In the normal course of business, Citizens enters into derivative transactions to meet the financing and hedging needs of its customers and reduce its own exposure to fluctuations in interest rates and foreign currency exchange rates. These transactions include interest rate swap contracts, interest rate options, foreign exchange contracts, residential loan commitment rate locks, interest rate future contracts, swaptions, certain commodities, forward commitments to sell TBAs, forward sale contracts and purchase options. The Company does not use derivatives for speculative purposes. Information regarding the valuation methodology and inputs used to estimate the fair value of the Company’s derivative instruments is described in Note 20 in the Company’s 2023 Form 10-K.


	March 31, 2024			December 31, 2023
(dollars in millions)	Notional Amount	Derivative Assets	Derivative Liabilities	Notional Amount	Derivative Assets	Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate contracts	$82,579	$259	$43	$86,895	$173	$44
Derivatives not designated as hedging instruments:
Interest rate contracts	193,442	222	1,273	185,993	291	1,105
Foreign exchange contracts	30,398	389	290	32,528	434	378
Commodities contracts	1,062	711	665	1,251	685	640
TBA contracts	2,501	2	5	2,337	3	16
Other contracts	729	8	—	549	7	—
Total derivatives not designated as hedging instruments	228,132	1,332	2,233	222,658	1,420	2,139
Total gross derivatives	310,711	1,591	2,276	309,553	1,593	2,183
Less: Gross amounts offset in the Consolidated Balance Sheets(1)		(480)	(480)		(471)	(471)
Less: Cash collateral applied(1)		(642)	(91)		(682)	(150)
Total net derivatives presented in the Consolidated Balance Sheets		$469	$1,705		$440	$1,562

The Company’s derivative transactions are internally divided into three sub-groups: institutional, customer facilitation and residential loan. Certain derivative transactions within these sub-groups are designated as fair value or cash flow hedges, as described below:

The Company’s institutional derivatives qualify for hedge accounting treatment. The net interest accruals on interest rate swaps designated in a fair value or cash flow hedge relationship are treated as an adjustment to interest income or interest expense of the item being hedged. All hedging relationships are formally documented at inception, as well as risk management objectives and strategies for undertaking various accounting hedges. In addition, the effectiveness of hedge relationships is monitored during the duration of the hedge period. The methods utilized to assess hedge effectiveness vary based on the hedge relationship and each relationship is monitored to ensure that management’s initial intent continues to be satisfied. Hedge accounting treatment is discontinued when the derivative is terminated or when it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge. Changes in the fair value of a derivative are reflected in earnings after termination of the hedge relationship.

In a fair value hedge, changes in the fair value of both the derivative instrument and the hedged asset or liability attributable to the risk being hedged are recognized in the same income statement line item in the Consolidated Statements of Operations when the changes in fair value occur. During 2023, the Company entered into fair value hedges to manage interest rate risk within the AFS securities portfolio.


	Location and Amount of Gains (Losses) Recognized
	Interest Income	Interest Expense
(dollars in millions)	Investment Securities	Long-Term Borrowed Funds
Three Months Ended March 31, 2024
Gains (losses) on fair value hedges recognized on:
Hedged items	($135)	$3
Derivatives	139	(3)
Amounts related to interest settlements on derivatives	25	(4)
Total income (expense) recognized on fair value hedges	$29	($4)
Three Months Ended March 31, 2023
Gains (losses) on fair value hedges recognized on:
Hedged items	$—	($8)
Derivatives	—	8
Amounts related to interest settlements on derivatives	—	(5)
Total income (expense) recognized on fair value hedges	$—	($5)


(dollars in millions)	March 31, 2024		December 31, 2023
	Debt securities available for sale(1)	Long-term borrowed funds		Debt securities available for sale(1)	Long-term borrowed funds
Carrying amount of hedged assets	$9,125	$—		$7,253	$—
Carrying amount of hedged liabilities	—	480		—	483
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	(74)	(19)		60	(17)

(1) Includes the amortized cost basis of closed portfolios used to designate hedging relationships under the portfolio layer method. The hedged item is a layer of the closed portfolio which is expected to be remaining at the end of the hedging relationship. As of March 31, 2024 and December 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $6.8 billion and $5.9 billion, respectively, including associated cumulative basis adjustments of $(58) million and $39 million, respectively. The amount of the designated hedging instruments was $4.8 billion and $4.0 billion at March 31, 2024 and December 31, 2023, respectively.

In a cash flow hedge the entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is initially recorded in OCI and is subsequently reclassified from AOCI into earnings in the period during which the hedged item affects earnings.

Citizens has entered into interest rate swap agreements designed to hedge a portion of the Company’s floating-rate assets and liabilities. All of these swaps are deemed highly effective cash flow hedges. The Company has also entered into certain interest rate option agreements that utilize interest rate floors and caps, or some combination thereof, providing the ability to hedge the variability in cash flows within different interest rate bands. Option premiums paid and received are excluded from the assessment of hedge effectiveness and are amortized over the life of the instruments.

The following table presents the pre-tax net gains (losses) recorded in the Consolidated Statements of Operations and in the Consolidated Statements of Comprehensive Income related to derivative instruments designated as cash flow hedges:


	Three Months Ended March 31,
(dollars in millions)	2024	2023
Amount of pre-tax net gains (losses) recognized in OCI	($550)	$233
Amount of pre-tax net gains (losses) reclassified from AOCI into interest income	(203)	(127)
Amount of pre-tax net gains (losses) reclassified from AOCI into interest expense	—	—

Using the interest rate curve at March 31, 2024 with respect to cash flow hedge strategies, the Company estimates that approximately $938 million in pre-tax net losses will be reclassified from AOCI to net interest income over the next 12 months, including $456 million related to terminated swaps. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to March 31, 2024.

The Company offers derivatives to customers in connection with their risk management needs consisting primarily of interest rate, foreign exchange and commodity contracts. Market risk exposure from customer transactions is primarily managed by entering into a variety of hedging transactions with third-party dealers. Gains and losses on customer-related derivatives are reported in foreign exchange and derivatives products in the Consolidated Statements of Operations.

Residential mortgage loans that will be sold in the secondary market and the related loan commitments, which are considered derivatives, are accounted for at fair value. Forward contracts to sell mortgage-backed securities are utilized to hedge the fair value of the loans and related commitments. Gains and losses on the loans and related commitments, and the derivatives used to economically hedge them, are reported in mortgage banking fees in the Consolidated Statements of Operations.

Residential MSRs are accounted for at fair value. Derivatives utilized to hedge the fair value of residential MSRs include interest rate futures, swaps, options, and forward contracts to purchase mortgage-backed securities. Gains and losses on residential MSRs and the related derivatives are reported in mortgage banking fees in the Consolidated Statements of Operations.


	Amounts Recognized in Noninterest Income for the
	Three Months Ended March 31,		Affected Line Item in the Consolidated Statements of Operations
(dollars in millions)	2024	2023
Economic hedge type:
Customer interest rate contracts	($494)	$34		Foreign exchange and derivative products
Derivatives hedging interest rate risk	503	(19)		Foreign exchange and derivative products
Customer foreign exchange contracts	(110)	(4)		Foreign exchange and derivative products
Derivatives hedging foreign exchange risk	145	(2)		Foreign exchange and derivative products
Customer commodity contracts	35	(475)		Foreign exchange and derivative products
Derivatives hedging commodity price risk	(32)	486		Foreign exchange and derivative products
Residential loan commitments	(2)	2		Mortgage banking fees
Derivatives hedging residential loan commitments and mortgage loans held for sale, at fair value	3	(11)		Mortgage banking fees
Derivative contracts used to hedge residential MSRs	(38)	16		Mortgage banking fees
Total	$10	$27