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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2023
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
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 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:
September 30, 2023December 31, 2022
(dollars in millions)Aggregate Fair ValueAggregate Unpaid PrincipalAggregate Fair Value Greater (Less) Than Aggregate Unpaid PrincipalAggregate Fair ValueAggregate Unpaid PrincipalAggregate Fair Value Greater (Less) Than Aggregate Unpaid Principal
Residential mortgage loans held for sale, at fair value$739 $734 $5 $666 $656 $10 
Commercial and industrial, and commercial real estate loans held for sale, at fair value10 12 (2)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.
The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at September 30, 2023:
(dollars in millions)TotalLevel 1Level 2Level 3
Debt securities available for sale:
Mortgage-backed securities$20,504 $— $20,504 $— 
Collateralized loan obligations789 — 789 — 
State and political subdivisions2 — 2 — 
U.S. Treasury and other3,774 3,774 — — 
Total debt securities available for sale25,069 3,774 21,295 — 
Loans held for sale, at fair value:
Residential loans held for sale739 — 739 — 
Commercial loans held for sale10 — 10 — 
Total loans held for sale, at fair value749 — 749 — 
Mortgage servicing rights1,620 — — 1,620 
Derivative assets:
Interest rate contracts439 — 439 — 
Foreign exchange contracts530 — 530 — 
Commodities contracts707 — 707 — 
TBA contracts17 — 17 — 
Other contracts5 — — 5 
Total derivative assets1,698 — 1,693 5 
Equity securities, at fair value(1)
106 106 — — 
Total assets$29,242 $3,880 $23,737 $1,625 
Derivative liabilities:
Interest rate contracts$1,842 $— $1,842 $— 
Foreign exchange contracts432 — 432 — 
Commodities contracts666 — 666 — 
TBA contracts5 — 5 — 
Other contracts3 — 1 2 
Total derivative liabilities2,948 — 2,946 2 
Total liabilities$2,948 $— $2,946 $2 
(1) Excludes investments of $57 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 $24 million at September 30, 2023, which may be called at any time during prescribed time periods. The credit exposure is generally limited to the carrying amount of investments made and unfunded capital commitments.
The following 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)TotalLevel 1Level 2Level 3
Debt securities available for sale:
Mortgage-backed securities$19,313 $— $19,313 $— 
Collateralized loan obligations1,206 — 1,206 — 
State and political subdivisions2 — 2 — 
U.S. Treasury and other3,486 3,486 — — 
Total debt securities available for sale24,007 3,486 20,521 — 
Loans held for sale, at fair value:
Residential loans held for sale666 — 666 — 
Commercial loans held for sale108 — 108 — 
Total loans held for sale, at fair value774 — 774 — 
Mortgage servicing rights1,530 — — 1,530 
Derivative assets:
Interest rate contracts347 — 347 — 
Foreign exchange contracts527 — 527 — 
Commodities contracts953 — 953 — 
TBA contracts7 — 7 — 
Other contracts5 — — 5 
Total derivative assets1,839 — 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 contracts519 — 519 — 
Commodities contracts942 — 942 — 
TBA contracts14 — 14 — 
Other contracts4 — — 4 
Total derivative liabilities3,111 — 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.
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 September 30, 2023Nine Months Ended September 30, 2023
(dollars in millions)Mortgage Servicing RightsOther Derivative ContractsMortgage Servicing RightsOther Derivative Contracts
Beginning balance$1,524 $6 $1,530 $1 
Issuances47 17 104 52 
Settlements(2)
(42)1 (124)(11)
Changes in fair value during the period recognized in earnings(3)
91 (21)110 (39)
Ending balance$1,620 $3 $1,620 $3 
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
(dollars in millions)Mortgage Servicing RightsOther Derivative ContractsMortgage Servicing RightsOther Derivative Contracts
Beginning balance$1,411 $11 $1,029 $38 
Issuances70 20 244 84 
Acquisitions(1)
— — 16 — 
Settlements(2)
(31)2 (102)134 
Changes in fair value during the period recognized in earnings(3)
74 (66)337 (289)
Ending balance$1,524 ($33)$1,524 ($33)
(1) Represents MSRs acquired as part of the Investors acquisition.
(2) 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.
(3) 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 September 30, 2023
Valuation TechniqueUnobservable InputRange (Weighted Average)
Mortgage servicing rightsDiscounted Cash FlowConstant prepayment rate
5.81-14.26% CPR (6.40% CPR)
Option adjusted spread
398-1,058 bps (630 bps)
Other derivative contractsInternal ModelPull through rate
17.14-99.70% (82.27%)
MSR value
4.25-153.04 bps (96.79 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 September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Collateral-dependent loans ($40)$— ($108)($3)
The following table presents assets measured at fair value on a nonrecurring basis:
September 30, 2023December 31, 2022
(dollars in millions)TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Collateral-dependent loans $835 $— $835 $— $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:
September 30, 2023
TotalLevel 1Level 2Level 3
(dollars in millions)Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
Financial assets:
Debt securities held to maturity$9,320 $8,054 $— $— $8,810 $7,569 $510 $485 
Other loans held for sale99 99 — — — — 99 99 
Net loans and leases147,666 141,041 — — 835 835 146,831 140,206 
Other assets995 995 — — 977 977 18 18 
Financial liabilities:
Deposits178,197 178,077 — — 178,197 178,077 — — 
Short-term borrowed funds232 232 — — 232 232 — — 
Long-term borrowed funds17,354 16,656 — — 17,354 16,656 — — 
December 31, 2022
TotalLevel 1Level 2Level 3
(dollars in millions)Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
Financial assets:
Debt securities held to maturity $9,834 $9,042 $— $— $9,253 $8,506 $581 $536 
Other loans held for sale208 208 — — — — 208 208 
Net loans and leases154,679 151,601 — — 582 582 154,097 151,019 
Other assets1,058 1,058 — — 1,038 1,038 20 20 
Financial liabilities:
Deposits180,724 180,566 — — 180,724 180,566 — — 
Short-term borrowed funds3 3 — — 3 3 — — 
Long-term borrowed funds15,887 15,469 — — 15,887 15,469 — —