | 30,362 | |
740-799 | 4,305 | | | 6,084 | | | 3,557 | | | 1,539 | | | 695 | | | 2,422 | | | 5,324 | | 275 | | | 24,201 | |
680-739 | 2,228 | | | 2,619 | | | 1,422 | | | 790 | | | 386 | | | 1,311 | | | 3,289 | | 238 | | | 12,283 | |
620-679 | 841 | | | 896 | | | 456 | | | 336 | | | 214 | | | 649 | | | 993 | | 147 | | | 4,532 | |
<620 | 246 | | | 423 | | | 254 | | | 304 | | | 236 | | | 620 | | | 368 | | 178 | | | 2,629 | |
No FICO available(1) | 22 | | | 3 | | | 5 | | | 3 | | | 2 | | | 59 | | | 380 | | 1 | | | 475 | |
Total retail | $11,158 | | | $18,251 | | | $11,083 | | | $5,223 | | | $2,457 | | | $9,401 | | | $15,803 | | $1,106 | | | $74,482 | |
| | | | | | | | | | | | | | | | |
(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).
Citizens Financial Group, Inc. | 48
Nonaccrual and Past Due Assets
The following tables present an aging analysis of accruing loans and leases, and nonaccrual loans and leases as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| | Days Past Due and Accruing | | | |
(dollars in millions) | Current | 30-59 | 60-89 | 90+ | Nonaccrual | Total | Nonaccrual with no related ACL |
Commercial and industrial | $50,007 | | $119 | | $6 | | $21 | | $297 | | $50,450 | | $63 | |
Commercial real estate | 28,558 | | 231 | | 7 | | 63 | | 140 | | 28,999 | | 1 | |
Leases | 1,416 | | 1 | | — | | — | | — | | 1,417 | | — | |
Total commercial | 79,981 | | 351 | | 13 | | 84 | | 437 | | 80,866 | | 64 | |
Residential mortgages(1) | 29,556 | | 202 | | 74 | | 314 | | 216 | | 30,362 | | 162 | |
Home equity | 13,804 | | 68 | | 23 | | — | | 240 | | 14,135 | | 180 | |
Automobile | 11,323 | | 128 | | 34 | | — | | 50 | | 11,535 | | 8 | |
Education | 12,561 | | 33 | | 14 | | 3 | | 23 | | 12,634 | | 3 | |
Other retail | 5,034 | | 42 | | 27 | | 23 | | 30 | | 5,156 | | 1 | |
Total retail | 72,278 | | 473 | | 172 | | 340 | | 559 | | 73,822 | | 354 | |
Total | $152,259 | | $824 | | $185 | | $424 | | $996 | | $154,688 | | $418 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | Days Past Due and Accruing | | | |
(dollars in millions) | Current | 30-59 | 60-89 | 90+ | Nonaccrual | Total | Nonaccrual with no related ACL |
Commercial and industrial | $51,389 | | $152 | | $25 | | $21 | | $249 | | $51,836 | | $64 | |
Commercial real estate | 28,665 | | 51 | | 45 | | 1 | | 103 | | 28,865 | | 7 | |
Leases | 1,475 | | 4 | | — | | — | | — | | 1,479 | | — | |
Total commercial | 81,529 | | 207 | | 70 | | 22 | | 352 | | 82,180 | | 71 | |
Residential mortgages(1) | 29,228 | | 95 | | 45 | | 319 | | 234 | | 29,921 | | 187 | |
Home equity | 13,719 | | 64 | | 19 | | — | | 241 | | 14,043 | | 185 | |
Automobile | 12,039 | | 152 | | 45 | | — | | 56 | | 12,292 | | 9 | |
Education | 12,718 | | 36 | | 17 | | 4 | | 33 | | 12,808 | | 3 | |
Other retail | 5,294 | | 44 | | 30 | | 22 | | 28 | | 5,418 | | 1 | |
Total retail | 72,998 | | 391 | | 156 | | 345 | | 592 | | 74,482 | | 385 | |
Total | $154,527 | | $598 | | $226 | | $367 | | $944 | | $156,662 | | $456 | |
(1) 90+ days past due and accruing includes $309 million and $316 million of loans fully or partially guaranteed by the FHA, VA, and USDA at March 31, 2023 and December 31, 2022, respectively.
Interest income is generally not recognized for loans and leases that are on nonaccrual status. The Company reverses accrued interest receivable with a charge to interest income upon classifying a loan or lease as nonaccrual.
At March 31, 2023 and December 31, 2022, the Company had collateral-dependent residential mortgage and home equity loans totaling $556 million and $561 million, respectively. At March 31, 2023 and December 31, 2022, the Company had collateral-dependent commercial loans totaling $115 million and $21 million, respectively.
The amortized cost basis of mortgage loans collateralized by residential real estate for which formal foreclosure proceedings were in-process was $293 million and $250 million as of March 31, 2023 and December 31, 2022, respectively.
Citizens Financial Group, Inc. | 49
Loan Modifications to Borrowers Experiencing Financial Difficulty
Effective January 1, 2023, the Company adopted accounting guidance that eliminates the recognition and measurement of TDRs. Upon adoption of this guidance, all loan modifications to borrowers experiencing financial difficulty, or FDMs, are evaluated to determine whether the modification should be accounted for as a new loan or a continuation of the existing loan. The existing loan is derecognized and the restructured loan is accounted for as a new loan if the effective yield on the restructured loan is at least equal to the effective yield for comparable loans with similar collection risk and the modification to the original loan is more than minor. Any unamortized fees and costs from the original loan are recognized in interest income when the new loan is granted. If a loan restructuring does not meet these conditions, the existing loan’s amortized cost basis is carried forward and the modified loan is accounted for as a continuation of the existing loan. FDMs are generally accounted for as a continuation of the existing loan given the terms are typically not at market rates.
The Company offers loan modifications to retail and commercial borrowers that may result in a payment delay, interest rate reduction, term extension, principal forgiveness, or combination thereof. Commercial loan modifications are offered on a case-by-case basis and are generally payment delay, term extension and/or interest rate reduction modification types. Principal forgiveness is offered in rare circumstances. Retail loan modifications are offered through structured loan modification programs. Forbearance (due to hardship) programs result in modification types including payment delay and/or term extension. Other retail loan modification programs target interest rate reduction or a combination of interest rate reduction and term extension. Credit card settlement programs result in principal forgiveness. In addition, certain reorganization bankruptcy judgments result in interest rate reduction, term extension or principal forgiveness modification types.
The following table presents the period-end amortized cost of loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023, disaggregated by class of financing receivable and modification type. The modification type reflects the cumulative effect of all FDMs received during the indicated period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
(dollars in millions) | Interest Rate Reduction | Term Extension | Payment Delay | Principal Forgiveness | Interest Rate Reduction and Term Extension | | | Term Extension and Payment Delay | | | | Total | Total as a % of Loan Class(1) |
Commercial and industrial | $— | | $44 | | $32 | | $— | | $— | | | | $21 | | | | | $97 | | 0.19 | % |
Commercial real estate | — | | 55 | | — | | — | | — | | | | — | | | | | 55 | | 0.19 | |
Leases | — | | — | | — | | — | | — | | | | — | | | | | — | | — | |
Total commercial | — | | 99 | | 32 | | — | | — | | | | 21 | | | | | 152 | | 0.19 | |
Residential mortgages | 2 | | 19 | | — | | — | | 3 | | | | — | | | | | 24 | | 0.08 | |
Home equity | — | | 1 | | — | | — | | 2 | | | | — | | | | | 3 | | 0.02 | |
Automobile | — | | — | | — | | — | | — | | | | — | | | | | — | | — | |
Education | 1 | | — | | 1 | | — | | — | | | | — | | | | | 2 | | 0.02 | |
Other retail | 3 | | — | | — | | — | | — | | | | — | | | | | 3 | | 0.06 | |
Total retail | 6 | | 20 | | 1 | | — | | 5 | | | | — | | | | | 32 | | 0.04 | |
Total(2) | $6 | | $119 | | $33 | | $— | | $5 | | | | $21 | | | | | $184 | | 0.12 | % |
(1) Represents the total amortized cost as of period-end divided by the period-end amortized cost of the corresponding loan class. Accrued interest receivable is excluded from amortized cost and is immaterial.
(2) Excludes the period-end amortized cost of $7 million relative to borrowers that had their debt discharged by means of a Chapter 7 bankruptcy filing during the three months ended March 31, 2023.
Citizens Financial Group, Inc. | 50
The following table presents the financial effect of loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023, disaggregated by class of financing receivable.
| | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
(amounts in whole dollars) | Weighted-Average Interest Rate Reduction(1)(5) | Weighted-Average Term Extension (in Months)(2)(5) | Weighted-Average Payment Deferral(3)(5) | Amount of Principal Forgiven(4) |
Commercial and industrial | 4.05 | % | 9 | $658,467 | | $— | |
Commercial real estate | — | | 14 | — | | — | |
Leases | — | | — | | — | | — | |
Residential mortgages | 1.47 | | 44 | — | | — | |
Home equity | 2.02 | | 139 | 3,863 | | — | |
Automobile | 2.76 | | 23 | 1,005 | | 2,702 | |
Education | 5.77 | | — | | 3,037 | | — | |
Other retail | 17.79 | | 22 | — | | 1,156,256 | |
(1) Represents the weighted-average reduction of the loan’s interest rate.
(2) Represents the weighted-average extension of a loan’s maturity date.
(3) Represents the weighted-average amount of payments delayed as a result of the loan modification.
(4) Amounts are recorded as charge-offs.
(5) Weighted based on period-end amortized cost.
The following table presents an aging analysis of the period-end amortized cost of loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023, disaggregated by class of financing receivable. A loan in a forbearance or repayment plan is reported as past due according to its contractual terms until contractually modified. Subsequent to modification, it is reported as past due based on its restructured terms.
| | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| | Days Past Due and Accruing | | |
(dollars in millions) | Current | 30-59 | 60-89 | 90+ | Nonaccrual | Total |
Commercial and industrial | $76 | | $— | | $— | | $— | | $21 | | $97 | |
Commercial real estate | 55 | | — | | — | | — | | — | | 55 | |
Leases | — | | — | | — | | — | | — | | — | |
Total commercial | 131 | | — | | — | | — | | 21 | | 152 | |
Residential mortgages | 16 | | 4 | | — | | 2 | | 2 | | 24 | |
Home equity | 1 | | — | | — | | — | | 2 | | 3 | |
Automobile | — | | — | | — | | — | | — | | — | |
Education | 2 | | — | | — | | — | | — | | 2 | |
Other retail | 3 | | — | | — | | — | | — | | 3 | |
Total retail | 22 | | 4 | | — | | 2 | | 4 | | 32 | |
Total | $153 | | $4 | | $— | | $2 | | $25 | | $184 | |
The period-end amortized cost of loans modified during the three months ended March 31, 2023 that subsequently defaulted is immaterial and not presented as a result. A loan is considered to be in default if, subsequent to modification, it becomes 90 or more days past due or is placed on nonaccrual status.
Unfunded commitments related to loans modified during the three months ended March 31, 2023 were $12 million at March 31, 2023.
Citizens Financial Group, Inc. | 51
Troubled Debt Restructuring Disclosures Prior to the Adoption of ASU 2022-02
The following tables summarize loans modified during the three months ended March 31, 2022. The balances represent the post-modification outstanding amortized cost basis and may include loans that became TDRs during the period and were subsequently paid off in full, charged off, or sold prior to period end. Pre-modification balances for modified loans approximate the post-modification balances shown.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, 2022 |
| | | | Amortized Cost Basis |
(dollars in millions) | Number of Contracts | | | Interest Rate Reduction(1) | | Maturity Extension(2) | | Other(3) | Total |
Commercial and industrial | 10 | | | | $— | | | | $24 | | | | $7 | | | $31 | |
| | | | | | | | | | | | |
Total commercial | 10 | | | | — | | | | 24 | | | | 7 | | | 31 | |
Residential mortgages | 1,181 | | | | 22 | | | | 14 | | | | 214 | | | 250 | |
Home equity | 178 | | | | 2 | | | | — | | | | 9 | | | 11 | |
Automobile | 165 | | | | 1 | | | | — | | | | 1 | | | 2 | |
Education | 143 | | | | — | | | | — | | | | 6 | | | 6 | |
Other retail | 521 | | | | 2 | | | | — | | | | — | | | 2 | |
Total retail | 2,188 | | | | 27 | | | | 14 | | | | 230 | | | 271 | |
Total | 2,198 | | | | $27 | | | | $38 | | | | $237 | | | $302 | |
(1) Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.
(2) Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).
(3) Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forgiveness, and capitalizing arrearages. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post-modification balances being higher than pre-modification.
Modified TDRs resulted in charge-offs of $1 million for the three months ended March 31, 2022. Unfunded commitments related to TDRs were $81 million at December 31, 2022.
The following table provides a summary of TDRs that defaulted (became 90 days or more past due) within 12 months of their modification date:
| | | | | | |
| | Three Months Ended March 31, |
(dollars in millions) | | 2022 |
Commercial TDRs | | $— | |
Retail TDRs(1) | | 15 | |
Total | | $15 | |
(1) Includes $10 million of loans fully or partially government guaranteed by the FHA, VA, and USDA for the three months ended March 31, 2022.
Concentrations of Credit Risk
The Company’s lending activity is geographically well diversified with an emphasis in our core markets located in the New England, Mid-Atlantic and Midwest regions. Generally, loans are collateralized by assets including real estate, inventory, accounts receivable, other personal property and investment securities. As of March 31, 2023 and December 31, 2022, Citizens had a significant amount of loans collateralized by residential and commercial real estate. There were no significant concentration risks within the commercial or retail loan portfolios. Exposure to credit losses arising from lending transactions may fluctuate with fair values of collateral supporting loans, which may not perform according to contractual agreements. The Company’s policy is to collateralize loans to the extent necessary; however, unsecured loans are also granted on the basis of the financial strength of the applicant and the facts surrounding the transaction.
NOTE 5 - MORTGAGE BANKING AND OTHER SERVICED LOANS
The Company sells residential mortgages into the secondary market. The Company retains no beneficial interests in these sales, but may retain the servicing rights for the loans sold. The Company may exercise its option to repurchase eligible government guaranteed residential mortgages or may be obligated to subsequently repurchase a loan if the purchaser discovers a representation or warranty violation such as noncompliance with eligibility or servicing requirements, or customer fraud that should have been identified in a loan file review.
Citizens Financial Group, Inc. | 52
The following table summarizes activity related to residential mortgage loans sold with servicing rights retained:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(dollars in millions) | | | | | 2023 | | 2022 |
Cash proceeds from residential mortgage loans sold with servicing retained | | | | | $1,575 | | | $6,582 | |
Repurchased residential mortgages(1) | | | | | — | | | 87 | |
Gain on sales(2) | | | | | 19 | | | 30 | |
Contractually specified servicing, late and other ancillary fees(2) | | | | | 77 | | | 67 | |
(1) Includes government insured or guaranteed loans repurchased through the exercise of the Company’s removal of account provision option.
(2) Reported in mortgage banking fees in the Consolidated Statements of Operations.
The unpaid principal balance of residential mortgage loans related to our MSRs was $96.3 billion and $96.7 billion at March 31, 2023 and December 31, 2022, respectively. The Company manages the risk associated with changes in the value of the MSRs with an active hedging strategy, which includes the purchase of freestanding derivatives.
The following table summarizes changes in MSRs recorded using the fair value method:
| | | | | | | | | | | | | | | |
| | | As of and for the Three Months Ended March 31, |
(dollars in millions) | | | | | 2023 | | 2022 |
Fair value as of beginning of the period | | | | | $1,530 | | | $1,029 | |
| | | | | | | |
| | | | | | | |
Amounts capitalized | | | | | 21 | | | 95 | |
| | | | | | | |
Changes in unpaid principal balance during the period(1) | | | | | (41) | | | (39) | |
Changes in fair value during the period(2) | | | | | (14) | | | 156 | |
Fair value at end of the period | | | | | $1,496 | | | $1,241 | |
(1) 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.
(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 fair value of MSRs is estimated by using the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, contractual servicing fee income, servicing costs, default rates, ancillary income, and other economic factors, which are determined based on current market interest rates. The valuation does not attempt to forecast or predict the future direction of interest rates.
The sensitivity analysis below presents the impact of an immediate 10% and 20% adverse change in key economic assumptions to the current fair value of MSRs. These sensitivities are hypothetical, with the effect of a variation in a particular assumption on the fair value of the MSRs calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in interest rates, which drive changes in prepayment rates, could result in changes in the discount rates), which may amplify or counteract the sensitivities. The primary risk inherent in the Company’s MSRs is an increase in prepayments of the underlying mortgage loans serviced, which is largely dependent upon movements in market interest rates.
| | | | | | | | | | | |
(dollars in millions) | March 31, 2023 | | December 31, 2022 |
Fair value | $1,496 | | $1,530 |
Weighted average life (years) | 8.8 | | 9.1 |
Weighted average constant prepayment rate | 7.3% | | 6.8% |
Decline in fair value from 10% adverse change | $36 | | $34 |
Decline in fair value from 20% adverse change | $69 | | $66 |
Weighted average option adjusted spread | 628 bps | | 629 bps |
Decline in fair value from 10% adverse change | $41 | | $43 |
Decline in fair value from 20% adverse change | $83 | | $86 |
The Company’s mortgage banking derivatives include commitments to originate mortgages held for sale, certain loan sale agreements, and other financial instruments that meet the definition of a derivative. Refer to Note 8 for additional information.
Citizens Financial Group, Inc. | 53
Other Serviced Loans
From time to time, Citizens engages in other servicing relationships. The following table presents the unpaid principal balance of other serviced loans:
| | | | | | | | | | | |
(dollars in millions) | March 31, 2023 | | December 31, 2022 |
Education | $567 | | | $602 | |
Commercial and industrial(1) | 95 | | | 91 | |
(1) Represents the government guaranteed portion of SBA loans sold to outside investors
NOTE 6 - VARIABLE INTEREST ENTITIES
Citizens is involved in various entities that are considered VIEs, including investments in entities that sponsor affordable housing, renewable energy and economic development projects, and asset-backed securities. In addition, Citizens provides lending facilities to special purpose entities. Citizens’ maximum exposure to loss as a result of its involvement with these entities is limited to the balance sheet carrying amount of its investments, unfunded commitments, and the outstanding principal balance of loans to special purpose entities. The Company does not consolidate any of its investments in these entities. For more details see Note 11 in the Company’s 2022 Form 10-K.
A summary of these investments is presented below:
| | | | | | | | | | | |
(dollars in millions) | March 31, 2023 | | December 31, 2022 |
Lending to special purpose entities included in loans and leases | $4,915 | | | $4,578 | |
LIHTC investments included in other assets | 2,228 | | | 2,230 | |
LIHTC unfunded commitments included in other liabilities | 1,006 | | | 1,046 | |
Asset-backed investments included in HTM securities | 552 | | | 581 | |
Renewable energy wind investments included in other assets | 264 | | | 374 | |
NMTC investments included in other assets | 4 | | | 4 | |
Lending to Special Purpose Entities
Citizens provides lending facilities to third-party sponsored special purpose entities. As of March 31, 2023 and December 31, 2022, the lending facilities had undrawn commitments to extend credit of $2.3 billion and $2.4 billion, respectively. For more information on commitments to extend credit see Note 11.
Low Income Housing Tax Credit Partnerships
The purpose of the Company’s LIHTC investments is to assist in achieving the goals of the Community Reinvestment Act and to earn an adequate return of capital.
Renewable Energy Entities
The Company’s investments in certain renewable energy entities provide benefits from a return generated by government incentives plus other tax attributes that are associated with tax ownership (e.g., tax depreciation).
Effective January 1, 2023, the Company made an election to account for its renewable energy wind investments using the proportional amortization method under newly adopted accounting guidance. Under the proportional amortization method, the Company amortizes the initial cost of its qualifying renewable energy wind investments in proportion to the income tax credits and other income tax benefits received in the current period as compared to the total income tax credits and other income tax benefits expected to be received over the life of the investment. The net amortization and income tax credits and other income tax benefits received are included as a component of income tax expense (benefit).
Contingent commitments related to the Company’s renewable energy wind investments were $7 million at March 31, 2023, and are expected to be paid in varying amounts through 2026. These payments are contingent upon the level of electricity production attained by the wind farm relative to its targeted threshold and changes in the production tax credit rates set by the Internal Revenue Service.
Citizens Financial Group, Inc. | 54
New Markets Tax Credit Program
The Company participates in the NMTC program which provides a tax incentive for private sector investment into economic development projects and businesses located in low-income communities. The United States Department of the Treasury oversees the program and it is directly administered by the Community Development Financial Institutions Fund.
The Company’s investments in entities that sponsor economic development projects provide income tax credits to offset federal taxable income over a specified period of time. Independent third parties manage these entities and have the power to direct the activities which most significantly affect their performance. Therefore, Citizens is not the primary beneficiary of these entities and does not consolidate these VIEs as a result.
Effective January 1, 2023, the Company made an election to account for its NMTC investments using the proportional amortization method under newly adopted accounting guidance. Under the proportional amortization method, the Company applies a practical expedient and amortizes the initial cost of its qualifying NMTC investments in proportion to the income tax credits received in the current period as compared to the total income tax credits expected to be received over the life of the investment. The net amortization and income tax credits and other income tax benefits received are included as a component of income tax expense (benefit).
The following table summarizes the impact to the Consolidated Statements of Operations relative to the Company’s tax credit programs for which it has elected to apply the proportional amortization method of accounting:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(dollars in millions) | | | | | 2023 | | 2022 |
Tax credits recognized | | | | | $87 | | | $61 | |
Other tax benefits recognized | | | | | 18 | | | 15 | |
Amortization | | | | | (81) | | | (64) | |
Net benefit included in income tax expense | | | | | 24 | | | 12 | |
Other income | | | | | 1 | | | — | |
Allocated income (loss) on investments | | | | | (3) | | | — | |
Net benefit included in noninterest income | | | | | (2) | | | — | |
Net benefit included in the Consolidated Statements of Operations(1) | | | | | $22 | | | $12 | |
(1) Includes the impact of tax credit investments when the election to apply the proportional amortization method was in effect during the periods presented. For 2023, this includes LIHTC, renewable energy wind and NMTC investments, and for 2022, includes LIHTC investments.
The Company did not recognize impairment losses resulting from the forfeiture or ineligibility of income tax credits or other circumstances during the three months ended March 31, 2023 and 2022.
NOTE 7 - BORROWED FUNDS
Short-term borrowed funds
Short-term borrowed funds were $1.0 billion and $3 million as of March 31, 2023 and December 31, 2022, respectively.
Citizens Financial Group, Inc. | 55
Long-term borrowed funds
The following table presents a summary of the Company’s long-term borrowed funds:
| | | | | | | | | | | |
(dollars in millions) | March 31, 2023 | | December 31, 2022 |
Parent Company: | | | |
3.750% fixed-rate subordinated debt, due July 2024 | $90 | | | $90 | |
4.023% fixed-rate subordinated debt, due October 2024 | 17 | | | 17 | |
4.350% fixed-rate subordinated debt, due August 2025 | 133 | | | 133 | |
4.300% fixed-rate subordinated debt, due December 2025 | 336 | | | 336 | |
2.850% fixed-rate senior unsecured notes, due July 2026 | 498 | | | 498 | |
2.500% fixed-rate senior unsecured notes, due February 2030 | 298 | | | 298 | |
3.250% fixed-rate senior unsecured notes, due April 2030 | 746 | | | 746 | |
3.750% fixed-rate reset subordinated debt, due February 2031 | 69 | | | 69 | |
4.300% fixed-rate reset subordinated debt, due February 2031 | 135 | | | 135 | |
4.350% fixed-rate reset subordinated debt, due February 2031 | 60 | | | 61 | |
2.638% fixed-rate subordinated debt, due September 2032 | 558 | | | 556 | |
5.641% fixed-rate reset subordinated debt, due May 2037 | 398 | | | 397 | |
CBNA’s Global Note Program: | | | |
3.700% senior unsecured notes, due March 2023(1) | — | | | 497 | |
5.676% floating-rate senior unsecured notes, due March 2023(1)(2) | — | | | 250 | |
2.250% senior unsecured notes, due April 2025 | 748 | | | 748 | |
4.119% fixed/floating-rate senior unsecured notes, due May 2025 | 648 | | | 648 | |
6.064% fixed/floating-rate senior unsecured notes, due October 2025 | 598 | | | 598 | |
5.284% fixed/floating-rate senior unsecured notes, due January 2026 | 449 | | | — | |
3.750% senior unsecured notes, due February 2026 | 481 | | | 475 | |
4.575% fixed/floating-rate senior unsecured notes, due August 2028 | 797 | | | 797 | |
Additional Borrowings by CBNA and Other Subsidiaries:
| | | |
Federal Home Loan Bank advances, 4.873% weighted average rate, due through 2041(3) | 11,779 | | | 8,519 | |
Other | 17 | | | 19 | |
Total long-term borrowed funds | $18,855 | | | $15,887 | |
(1) Notes were redeemed on February 27, 2023.
(2) Rate disclosed reflects the floating rate as of March 31, 2023, or final floating rate as applicable.
(3) Rate disclosed reflects the weighted average rate as of March 31, 2023.
The Parent Company’s long-term borrowed funds as of March 31, 2023 and December 31, 2022 include principal balances of $3.4 billion, and unamortized deferred issuance costs and/or discounts of $73 million and $75 million, respectively. CBNA and other subsidiaries’ long-term borrowed funds as of March 31, 2023 and December 31, 2022 include principal balances of $15.5 billion and $12.6 billion, respectively, with unamortized deferred issuance costs and/or discounts of $11 million and $10 million, respectively, and hedging basis adjustments of ($18) million and ($27) million, respectively. See Note 8 for further information about the Company’s hedging of certain long-term borrowed funds.
Advances, lines of credit and letters of credit from the FHLB are collateralized primarily by residential mortgages and home equity products at least sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized FHLB borrowing capacity, primarily for advances and letters of credit, was $18.7 billion and $15.7 billion at March 31, 2023 and December 31, 2022, respectively. The Company’s available FHLB borrowing capacity was $6.8 billion and $11.5 billion at March 31, 2023 and December 31, 2022, respectively. Citizens can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At March 31, 2023, the Company’s unused secured borrowing capacity was approximately $59.4 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.
Citizens Financial Group, Inc. | 56
The following table presents a summary of maturities for the Company’s long-term borrowed funds at March 31, 2023:
| | | | | | | | | | | |
(dollars in millions) | Parent Company | CBNA and Other Subsidiaries | Consolidated |
Year | | | |
2023 | $— | | $2 | | $2 | |
2024 | 107 | | 11,751 | | 11,858 | |
2025 | 469 | | 2,019 | | 2,488 | |
2026 | 498 | | 930 | | 1,428 | |
2027 | — | | 1 | | 1 | |
2028 and thereafter | 2,264 | | 814 | | 3,078 | |
Total | $3,338 | | $15,517 | | $18,855 | |
NOTE 8 - 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 2022 Form 10-K.
The following table presents derivative instruments included in the Consolidated Balance Sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(dollars in millions) | Notional Amount | Derivative Assets | Derivative Liabilities | | Notional Amount | Derivative Assets | Derivative Liabilities |
Derivatives designated as hedging instruments: | | | | | | | |
Interest rate contracts | $58,750 | | $99 | | $18 | | | $42,250 | | $16 | | $53 | |
Derivatives not designated as hedging instruments: | | | | | | | |
Interest rate contracts | 195,041 | | 278 | | 1,276 | | | 174,384 | | 331 | | 1,579 | |
Foreign exchange contracts | 30,187 | | 456 | | 407 | | | 29,475 | | 527 | | 519 | |
Commodities contracts | 998 | | 819 | | 789 | | | 1,103 | | 953 | | 942 | |
TBA contracts | 3,406 | | 14 | | 14 | | | 2,370 | | 7 | | 14 | |
Other contracts | 1,261 | | 13 | | — | | | 913 | | 5 | | 4 | |
Total derivatives not designated as hedging instruments | | 1,580 | | 2,486 | | | | 1,823 | | 3,058 | |
Gross derivative fair values | | 1,679 | | 2,504 | | | | 1,839 | | 3,111 | |
Less: Gross amounts offset in the Consolidated Balance Sheets(1) | | (613) | | (613) | | | | (623) | | (623) | |
Less: Cash collateral applied(1) | | (497) | | (187) | | | | (374) | | (579) | |
Total net derivative fair values presented in the Consolidated Balance Sheets | | $569 | | $1,704 | | | | $842 | | $1,909 | |
(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.
Citizens Financial Group, Inc. | 57
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
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.
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 March 31, | |
(dollars in millions) | | | | | 2023 | | 2022 | Affected Line Item in the Consolidated Statements of Operations |
Interest rate swaps hedging borrowed funds | | | | | $8 | | | ($37) | | Interest expense - long-term borrowed funds |
Hedged long-term borrowed funds attributable to the risk being hedged | | | | | (8) | | | 37 | | Interest expense - long-term borrowed funds |
| | | | | | | | |
| | | | | | | | |
Interest rate swaps hedging debt securities available for sale | | | | | — | | | 29 | | Interest income - investment securities |
Hedged debt securities available for sale attributable to the risk being hedged | | | | | — | | | (29) | | Interest income - investment securities |
The following table reflects amounts recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges on long-term borrowed funds:
| | | | | | | | | | | | | | | |
(dollars in millions) | | March 31, 2023 | | | December 31, 2022 | |
| | | | | | | |
| | | | | | | |
Carrying amount of hedged liabilities | | $481 | | | | | $972 | | |
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items | | (18) | | | | | (27) | | |
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 to current period earnings (net interest income) in the same period that 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 have been 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.
Citizens Financial Group, Inc. | 58
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) | | | | | 2023 | | 2022 |
Amount of pre-tax net gains (losses) recognized in OCI | | | | | $233 | | | ($661) | |
Amount of pre-tax net gains (losses) reclassified from AOCI into interest income | | | | | (127) | | | 37 | |
Amount of pre-tax net gains (losses) reclassified from AOCI into interest expense | | | | | — | | | (5) | |
Using the interest rate curve at March 31, 2023 with respect to cash flow hedge strategies, the Company estimates that approximately $514 million in pre-tax net losses will be reclassified from AOCI to net interest income over the next 12 months, including $452 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, 2023.
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 MSRs. 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 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 March 31, | Affected Line Item in the Consolidated Statements of Operations |
(dollars in millions) | | | | | 2023 | | 2022 |
Economic hedge type: | | | | | | | | |
Customer interest rate contracts | | | | | $34 | | | ($767) | | Foreign exchange and derivative products |
Derivatives hedging interest rate risk | | | | | (19) | | | 793 | | Foreign exchange and derivative products |
Customer foreign exchange contracts | | | | | (4) | | | 26 | | Foreign exchange and derivative products |
Derivatives hedging foreign exchange risk | | | | | (2) | | | 3 | | Foreign exchange and derivative products |
Customer commodity contracts | | | | | (475) | | | 1,152 | | Foreign exchange and derivative products |
Derivatives hedging commodity price risk | | | | | 486 | | | (1,148) | | Foreign exchange and derivative products |
Residential loan commitments | | | | | 2 | | | (161) | | Mortgage banking fees |
Derivatives hedging residential loan commitments and mortgage loans held for sale, at fair value | | | | | (11) | | | 271 | | Mortgage banking fees |
Derivative contracts used to hedge residential MSRs | | | | | 16 | | | (146) | | Mortgage banking fees |
Total | | | | | $27 | | | $23 | | |
Citizens Financial Group, Inc. | 59
NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables present the changes in the balances, net of income taxes, of each component of AOCI:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of and for the Three Months Ended March 31, |
(dollars in millions) | Net Unrealized Gains (Losses) on Derivatives | | Net Unrealized Gains (Losses) on Debt Securities | | Employee Benefit Plans | | Total AOCI |
Balance at January 1, 2022 | ($161) | | | ($156) | | | ($348) | | | ($665) | |
Other comprehensive income (loss) before reclassifications | (491) | | | (1,077) | | | — | | | (1,568) | |
| | | | | | | |
Amounts reclassified to the Consolidated Statements of Operations | (24) | | | (3) | | | 2 | | | (25) | |
Net other comprehensive income (loss) | (515) | | | (1,080) | | | 2 | | | (1,593) | |
| | | | | | | |
Balance at March 31, 2022 | ($676) | | | ($1,236) | | | ($346) | | | ($2,258) | |
Balance at January 1, 2023 | ($1,416) | | | ($2,771) | | | ($373) | | | ($4,560) | |
Other comprehensive income (loss) before reclassifications | 173 | | | 327 | | | — | | | 500 | |
Amounts reclassified to the Consolidated Statements of Operations | 94 | | | 20 | | | 3 | | | 117 | |
Net other comprehensive income (loss) | 267 | | | 347 | | | 3 | | | 617 | |
| | | | | | | |
Balance at March 31, 2023 | ($1,149) | | | ($2,424) | | | ($370) | | | ($3,943) | |
Primary location in the Consolidated Statements of Operations of amounts reclassified from AOCI | Net interest income | | Securities gains, net | | Other operating expense | | |
The Company’s accumulated other comprehensive loss at March 31, 2023 decreased $617 million compared to December 31, 2022, driven by the impact of lower interest rates and the reclassification of $117 million of losses to the Consolidated Statements of Operations.
NOTE 10 - STOCKHOLDERS’ EQUITY
Preferred Stock
The following table summarizes the Company’s preferred stock:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2023 | | December 31, 2022 |
(dollars in millions, except per share data) | Liquidation value per share | | Preferred Shares | | Carrying Amount | | Preferred Shares | | Carrying Amount |
Authorized ($25 par value per share) | | | 100,000,000 | | | | | 100,000,000 | | | |
Issued and outstanding: | | | | | | | | | |
Series B | $1,000 | | | 300,000 | | | $296 | | | 300,000 | | | $296 | |
Series C | 1,000 | | | 300,000 | | | 297 | | | 300,000 | | | 297 | |
Series D | 1,000 | | (1) | 300,000 | | (2) | 293 | | | 300,000 | | | 293 | |
Series E | 1,000 | | (1) | 450,000 | | (3) | 437 | | | 450,000 | | | 437 | |
Series F | 1,000 | | | 400,000 | | | 395 | | | 400,000 | | | 395 | |
Series G | 1,000 | | | 300,000 | | | 296 | | | 300,000 | | | 296 | |
Total | | | 2,050,000 | | | $2,014 | | | 2,050,000 | | | $2,014 | |
(1) Equivalent to $25 per depositary share.
(2) Represented by 12,000,000 depositary shares each representing a 1/40th interest in the Series D Preferred Stock.
(3) Represented by 18,000,000 depositary shares each representing a 1/40th interest in the Series E Preferred Stock.
For further detail regarding the terms and conditions of the Company’s preferred stock, see Note 17 in the Company’s 2022 Form 10-K.
Citizens Financial Group, Inc. | 60
Dividends
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
(dollars in millions, except per share data) | | Dividends Declared per Share | Dividends Declared | Dividends Paid | | Dividends Declared per Share | Dividends Declared | Dividends Paid |
Common stock | | $0.42 | | $205 | | $205 | | | $0.39 | | $165 | | $165 | |
Preferred stock | | | | | | | | |
Series B | | $— | | $— | | $9 | | | $— | | $— | | $9 | |
Series C | | 15.94 | | 5 | | 5 | | | 15.94 | | 5 | | 5 | |
Series D | | 15.88 | | 5 | | 5 | | | 15.88 | | 5 | | 5 | |
Series E | | 12.50 | | 5 | | 5 | | | 12.50 | | 5 | | 5 | |
Series F | | 14.13 | | 5 | | 6 | | | 14.13 | | 6 | | 6 | |
Series G | | 10.00 | | 3 | | 3 | | | 10.00 | | 3 | | 3 | |
Total preferred stock | | | $23 | | $33 | | | | $24 | | $33 | |
Treasury Stock
During the three months ended March 31, 2023, the Company repurchased $400 million, or 10,089,291 shares, of its outstanding common stock, which are held in treasury stock.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
A summary of outstanding off-balance sheet arrangements is presented below. For more information on these arrangements, see Note 19 in the Company’s 2022 Form 10-K.
| | | | | | | | | | | |
(dollars in millions) | March 31, 2023 | | December 31, 2022 |
Commitments to extend credit | $95,965 | | | $96,076 | |
Letters of credit | 2,079 | | | 2,119 | |
Risk participation agreements | 4 | | | 4 | |
Loans sold with recourse | 97 | | | 92 | |
Marketing rights | 23 | | | 23 | |
Total | $98,168 | | | $98,314 | |
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to customers in accordance with conditions contractually agreed upon in advance. Generally, the commitments have fixed expiration dates or termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.
Letters of Credit
Letters of credit in the table above reflect commercial, standby financial and standby performance letters of credit. Financial and performance standby letters of credit are issued by the Company for the benefit of its customers. They are used as conditional guarantees of payment to a third party in the event the customer either fails to make specific payments (financial) or fails to complete a specific project (performance). The Company’s exposure to credit loss in the event of counterparty nonperformance in connection with the above instruments is represented by the contractual amount of those instruments. Generally, letters of credit are collateralized by cash, accounts receivable, inventory or investment securities. Credit risk associated with letters of credit is considered in determining the appropriate amounts of allowances for unfunded commitments. Standby letters of credit and commercial letters of credit are issued for terms of up to ten years and one year, respectively.
Other Commitments
Citizens has additional off-balance sheet arrangements that are summarized below:
•Marketing Rights - During 2003, Citizens entered into a 25-year agreement to acquire the naming and marketing rights of a baseball stadium in Pennsylvania.
Citizens Financial Group, Inc. | 61
•Loans sold with recourse - Citizens is an originator and servicer of residential mortgages and routinely sells such mortgage loans in the secondary market and to GSEs. In the context of such sales, the Company makes certain representations and warranties regarding the characteristics of the underlying loans and, as a result, may be contractually required to repurchase such loans or indemnify certain parties against losses for certain breaches of those representations and warranties. The Company also sells the government guaranteed portion of certain SBA loans to outside investors, for which it retains the servicing rights.
•Risk Participation Agreements - RPAs are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. The current amount of credit exposure is spread out over multiple counterparties. At March 31, 2023, the remaining terms on these RPAs ranged from less than one year to eight years.
Contingencies
The Company operates in a legal and regulatory environment that exposes it to potentially significant risks. A certain amount of litigation ordinarily results from the nature of the Company’s banking and other businesses. The Company is a party to legal proceedings, including class actions. The Company is also the subject of investigations, reviews, subpoenas, and regulatory matters arising out of its normal business operations which, in some instances, relate to concerns about fair lending, unfair and/or deceptive practices, and mortgage-related issues. In addition, the Company engages in discussions with relevant governmental and regulatory authorities on a regular and ongoing basis regarding various issues, and any issues discussed or identified may result in investigatory or other action being taken. Litigation and regulatory matters may result in settlements, damages, fines, penalties, public or private censure, increased costs, required remediation, restrictions on business activities, or other impacts on the Company.
In these disputes and proceedings, the Company contests liability and the amount of damages as appropriate. Given their complex nature, and based on the Company's experience, it may be years before some of these matters are finally resolved. Moreover, before liability can be reasonably estimated for a claim, numerous legal and factual issues may need to be examined, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal issues relevant to the proceedings in question. The Company cannot predict with certainty if, how, or when such claims will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or indeterminate damages. The Company recognizes a provision for a claim when, in the opinion of management after seeking legal advice, it is probable that a liability exists and the amount of loss can be reasonably estimated. In many proceedings, however, it is not possible to determine whether any loss is probable or to estimate the amount of any loss.
Based on information currently available, the advice of legal counsel and other advisers, and established reserves, management believes that the aggregate liabilities, if any, potentially arising from these proceedings will not have a materially adverse effect on the Company’s unaudited interim Consolidated Financial Statements.
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.
Citizens Financial Group, Inc. | 62
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, 2023 | | December 31, 2022 |
(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 | $767 | | $753 | | $14 | | | $666 | | $656 | | $10 | |
Commercial and industrial, and commercial real estate loans held for sale, at fair value | 88 | | 99 | | (11) | | | 108 | | 127 | | (19) | |
For more information on the election of the fair value option for these assets see Note 20 in the Company’s 2022 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 20 in the Company’s 2022 Form 10-K.
Citizens Financial Group, Inc. | 63
The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at March 31, 2023:
| | | | | | | | | | | | | | |
(dollars in millions) | Total | Level 1 | Level 2 | Level 3 |
Debt securities available for sale: | | | | |
Mortgage-backed securities | $19,376 | | $— | | $19,376 | | $— | |
| | | | |
Collateralized loan obligations | 1,215 | | — | | 1,215 | | — | |
State and political subdivisions | 2 | | — | | 2 | | — | |
U.S. Treasury and other | 3,252 | | 3,252 | | — | | — | |
Total debt securities available for sale | 23,845 | | 3,252 | | 20,593 | | — | |
Loans held for sale, at fair value: | | | | |
Residential loans held for sale | 767 | | — | | 767 | | — | |
Commercial loans held for sale | 88 | | — | | 88 | | — | |
Total loans held for sale, at fair value | 855 | | — | | 855 | | — | |
Mortgage servicing rights | 1,496 | | — | | — | | 1,496 | |
Derivative assets: | | | | |
Interest rate contracts | 377 | | — | | 377 | | — | |
Foreign exchange contracts | 456 | | — | | 456 | | — | |
Commodities contracts | 819 | | — | | 819 | | — | |
TBA contracts | 14 | | — | | 14 | | — | |
Other contracts | 13 | | — | | — | | 13 | |
Total derivative assets | 1,679 | | — | | 1,666 | | 13 | |
Equity securities, at fair value(1) | 101 | | 101 | | — | | — | |
Total assets | $27,976 | | $3,353 | | $23,114 | | $1,509 | |
Derivative liabilities: | | | | |
Interest rate contracts | $1,294 | | $— | | $1,294 | | $— | |
Foreign exchange contracts | 407 | | — | | 407 | | — | |
Commodities contracts | 789 | | — | | 789 | | — | |
TBA contracts | 14 | | — | | 14 | | — | |
Other contracts | — | | — | | — | | — | |
Total derivative liabilities | 2,504 | | — | | 2,504 | | — | |
Total liabilities | $2,504 | | $— | | $2,504 | | $— | |
(1) Excludes investments of $42 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 $41 million at March 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.
Citizens Financial Group, Inc. | 64
The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at December 31, 2022:
| | | | | | | | | | | | | | |
(dollars in millions) | Total | Level 1 | Level 2 | Level 3 |
Debt securities available for sale: | | | | |
Mortgage-backed securities | $19,313 | | $— | | $19,313 | | $— | |
Collateralized loan obligations | 1,206 | | — | | 1,206 | | — | |
State and political subdivisions | 2 | | — | | 2 | | — | |
U.S. Treasury and other | 3,486 | | 3,486 | | — | | — | |
Total debt securities available for sale | 24,007 | | 3,486 | | 20,521 | | — | |
Loans held for sale, at fair value: | | | | |
Residential loans held for sale | 666 | | — | | 666 | | — | |
Commercial loans held for sale | 108 | | — | | 108 | | — | |
Total loans held for sale, at fair value | 774 | | — | | 774 | | — | |
Mortgage servicing rights | 1,530 | | — | | — | | 1,530 | |
Derivative assets: | | | | |
Interest rate contracts | 347 | | — | | 347 | | — | |
Foreign exchange contracts | 527 | | — | | 527 | | — | |
Commodities contracts | 953 | | — | | 953 | | — | |
TBA contracts | 7 | | — | | 7 | | — | |
Other contracts | 5 | | — | | — | | 5 | |
Total derivative assets | 1,839 | | — | | 1,834 | | 5 | |
Equity securities, at fair value(1) | 110 | | 110 | | — | | — | |
Total assets | 28,260 | | $3,596 | | $23,129 | | $1,535 | |
Derivative liabilities: | | | | |
Interest rate contracts | $1,632 | | $— | | $1,632 | | $— | |
Foreign exchange contracts | 519 | | — | | 519 | | — | |
Commodities contracts | 942 | | — | | 942 | | — | |
TBA contracts | 14 | | — | | 14 | | — | |
Other contracts | 4 | | — | | — | | 4 | |
Total derivative liabilities | 3,111 | | — | | 3,107 | | 4 | |
Total liabilities | $3,111 | | $— | | $3,107 | | $4 | |
(1) Excludes investments of $43 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 $42 million at December 31, 2022, 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.
Citizens Financial Group, Inc. | 65
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 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 | |
| | | | | | | | | | | |
| | | Three Months Ended March 31, 2022 |
(dollars in millions) | | | | Mortgage Servicing Rights | Other Derivative Contracts |
Beginning balance | | | | $1,029 | | $38 | |
| | | | | |
| | | | | |
| | | | | |
Issuances | | | | 95 | | 41 | |
Settlements(1) | | | | (39) | | 61 | |
Changes in fair value during the period recognized in earnings(2) | | | | 156 | | (161) | |
Ending balance | | | | $1,241 | | ($21) | |
(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 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 March 31, 2023 |
| Valuation Technique | Unobservable Input | Range (Weighted Average) |
Mortgage servicing rights | Discounted Cash Flow | Constant prepayment rate | 6.20-17.80% CPR (7.30% CPR) |
Option adjusted spread | 398-1,058 bps (628 bps) |
Other derivative contracts | Internal Model | Pull through rate | 8.67-99.70% (77.85%) |
MSR value | (14.11)-141.45 bps (75.73 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 20 in the Company’s 2022 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) | | | | | 2023 | | 2022 |
Collateral-dependent loans | | | | | ($4) | | | ($2) | |
Citizens Financial Group, Inc. | 66
The following table presents assets measured at fair value on a nonrecurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(dollars in millions) | Total | Level 1 | Level 2 | Level 3 | | Total | Level 1 | Level 2 | Level 3 |
Collateral-dependent loans | $671 | | $— | | $671 | | $— | | | $582 | | $— | | $582 | | $— | |
Fair Value of Financial Instruments
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 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 | $9,677 | | $9,064 | | | $— | | $— | | | $9,125 | | $8,540 | | | $552 | | $524 | |
Other loans held for sale | 1,000 | | 1,000 | | | — | | — | | | — | | — | | | 1,000 | | 1,000 | |
Loans and leases | 154,688 | | 149,332 | | | — | | — | | | 671 | | 671 | | | 154,017 | | 148,661 | |
Other assets | 1,228 | | 1,228 | | | — | | — | | | 1,208 | | 1,208 | | | 20 | | 20 | |
Financial liabilities: | | | | | | | | | | | |
Deposits | 172,194 | | 172,096 | | | — | | — | | | 172,194 | | 172,096 | | | — | | — | |
Short-term borrowed funds | 1,018 | | 1,018 | | | — | | — | | | 1,018 | | 1,018 | | | — | | — | |
Long-term borrowed funds | 18,855 | | 18,155 | | | — | | — | | | 18,855 | | 18,155 | | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| 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 | $9,834 | | $9,042 | | | $— | | $— | | | $9,253 | | $8,506 | | | $581 | | $536 | |
Other loans held for sale | 208 | | 208 | | | — | | — | | | — | | — | | | 208 | | 208 | |
Loans and leases | 156,662 | | 151,601 | | | — | | — | | | 582 | | 582 | | | 156,080 | | 151,019 | |
Other assets | 1,058 | | 1,058 | | | — | | — | | | 1,038 | | 1,038 | | | 20 | | 20 | |
Financial liabilities: | | | | | | | | | | | |
Deposits | 180,724 | | 180,566 | | | — | | — | | | 180,724 | | 180,566 | | | — | | — | |
Short-term borrowed funds | 3 | | 3 | | | — | | — | | | 3 | | 3 | | | — | | — | |
Long-term borrowed funds | 15,887 | | 15,469 | | | — | | — | | | 15,887 | | 15,469 | | | — | | — | |
Citizens Financial Group, Inc. | 67
NOTE 13 - NONINTEREST INCOME
Revenues from Contracts with Customers
The following table presents the components of revenue from contracts with customers disaggregated by revenue stream and business operating segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
(dollars in millions) | Consumer Banking | Commercial Banking | Other | Consolidated | | Consumer Banking | Commercial Banking | Other | Consolidated |
Service charges and fees | $67 | | $32 | | $— | | $99 | | | $69 | | $27 | | $1 | | $97 | |
Card fees | 59 | | 12 | | — | | 71 | | | 50 | | 10 | | — | | 60 | |
Capital markets fees | — | | 71 | | — | | 71 | | | — | | 78 | | — | | 78 | |
Trust and investment services fees | 63 | | — | | — | | 63 | | | 61 | | — | | — | | 61 | |
Other banking fees | 1 | | 4 | | — | | 5 | | | 1 | | 2 | | 1 | | 4 | |
Total revenue from contracts with customers | $190 | | $119 | | $— | | $309 | | | $181 | | $117 | | $2 | | $300 | |
Total revenue from other sources(1) | 66 | | 82 | | 28 | | 176 | | | 76 | | 96 | | 26 | | 198 | |
Total noninterest income | $256 | | $201 | | $28 | | $485 | | | $257 | | $213 | | $28 | | $498 | |
(1) Includes bank-owned life insurance income of $23 million and $21 million for the three months ended March 31, 2023 and 2022, respectively.
The Company recognized trailing commissions of $4 million for the three months ended March 31, 2023 and 2022 related to ongoing commissions from previous investment sales.
NOTE 14 - OTHER OPERATING EXPENSE
The following table presents the details of other operating expense:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(dollars in millions) | | | | | 2023 | | 2022 |
Marketing | | | | | $38 | | | $26 | |
Deposit insurance | | | | | 36 | | | 20 | |
Other | | | | | 95 | | | 64 | |
Other operating expense | | | | | $169 | | | $110 | |
NOTE 15 - EARNINGS PER SHARE
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(dollars in millions, except per share data) | | | | | 2023 | | 2022 |
Numerator (basic and diluted): | | | | | | | |
Net income | | | | | $511 | | | $420 | |
Less: Preferred stock dividends | | | | | 23 | | | 24 | |
Net income available to common stockholders | | | | | $488 | | | $396 | |
Denominator: | | | | | | | |
Weighted-average common shares outstanding - basic | | | | | 485,444,313 | | | 422,401,747 | |
Dilutive common shares: share-based awards | | | | | 2,267,833 | | | 2,269,124 | |
Weighted-average common shares outstanding - diluted | | | | | 487,712,146 | | | 424,670,871 | |
Earnings per common share: | | | | | | | |
Basic | | | | | $1.00 | | | $0.94 | |
Diluted(1) | | | | | 1.00 | | | 0.93 | |
(1) Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. Excluded from the computation of diluted EPS were weighted average antidilutive shares totaling 1,278,383 and 2,222 for the three months ended March 31, 2023 and 2022, respectively.
Citizens Financial Group, Inc. | 68
NOTE 16 - BUSINESS OPERATING SEGMENTS
Citizens is managed by its Chief Executive Officer on a segment basis. The Company’s two business operating segments are Consumer Banking and Commercial Banking. The business segments are determined based on the products and services provided, or the type of customer served. Each segment has a segment head who reports directly to the Chief Executive Officer. The Chief Executive Officer has final authority over resource allocation decisions and performance assessment. The business segments reflect this management structure and the manner in which financial information is currently evaluated by the Chief Executive Officer. For more information on the Company’s business operating segments, as well as Other non-segment operations, see Note 26 in the Company’s 2022 Form 10-K.
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| As of and for the Three Months Ended March 31, 2023 |
(dollars in millions) | Consumer Banking | | Commercial Banking | | Other | | Consolidated |
Net interest income | $1,096 | | | $597 | | | ($50) | | | $1,643 | |
Noninterest income | 256 | | | 201 | | | 28 | | | 485 | |
Total revenue | 1,352 | | | 798 | | | (22) | | | 2,128 | |
Noninterest expense | 889 | | | 331 | | | 76 | | | 1,296 | |
Profit (loss) before provision (benefit) for credit losses | 463 | | | 467 | | | (98) | | | 832 | |
Provision (benefit) for credit losses | 83 | | | 47 | | | 38 | | | 168 | |
Income (loss) before income tax expense (benefit) | 380 | | | 420 | | | (136) | | | 664 | |
Income tax expense (benefit) | 99 | | | 101 | | | (47) | | | 153 | |
Net income (loss) | $281 | | | $319 | | | ($89) | | | $511 | |
Total average assets | $87,558 | | | $78,891 | | | $56,262 | | | $222,711 | |
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| As of and for the Three Months Ended March 31, 2022 |
(dollars in millions) | Consumer Banking | | Commercial Banking | | Other | | Consolidated |
Net interest income | $857 | | | $416 | | | ($126) | | | $1,147 | |
Noninterest income | 257 | | | 213 | | | 28 | | | 498 | |
Total revenue | 1,114 | | | 629 | | | (98) | | | 1,645 | |
Noninterest expense | 784 | | | 272 | | | 50 | | | 1,106 | |
Profit (loss) before provision (benefit) for credit losses | 330 | | | 357 | | | (148) | | | 539 | |
Provision (benefit) for credit losses | 49 | | | 12 | | | (58) | | | 3 | |
Income (loss) before income tax expense (benefit) | 281 | | | 345 | | | (90) | | | 536 | |
Income tax expense (benefit) | 72 | | | 74 | | | (30) | | | 116 | |
Net income (loss) | $209 | | | $271 | | | ($60) | | | $420 | |
Total average assets | $77,551 | | | $61,118 | | | $49,648 | | | $188,317 | |
There have been no significant changes in the management accounting practices utilized by the Company regarding the basis of presentation for segment results as discussed in Note 26 in the Company’s 2022 Form 10-K.