XML 124 R21.htm IDEA: XBRL DOCUMENT

FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2019

NOTE 13 - 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.

Fair Value Option

Citizens elected to account for residential mortgage LHFS and certain commercial and commercial real estate LHFS at fair value. For these LHFS, the aggregate fair value approximates the aggregate unpaid principal balance. For more information on the election of the fair value option for these assets see Note 19 in the Company’s 2018 Form 10-K.

The following table presents the changes in fair value for assets where the Company has elected the fair value option:



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2019			2018			2019		2018			Affected Line Item in the Consolidated Statements of Operations
Residential mortgage loans held for sale, at fair value		($4	)		($8	)		$5		($7	)	Mortgage banking fees
Commercial and commercial real estate loans held for sale, at fair value	—			1			4		1			Other income

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

13 in the Company’s Form 10-Q for the three months ended March 31, 2019 and Note 19 in the Company’s 2018 Form 10-K.

The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities on a recurring basis at September 30, 2019:



(in millions)	Total		Level 1		Level 2		Level 3
Debt securities available for sale:
Mortgage-backed securities		$21,377		$—		$21,377		$—
State and political subdivisions	5		—		5		—
U.S. Treasury and other	120		120		—		—
Total debt securities available for sale	21,502		120		21,382		—
Loans held for sale, at fair value:
Residential loans held for sale	1,824		—		1,824		—
Commercial loans held for sale	169		—		169		—
Total loans held for sale, at fair value	1,993		—		1,993		—
Mortgage servicing rights	510		—		—		510
Derivative assets:
Interest rate contracts	993		—		993		—
Foreign exchange contracts	224		—		224		—
Other contracts	49		—		23		26
Total derivative assets	1,266		—		1,240		26
Equity securities, at fair value:
Money market mutual fund investments	47		47		—		—
Total equity securities, at fair value	47		47		—		—
Total assets		$25,318		$167		$24,615		$536
Derivative liabilities:
Interest rate contracts		$175		$—		$175		$—
Foreign exchange contracts	195		—		195		—
Other contracts	24		—		24		—
Total derivative liabilities	394		—		394		—
Total liabilities		$394		$—		$394		$—

The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities on a recurring basis at December 31, 2018:



(in millions)	Total		Level 1		Level 2		Level 3
Debt securities available for sale:
Mortgage-backed securities		$19,866		$—		$19,866		$—
State and political subdivisions	5		—		5		—
U.S. Treasury and other	24		24		—		—
Total debt securities available for sale	19,895		24		19,871		—
Loans held for sale, at fair value:
Residential loans held for sale	967		—		967		—
Commercial loans held for sale	252		—		252		—
Total loans held for sale, at fair value	1,219		—		1,219		—
Mortgage servicing rights	600		—		—		600
Derivative assets:
Interest rate contracts	306		—		306		—
Foreign exchange contracts	129		—		129		—
Other contracts	14		—		14		—
Total derivative assets	449		—		449		—
Equity securities, at fair value:
Money market mutual fund investments	181		181		—		—
Total equity securities, at fair value	181		181		—		—
Total assets		$22,344		$205		$21,539		$600
Derivative liabilities:
Interest rate contracts		$277		$—		$277		$—
Foreign exchange contracts	113		—		113		—
Other contracts	25		—		25		—
Total derivative liabilities	415		—		415		—
Total liabilities		$415		$—		$415		$—

The following tables present a rollforward of the balance sheet amounts for assets measured at fair value on a recurring basis and classified as Level 3:



	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
(in millions)	Mortgage Servicing Rights			Other Derivative Contracts			Mortgage Servicing Rights			Other Derivative Contracts
Beginning balance		$531			$25			$600			$—
Issuances	78			61			170			104
Settlements ⁽¹⁾	(31		)	(64		)	(88		)	(107		)
Changes in fair value during the period recognized in earnings ⁽²⁾	(68		)	4			(172		)	11
Transfers from Level 2 to Level 3⁽³⁾	—			—			—			18
Ending balance		$510			$26			$510			$26



	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
(in millions)	Mortgage Servicing Rights			Mortgage Servicing Rights
Beginning balance		$—			$—
Acquired MSRs	590			590
Issuances	29			29
Settlements ⁽¹⁾	(12		)	(12		)
Change in fair value during the period recognized in earnings ⁽²⁾	5			5
Ending balance		$612			$612

⁽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.

⁽³⁾Reflects changes in the significance of unobservable inputs on derivative contracts associated with mortgage origination activities.

Nonrecurring Fair Value Measurements

Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include MSRs accounted for by the amortization method and loan impairments for certain loans and leases. For more information on the valuation techniques utilized to measure nonrecurring fair value see Note 19 in the Company’s 2018 Form 10-K.

The following table presents gains (losses) on assets and liabilities measured at fair value on a nonrecurring basis and recorded in earnings:



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2019			2018			2019			2018
Impaired collateral-dependent loans		($8	)		($3	)		($36	)		($9	)
MSRs	(1		)	—			(15		)	3

The following table presents assets and liabilities measured at fair value on a nonrecurring basis:



	September 30, 2019								December 31, 2018
(in millions)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Impaired collateral-dependent loans		$332		$—		$332		$—		$338		$—		$338		$—
MSRs	178		—		—		178		243		—		—		243

The following table presents 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:



	September 30, 2019
	Total				Level 1				Level 2				Level 3
(in millions)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Securities held to maturity		$3,319		$3,362		$—		$—		$3,319		$3,362		$—		$—
Equity securities, at cost	734		734		—		—		734		734		—		—
Other loans held for sale	22		22		—		—		—		—		22		22
Loans and leases	117,880		118,961		—		—		332		332		117,548		118,629
Financial liabilities:
Deposits	124,714		124,852		—		—		124,714		124,852		—		—
Federal funds purchased and securities sold under agreements to repurchase	867		867		—		—		867		867		—		—
Other short-term borrowed funds	210		210		—		—		210		210		—		—
Long-term borrowed funds	12,806		12,952		—		—		12,806		12,952		—		—



	December 31, 2018
	Total				Level 1				Level 2				Level 3
(in millions)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Securities held to maturity		$4,165		$4,041		$—		$—		$4,165		$4,041		$—		$—
Equity securities, at cost	834		834		—		—		834		834		—		—
Other loans held for sale	101		101		—		—		—		—		101		101
Loans and leases	116,660		116,627		—		—		338		338		116,322		116,289
Financial liabilities:
Deposits	119,575		119,503		—		—		119,575		119,503		—		—
Federal funds purchased and securities sold under agreements to repurchase	1,156		1,156		—		—		1,156		1,156		—		—
Other short-term borrowed funds	161		161		—		—		161		161		—		—
Long-term borrowed funds	15,925		15,877		—		—		15,925		15,877		—		—

- Definition

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

+ References + Details