Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS


						Page
Consolidated Balance Sheets (unaudited)						36
Consolidated Statements of Operations (unaudited)						37
Consolidated Statements of Comprehensive Income (unaudited)						38
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)						39
Consolidated Statements of Cash Flows (unaudited)						40
Notes to Consolidated Financial Statements (unaudited)						41
Note 1 - Basis of Presentation						41
N ote 2 - Acquisitions						41
Note 3 - Securities						42
Note 4 - Loans and Leases						45
Note 5 - Allowance for Credit Losses, Nonaccrual Loans and Leases, and Concentrations of Credit Risk						45
Note 6 - Mortgage Banking and Other						53
Note 7 - Variable Interest Entities						54
Note 8 - Borrowed Funds						55
Note 9 - Derivatives						56
Note 10 - Accumulated Other Comprehensive Income (Loss)						59
Note 11 - Stockholders’ Equity						60
Note 12 - Commitments and Contingencies						60
Note 13 - Fair Value Measurements						62
Note 14 - Noninterest Income						66
Note 15 - Other Operating Expense						66
Note 16 - Earnings Per Share						67
Note 17 - Business Operating Segments						67
N ote 18 - Su bsequent Events						68

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CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions, except share data)	March 31, 2022	December 31, 2021
ASSETS:
Cash and due from banks	$1,223	$1,155
Interest-bearing cash and due from banks	8,713	8,003
Interest-bearing deposits in banks	685	316
Debt securities available for sale, at fair value (including $865 and $640 pledged to creditors, respectively)(1)	25,319	26,067
Debt securities held to maturity (fair value of $2,011 and $2,289 respectively, and including $70 and $77 pledged to creditors, respectively)(1)	2,056	2,242
Loans held for sale, at fair value	1,717	2,733
Other loans held for sale	99	735
Loans and leases	131,305	128,163
Less: Allowance for loan and lease losses	(1,720)	(1,758)
Net loans and leases	129,585	126,405
Derivative assets	1,675	1,216
Premises and equipment, net	793	768
Bank-owned life insurance	2,960	2,843
Goodwill	7,232	7,116
Other assets	10,040	8,810
TOTAL ASSETS	$192,097	$188,409
LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing	$50,113	$49,443
Interest-bearing	108,663	104,918
Total deposits	158,776	154,361
Short-term borrowed funds	25	74
Derivative liabilities	635	197
Long-term borrowed funds	5,894	6,932
Other liabilities	4,693	3,425
TOTAL LIABILITIES	170,023	164,989
Commitments and Contingencies (refer to Note 12)
STOCKHOLDERS’ EQUITY:
Preferred stock:
$25.00 par value,100,000,000 shares authorized; 2,050,000 shares issued and outstanding at March 31, 2022 and December 31, 2021	2,014	2,014
Common stock:
$0.01 par value, 1,000,000,000 shares authorized; 572,153,923 shares issued and 423,031,985 shares outstanding at March 31, 2022 and 571,259,135 shares issued and 422,137,197 shares outstanding at December 31, 2021	6	6
Additional paid-in capital	19,021	19,005
Retained earnings	8,209	7,978
Treasury stock, at cost, 149,121,938 shares at March 31, 2022 and December 31, 2021	(4,918)	(4,918)
Accumulated other comprehensive income (loss)	(2,258)	(665)
TOTAL STOCKHOLDERS’ EQUITY	$22,074	$23,420
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$192,097	$188,409

(1) Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended March 31,
(in millions, except share and per share data)		2022	2021
INTEREST INCOME:
Interest and fees on loans and leases		$1,048	$1,061
Interest and fees on loans held for sale		16	18
Interest and fees on other loans held for sale		7	6
Investment securities		138	128
Interest-bearing deposits in banks		4	3
Total interest income		1,213	1,216
INTEREST EXPENSE:
Deposits		25	50

Long-term borrowed funds		41	49
Total interest expense		66	99
Net interest income		1,147	1,117
Provision (benefit) for credit losses		3	(140)
Net interest income after provision (benefit) for credit losses		1,144	1,257
NONINTEREST INCOME:
Capital markets fees		93	81
Service charges and fees		98	99
Mortgage banking fees		69	165
Card fees		60	55
Trust and investment services fees		61	58
Letter of credit and loan fees		38	38
Foreign exchange and derivative products		51	28
Securities gains, net		4	3
Other income		24	15
Total noninterest income		498	542
NONINTEREST EXPENSE:
Salaries and employee benefits		594	548
Equipment and software		150	152
Outside services		169	139
Occupancy		83	88
Other operating expense		110	91
Total noninterest expense		1,106	1,018
Income before income tax expense		536	781
Income tax expense		116	170
NET INCOME		$420	$611
Net income available to common stockholders		$396	$588
Weighted-average common shares outstanding:
Basic		422,401,747	425,953,716
Diluted		424,670,871	427,880,530
Per common share information:
Basic earnings		$0.94	$1.38
Diluted earnings		0.93	1.37

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended March 31,
(in millions)		2022	2021
Net income		$420	$611
Other comprehensive income (loss):
Net unrealized derivative instruments gains (losses) arising during the periods, net of income taxes of ($170) and ($7), respectively		(491)	(21)
Reclassification adjustment for net derivative (gains) losses included in net income, net of income taxes of ($8) and ($9), respectively		(24)	(25)
Net unrealized debt securities gains (losses) arising during the periods, net of income taxes of ($357) and ($100), respectively		(1,077)	(307)
Reclassification of net debt securities (gains) losses to net income, net of income taxes of ($1) and ($1), respectively		(3)	(2)
Reclassification of actuarial loss to net income, net of income taxes of $1 and $0, respectively		2	4
Total other comprehensive income (loss), net of income taxes		(1,593)	(351)
Total comprehensive income (loss)		($1,173)	$260

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)


	Preferred Stock		Common Stock		Additional Paid-in Capital	Retained Earnings	Treasury Stock, at Cost	Accumulated Other Comprehensive Income (Loss)	Total
(in millions)	Shares	Amount	Shares	Amount
Balance at January 1, 2021	2	$1,965	427	$6	$18,940	$6,445	($4,623)	($60)	$22,673
Dividends to common stockholders	—	—	—	—	—	(167)	—	—	(167)
Dividends to preferred stockholders	—	—	—	—	—	(23)	—	—	(23)


Treasury stock purchased	—	—	(2)	—	—	—	(95)	—	(95)
Share-based compensation plans	—	—	1	—	—	—	—	—	—
Employee stock purchase plan	—	—	—	—	5	—	—	—	5

Total comprehensive income (loss):
Net income	—	—	—	—	—	611	—	—	611
Other comprehensive income (loss)	—	—	—	—	—	—	—	(351)	(351)
Total comprehensive income (loss)	—	—	—	—	—	611	—	(351)	260
Balance at March 31, 2021	2	$1,965	426	$6	$18,945	$6,866	($4,718)	($411)	$22,653
Balance at January 1, 2022	2	$2,014	422	$6	$19,005	$7,978	($4,918)	($665)	$23,420
Dividends to common stockholders	—	—	—	—	—	(165)	—	—	(165)
Dividends to preferred stockholders	—	—	—	—	—	(24)	—	—	(24)



Share-based compensation plans	—	—	1	—	10	—	—	—	10
Employee stock purchase plan	—	—	—	—	6	—	—	—	6

Total comprehensive income (loss):
Net income	—	—	—	—	—	420	—	—	420
Other comprehensive income (loss)	—	—	—	—	—	—	—	(1,593)	(1,593)
Total comprehensive income (loss)	—	—	—	—	—	420	—	(1,593)	(1,173)
Balance at March 31, 2022	2	$2,014	423	$6	$19,021	$8,209	($4,918)	($2,258)	$22,074

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended March 31,
(in millions)	2022	2021
OPERATING ACTIVITIES
Net income	$420	$611
Adjustments to reconcile net income to net change in cash due to operating activities:
Provision (benefit) for credit losses	3	(140)
Net change in loans held for sale	898	(622)
Depreciation, amortization and accretion	67	152
Deferred income taxes	(47)	80
Share-based compensation	33	22
Net gain on sales of assets	(4)	(3)
Net (increase) decrease in other assets	(1,216)	(773)
Net increase (decrease) in other liabilities	1,400	(17)
Net change due to operating activities	1,554	(690)
INVESTING ACTIVITIES
Investment securities:
Purchases of debt securities available for sale	(2,656)	(4,256)
Proceeds from maturities and paydowns of debt securities available for sale	1,203	2,281
Proceeds from sales of debt securities available for sale	704	54

Proceeds from maturities and paydowns of debt securities held to maturity	190	241

Net (increase) decrease in interest-bearing deposits in banks	(369)	(2)

Acquisitions, net of cash acquired	(143)	—
Purchases of loans	(718)	(478)
Sales of loans	305	326
Net (increase) decrease in loans and leases	(2,196)	1,194
Capital expenditures, net	(51)	(10)
Purchase of bank-owned life insurance	(100)	(375)
Other	(83)	(47)
Net change due to investing activities	(3,914)	(1,072)
FINANCING ACTIVITIES
Net increase (decrease) in deposits	4,415	4,185
Net increase (decrease) in short-term borrowed funds	(52)	(176)

Repayments of long-term borrowed funds	(1,004)	(4)
Treasury stock purchased	—	(95)


Dividends declared and paid to common stockholders	(165)	(167)
Dividends declared and paid to preferred stockholders	(33)	(32)
Premium paid to exchange debt	—	(1)
Payments of employee tax withholding for share-based compensation	(23)	(21)
Net change due to financing activities	3,138	3,689
Net change in cash and cash equivalents(1)	778	1,927
Cash and cash equivalents at beginning of period(1)	9,158	12,733
Cash and cash equivalents at end of period(1)	$9,936	$14,660

(1) Cash and cash equivalents include cash and due from banks and interest-bearing cash and due from banks as reflected on the Consolidated Balance Sheets.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

Basis of Presentation

The unaudited interim Consolidated Financial Statements, including the Notes presented in this document, have been prepared in accordance with GAAP interim reporting requirements and, therefore, do not include all information and Notes included in the audited Consolidated Financial Statements in conformity with GAAP. The unaudited interim Consolidated Financial Statements and Notes presented in this document should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying Notes included in the Company’s 2021 Form 10-K. The Company’s principal business activity is banking, conducted through its banking subsidiary CBNA.

The unaudited interim Consolidated Financial Statements include the accounts of Citizens and subsidiaries in which Citizens has a controlling financial interest. All intercompany transactions and balances have been eliminated. The Company has evaluated its unconsolidated entities and does not believe that any entity in which it has an interest, but does not currently consolidate, meets the requirements to be consolidated as a variable interest entity. The unaudited interim Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the ACL.

Significant Accounting Policies

For further information regarding the Company’s significant accounting policies, see Note 1 in the Company’s 2021 Form 10-K.

NOTE 2 - ACQUISITIONS

Acquisition of HSBC

On February 18, 2022, CBNA closed on its previously announced HSBC transaction, which included 66 locations in the New York City metropolitan area, 9 locations in the Mid-Atlantic/Washington D.C. area, and 5 locations in Southeast Florida. The acquired liabilities and assets included approximately $6.3 billion in deposits and $1.5 billion in loans. The transaction resulted in an estimated increase to goodwill of approximately $120 million, which was allocated to the Consumer business segment as of March 31, 2022.

The results of HSBC’s operations are included in the Company’s consolidated statement of operations for the three months ended March 31, 2022 from the closing date of the HSBC transaction. The impact of these results, along with supplemental pro forma information as if the HSBC transaction had occurred on January 1, 2021, are not material to the Company’s Consolidated Statements of Operations.

The HSBC transaction has been accounted for as a business combination. Accordingly, the assets acquired and liabilities assumed from HSBC were recorded at fair value as of the transaction date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and are subject to change. Fair value estimates related to the assets acquired and liabilities assumed from HSBC are subject to adjustment for up to one year after the closing date. Valuations subject to adjustment include, but are not limited to, loans, deposits, certain other assets and the core deposit intangible, although any such adjustments are not expected to be material. The fair value of the assets acquired and liabilities assumed from HSBC are not material to the Company’s Consolidated Balance Sheet as of March 31, 2022.

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Acquisition of Investors

On April 6, 2022, Citizens completed its previously announced merger with Investors pursuant to an agreement and plan on merger entered into on July 28, 2021. Pursuant to the terms of the agreement, Investors merged with Citizens, with Citizens as the surviving corporation, and Investors Bank, a New Jersey state-chartered bank and wholly-owned subsidiary of Investors, merged with CBNA, with CBNA as the surviving bank. The acquisition of Investors builds our physical presence in the Mid-Atlantic region with the addition of 154 branches located in the greater New York City and Philadelphia metropolitan areas and across New Jersey. On March 31, 2022, Investors’ Consolidated Balance Sheet had approximately $23 billion of loans and $20 billion of deposits.

Upon closing of the merger, each share of Investors common stock was converted into 0.297 of a share of the Company’s common stock. In addition, outstanding restricted shares and stock options previously granted pursuant to Investors equity compensation plans were converted into Company restricted shares and stock options subject to their original terms and conditions. As a result, the transaction resulted in an increase of approximately 73.6 million basic and diluted shares. The Company also paid $355 million to shareholders of Investors, who received $1.46 in cash for each share of Investors they owned.

The Investors transaction will be accounted for as a business combination. Accordingly, the purchase price will be allocated to the assets acquired and liabilities assumed based on their fair values as of the merger effective date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and are subject to change. Given the close proximity between the transaction closing date and the filing of the Company’s Quarterly Report on Form 10-Q, the preliminary purchase price allocation is not yet complete. Management expects to complete the initial accounting for its merger with Investors, including the purchase price allocation, later in the second quarter of 2022. As a result, the estimated fair values of the assets acquired and liabilities assumed, the valuation techniques and inputs used to measure and develop the fair values, and any goodwill recorded will be disclosed in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022, along with supplemental pro forma financial information as if the merger with Investors had occurred as of January 1, 2021.

NOTE 3 - SECURITIES

The following table presents the major components of securities at amortized cost and fair value:


	March 31, 2022				December 31, 2021
(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	$158	$—	($4)	$154	$11	$—	$—	$11
State and political subdivisions	2	—	—	2	2	—	—	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	25,074	4	(1,580)	23,498	24,607	210	(375)	24,442
Other/non-agency	412	2	(13)	401	397	9	(1)	405
Total mortgage-backed securities	25,486	6	(1,593)	23,899	25,004	219	(376)	24,847
Collateralized loan obligations	1,276	—	(12)	1,264	1,208	—	(1)	1,207
Total debt securities available for sale, at fair value	$26,922	$6	($1,609)	$25,319	$26,225	$219	($377)	$26,067
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	$1,370	$3	($18)	$1,355	$1,505	$52	$—	$1,557
Total mortgage-backed securities	1,370	3	(18)	1,355	1,505	52	—	1,557
Asset-backed securities	686	—	(30)	656	737	2	(7)	732
Total debt securities held to maturity	$2,056	$3	($48)	$2,011	$2,242	$54	($7)	$2,289
Equity securities, at cost	$611	$—	$—	$611	$624	$—	$—	$624
Equity securities, at fair value	130	—	—	130	109	—	—	109

Accrued interest receivable on debt securities totaled $59 million and $56 million as of March 31, 2022 and December 31, 2021, respectively, and is included in other assets in the Consolidated Balance Sheets.

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The following table presents the amortized cost and fair value of debt securities by contractual maturity as of March 31, 2022. 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
(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	$11	$49	$98	$—	$158
State and political subdivisions	—	—	—	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	4	63	1,902	23,105	25,074
Other/non-agency	—	—	—	412	412
Collateralized loan obligations	—	—	25	1,251	1,276
Total debt securities available for sale	15	112	2,025	24,770	26,922
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	—	—	1,370	1,370
Asset-backed securities	—	—	686	—	686
Total debt securities held to maturity	—	—	686	1,370	2,056
Total amortized cost of debt securities	$15	$112	$2,711	$26,140	$28,978

Fair value:
U.S. Treasury and other	$11	$48	$95	$—	$154
State and political subdivisions	—	—	—	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	4	62	1,866	21,566	23,498
Other/non-agency	—	—	—	401	401
Collateralized loan obligations	—	—	24	1,240	1,264
Total debt securities available for sale	15	110	1,985	23,209	25,319
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	—	—	1,355	1,355
Asset-backed securities	—	—	656	—	656
Total debt securities held to maturity	—	—	656	1,355	2,011
Total fair value of debt securities	$15	$110	$2,641	$24,564	$27,330

Taxable interest income from investment securities as presented in the Consolidated Statements of Operations was $138 million and $128 million for the three months ended March 31, 2022 and 2021, respectively.

The following table presents realized gains and losses on securities:


	Three Months Ended March 31,
(in millions)		2022	2021
Gains on sale of securities		$7	$3
Losses on sale of securities		(3)	—
Securities gains, net		$4	$3

The following table presents the amortized cost and fair value of debt securities pledged:


	March 31, 2022		December 31, 2021
(in millions)	Amortized Cost	Fair Value	Amortized Cost	Fair Value
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law	$4,733	$4,415	$4,816	$4,782
Pledged as collateral for FHLB borrowing capacity	430	420	325	333
Pledged against repurchase agreements	—	—	1	1

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

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recognized no offsetting of short-term receivables or payables as of March 31, 2022 or December 31, 2021. The Company offsets certain derivative assets and derivative liabilities in the Consolidated Balance Sheets. For further information see Note 9.

There were no securitizations of mortgage loans retained in the investment portfolio for the three months ended March 31, 2022, and $81 million for the three months ended March 31, 2021. These securitizations include a substantive guarantee by a third party. In 2021, the guarantors were FNMA, FHLMC and GNMA. The debt securities received from the guarantors are classified as AFS.

Impairment

The Company evaluated its existing HTM portfolio as of March 31, 2022 and concluded that 67% of HTM securities met the zero expected credit loss criteria; 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, 2022.

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, 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	$154	($4)	$—	$—	$154	($4)
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	16,512	(883)	6,265	(697)	22,777	(1,580)
Other/non-agency	268	(13)	—	—	268	(13)
Total mortgage-backed securities	16,780	(896)	6,265	(697)	23,045	(1,593)
Collateralized loan obligations	1,237	(12)	—	—	1,237	(12)
Total	$18,171	($912)	$6,265	($697)	$24,436	($1,609)


	December 31, 2021
	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
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	$14,131	($320)	$1,236	($55)	$15,367	($375)
Other/non-agency	123	(1)	—	—	123	(1)
Total mortgage-backed securities	14,254	(321)	1,236	(55)	15,490	(376)
Collateralized loan obligations	736	(1)	—	—	736	(1)
Total	$14,990	($322)	$1,236	($55)	$16,226	($377)

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 U.S. Treasury securities, agency MBS, non-agency MBS, and CLOs identified with unrealized losses as of March 31, 2022. 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.

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NOTE 4 - 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:


(in millions)	March 31, 2022	December 31, 2021
Commercial and industrial	$45,724	$44,500
Commercial real estate	14,268	14,264
Leases	1,529	1,586
Total commercial	61,521	60,350
Residential mortgages	24,211	22,822
Home equity	12,264	12,015
Automobile	14,439	14,549
Education	13,306	12,997
Other retail	5,564	5,430
Total retail	69,784	67,813
Total loans and leases	$131,305	$128,163

Accrued interest receivable on loans and leases held for investment totaled $452 million and $450 million as of March 31, 2022 and December 31, 2021, 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 $27.5 billion and $26.1 billion at March 31, 2022 and December 31, 2021, 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 $36.0 billion and $35.8 billion at March 31, 2022 and December 31, 2021, respectively.

Interest income on direct financing and sales-type leases was $11 million and $13 million for the three months ended March 31, 2022 and 2021, 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, 2022			December 31, 2021
(in millions)	Residential Mortgages(1)	Commercial(2)	Total	Residential Mortgages(1)	Commercial(2)	Total
Loans held for sale at fair value	$1,595	$122	$1,717	$2,657	$76	$2,733
Other loans held for sale	—	99	99	—	735	735

(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 generally consist of loans associated with the Company’s syndication business.

NOTE 5 - ALLOWANCE FOR CREDIT LOSSES, NONACCRUAL LOANS AND LEASES, AND CONCENTRATIONS OF CREDIT RISK

Allowance for Credit Losses

Recorded in the ACL is management’s estimate of expected credit losses in the Company’s loan and lease portfolios. See Note 6 in the Company’s 2021 Form 10-K for a detailed discussion of the ACL reserve methodology and estimation techniques as of December 31, 2021. There were no significant changes to the ACL reserve methodology during the three months ended March 31, 2022.

Citizens Financial Group, Inc. | 45

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
(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		(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

During the three months ended March 31, 2022 net charge-offs of $59 million and a credit provision of $3 million resulted in a reduction of $56 million to the ACL. The $3 million credit provision includes the “double count” of the $24 million day-one CECL provision expense tied to the HSBC transaction.

The decrease in commercial net charge-offs of $93 million for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 reflects the strong economic growth that began in the fourth quarter of 2020 and continued solid credit performance. Retail net charge-offs were down $6 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 as consumers continue to benefit from the fiscal support provided during the pandemic, the rapid growth in jobs, and elevated residential mortgage and auto loan collateral values.

To determine the ACL as of March 31, 2022, the Company utilized an economic forecast that generally reflects real GDP growth on an annual average basis of 2.5% and an average unemployment rate of 5.2% in 2022. This forecast reflects a positive overall macroeconomic outlook, generally in-line with December 31, 2021, which reflected real GDP growth on an annual average basis of 2.8% and an average unemployment rate of 6% in 2022. While the U.S. economy has remained strong, uncertainty remains. The Company continues to utilize a qualitative allowance framework to reassess and adjust ACL reserve levels. Macroeconomic forecast risk, driven by uncertainty around and volatility of key macroeconomic variables, is one of the primary factors influencing the qualitative reserve.

The Company’s March 2022 qualitative consideration for macroeconomic risk reflects the strength of the overall economy weighed against the headwinds of tightening monetary and fiscal policies, impacts of elevated inflation, including the gap between wage gains and inflation rate, labor shortages, continuing supply-chain challenges, and possible consequences from Russia’s invasion of Ukraine. The Company expects the combination of these items to likely create volatility in key macroeconomic variables. While COVID has reemerged in certain areas of the world, the impact to the US economy has been limited to date given vaccination rates and material reductions in hospitalizations and deaths, reductions in consumer concerns about the pandemic, and a strong labor market with over 11 million open jobs as of February 2022.

The following table presents a summary of changes in the ACL for the three months ended March 31, 2021:


	Three Months Ended March 31, 2021
(in millions)		Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period		$1,233	$1,210	$2,443


Charge-offs		(134)	(93)	(227)
Recoveries		30	39	69
Net charge-offs		(104)	(54)	(158)
Provision expense (benefit) for loans and leases		17	(108)	(91)
Allowance for loan and lease losses, end of period		1,146	1,048	2,194
Allowance for unfunded lending commitments, beginning of period		186	41	227


Provision expense (benefit) for unfunded lending commitments		(21)	(28)	(49)
Allowance for unfunded lending commitments, end of period		165	13	178
Total allowance for credit losses, end of period		$1,311	$1,061	$2,372

Citizens Financial Group, Inc. | 46

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. Loans modified in a TDR are considered a continuation of the original loan and vintage date corresponds with the most recent credit decision.

For commercial loans and leases, Citizens utilizes regulatory classification ratings to monitor credit quality. The assignment of regulatory classification ratings occurs at loan origination and are periodically re-evaluated by Citizens utilizing a risk-based approach, including any time management becomes aware of information affecting the borrowers' ability to fulfill their obligations. The review process considers both quantitative and qualitative factors. Loans with a “pass” rating are those that the Company believes will fully repay in accordance with the contractual loan terms. Commercial loans and leases identified as “criticized” have some weakness or potential weakness that indicate an increased probability of future loss. Citizens groups “criticized” loans into three categories, “special mention,” “substandard,” and “doubtful.” Special mention loans have potential weaknesses that, if left uncorrected, may result in deterioration of the Company’s credit position at some future date. Substandard loans are inadequately protected loans; these loans have well-defined weaknesses that could hinder normal repayment or collection of the debt. Doubtful loans have the same weaknesses as substandard, with the added characteristic that the possibility of loss is high and collection of the full amount of the loan is improbable.

The following table presents the amortized cost basis of commercial loans and leases, by vintage date and regulatory classification rating, as of March 31, 2022:


	Term Loans by Origination Year						Revolving Loans
(in millions)	2022	2021	2020	2019	2018	Prior to 2018	Within the Revolving Period	Converted to Term	Total
Commercial and industrial
Pass	$1,944	$9,819	$3,007	$2,908	$2,094	$2,975	$20,729	$118	$43,594
Special Mention	1	74	58	107	105	114	385	1	845
Substandard	—	89	89	222	78	195	419	17	1,109
Doubtful	7	12	19	4	10	25	96	3	176
Total commercial and industrial	1,952	9,994	3,173	3,241	2,287	3,309	21,629	139	45,724
Commercial real estate
Pass	784	2,667	2,420	2,889	1,465	1,587	1,458	3	13,273
Special Mention	—	54	48	228	93	79	10	—	512
Substandard	—	1	—	84	243	141	3	—	472
Doubtful	—	1	9	—	—	1	—	—	11
Total commercial real estate	784	2,723	2,477	3,201	1,801	1,808	1,471	3	14,268
Leases
Pass	68	406	275	126	141	493	—	—	1,509
Special Mention	—	2	2	—	3	1	—	—	8
Substandard	—	1	3	5	2	—	—	—	11
Doubtful	—	—	—	—	—	1	—	—	1
Total leases	68	409	280	131	146	495	—	—	1,529
Total commercial
Pass(1)	2,796	12,892	5,702	5,923	3,700	5,055	22,187	121	58,376
Special Mention	1	130	108	335	201	194	395	1	1,365
Substandard	—	91	92	311	323	336	422	17	1,592
Doubtful	7	13	28	4	10	27	96	3	188
Total commercial	$2,804	$13,126	$5,930	$6,573	$4,234	$5,612	$23,100	$142	$61,521

Citizens Financial Group, Inc. | 47

The following table presents the amortized cost basis of commercial loans and leases, by vintage date and regulatory classification rating, as of December 31, 2021:


	Term Loans by Origination Year						Revolving Loans
(in millions)	2021	2020	2019	2018	2017	Prior to 2017	Within the Revolving Period	Converted to Term	Total
Commercial and industrial
Pass	$10,218	$3,336	$3,599	$2,284	$1,426	$1,863	$19,406	$122	$42,254
Special Mention	47	71	155	114	41	64	316	1	809
Substandard	97	112	215	81	50	201	521	17	1,294
Doubtful	1	9	9	22	10	16	74	2	143
Total commercial and industrial	10,363	3,528	3,978	2,501	1,527	2,144	20,317	142	44,500
Commercial real estate
Pass	2,766	2,417	3,181	1,756	626	1,119	1,451	3	13,319
Special Mention	45	42	113	100	27	79	—	—	406
Substandard	27	—	88	267	78	59	9	—	528
Doubtful	1	9	—	—	—	1	—	—	11
Total commercial real estate	2,839	2,468	3,382	2,123	731	1,258	1,460	3	14,264
Leases
Pass	447	262	134	144	66	459	—	—	1,512
Special Mention	10	15	—	5	3	16	—	—	49
Substandard	1	16	5	2	—	—	—	—	24
Doubtful	—	—	—	—	—	1	—	—	1
Total leases	458	293	139	151	69	476	—	—	1,586
Total commercial
Pass(1)	13,431	6,015	6,914	4,184	2,118	3,441	20,857	125	57,085
Special Mention	102	128	268	219	71	159	316	1	1,264
Substandard	125	128	308	350	128	260	530	17	1,846
Doubtful	2	18	9	22	10	18	74	2	155
Total commercial	$13,660	$6,289	$7,499	$4,775	$2,327	$3,878	$21,777	$145	$60,350

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. | 48

The following table presents the amortized cost basis of retail loans, by vintage date and FICO scores, as of March 31, 2022:


	Term Loans by Origination Year						Revolving Loans
(in millions)	2022	2021	2020	2019	2018	Prior to 2018	Within the Revolving Period	Converted to Term	Total
Residential mortgages
800+	$351	$3,332	$3,066	$1,184	$322	$2,868	$—	$—	$11,123
740-799	866	3,423	1,690	673	240	1,429	—	—	8,321
680-739	192	968	540	275	145	800	—	—	2,920
620-679	18	127	114	170	93	399	—	—	921
<620	—	45	82	171	158	435	—	—	891
No FICO available(1)	—	5	3	4	5	18	—	—	35
Total residential mortgages	1,427	7,900	5,495	2,477	963	5,949	—	—	24,211
Home equity
800+	—	1	1	4	5	122	4,492	310	4,935
740-799	—	—	1	4	6	110	3,564	296	3,981
680-739	—	—	1	8	13	140	1,774	258	2,194
620-679	—	—	2	9	19	118	399	168	715
<620	—	—	2	16	20	103	114	184	439

Total home equity	—	1	7	41	63	593	10,343	1,216	12,264
Automobile
800+	369	1,662	780	481	210	154	—	—	3,656
740-799	487	2,203	915	531	238	157	—	—	4,531
680-739	423	1,751	701	414	190	124	—	—	3,603
620-679	223	919	317	218	109	77	—	—	1,863
<620	32	291	149	145	91	75	—	—	783
No FICO available(1)	2	1	—	—	—	—	—	—	3
Total automobile	1,536	6,827	2,862	1,789	838	587	—	—	14,439
Education
800+	213	1,641	1,687	792	479	1,261	—	—	6,073
740-799	311	1,600	1,391	587	325	739	—	—	4,953
680-739	161	513	425	209	126	354	—	—	1,788
620-679	10	73	64	41	30	121	—	—	339
<620	1	9	14	12	12	52	—	—	100
No FICO available(1)	2	1	—	—	—	50	—	—	53
Total education	698	3,837	3,581	1,641	972	2,577	—	—	13,306
Other retail
800+	42	229	184	102	52	51	414	—	1,074
740-799	62	294	245	140	66	49	813	2	1,671
680-739	54	225	202	103	45	28	810	4	1,471
620-679	37	129	99	36	16	9	349	5	680
<620	5	38	36	15	8	4	129	6	241
No FICO available(1)	37	3	5	—	—	—	381	1	427
Total other retail	237	918	771	396	187	141	2,896	18	5,564
Total retail
800+	975	6,865	5,718	2,563	1,068	4,456	4,906	310	26,861
740-799	1,726	7,520	4,242	1,935	875	2,484	4,377	298	23,457
680-739	830	3,457	1,869	1,009	519	1,446	2,584	262	11,976
620-679	288	1,248	596	474	267	724	748	173	4,518
<620	38	383	283	359	289	669	243	190	2,454
No FICO available(1)	41	10	8	4	5	68	381	1	518
Total retail	$3,898	$19,483	$12,716	$6,344	$3,023	$9,847	$13,239	$1,234	$69,784

(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).

Citizens Financial Group, Inc. | 49

The following table presents the amortized cost basis of retail loans, by vintage date and FICO scores, as of December 31, 2021:


	Term Loans by Origination Year						Revolving Loans
(in millions)	2021	2020	2019	2018	2017	Prior to 2017	Within the Revolving Period	Converted to Term	Total
Residential mortgages
800+	$2,431	$3,017	$1,230	$342	$672	$2,139	$—	$—	$9,831
740-799	4,015	1,876	746	246	360	1,086	—	—	8,329
680-739	1,116	572	335	152	172	585	—	—	2,932
620-679	111	130	161	93	107	276	—	—	878
<620	24	66	164	162	157	257	—	—	830
No FICO available(1)	3	8	1	—	—	10	—	—	22
Total residential mortgages	7,700	5,669	2,637	995	1,468	4,353	—	—	22,822
Home equity
800+	—	2	5	5	3	134	4,394	281	4,824
740-799	—	1	4	5	7	122	3,514	278	3,931
680-739	—	1	7	14	16	134	1,738	243	2,153
620-679	—	3	11	19	17	112	363	167	692
<620	—	2	16	23	20	87	91	176	415

Total home equity	—	9	43	66	63	589	10,100	1,145	12,015
Automobile
800+	1,887	829	538	244	148	57	—	—	3,703
740-799	2,418	1,051	615	288	156	58	—	—	4,586
680-739	1,968	827	500	234	123	48	—	—	3,700
620-679	1,029	378	257	131	72	32	—	—	1,899
<620	164	142	155	103	62	32	—	—	658
No FICO available(1)	3	—	—	—	—	—	—	—	3
Total automobile	7,469	3,227	2,065	1,000	561	227	—	—	14,549
Education
800+	1,361	1,771	840	514	470	880	—	—	5,836
740-799	1,555	1,577	672	371	275	514	—	—	4,964
680-739	512	474	229	140	107	262	—	—	1,724
620-679	50	66	45	34	28	99	—	—	322
<620	5	11	12	12	10	45	—	—	95
No FICO available(1)	4	—	—	—	—	52	—	—	56
Total education	3,487	3,899	1,798	1,071	890	1,852	—	—	12,997
Other retail
800+	233	214	122	65	30	29	386	—	1,079
740-799	323	296	173	84	38	26	764	2	1,706
680-739	246	240	122	56	23	12	709	5	1,413
620-679	149	119	43	19	7	4	299	5	645
<620	32	37	17	10	3	2	100	6	207
No FICO available(1)	44	5	—	—	—	—	330	1	380
Total other retail	1,027	911	477	234	101	73	2,588	19	5,430
Total retail
800+	5,912	5,833	2,735	1,170	1,323	3,239	4,780	281	25,273
740-799	8,311	4,801	2,210	994	836	1,806	4,278	280	23,516
680-739	3,842	2,114	1,193	596	441	1,041	2,447	248	11,922
620-679	1,339	696	517	296	231	523	662	172	4,436
<620	225	258	364	310	252	423	191	182	2,205
No FICO available(1)	54	13	1	—	—	62	330	1	461
Total retail	$19,683	$13,715	$7,020	$3,366	$3,083	$7,094	$12,688	$1,164	$67,813

(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).

Citizens Financial Group, Inc. | 50

Nonaccrual and Past Due Assets

The following tables present an aging analysis of accruing loans and leases, and nonaccrual loans and leases:


	March 31, 2022
		Days Past Due and Accruing
(in millions)	Current	30-59	60-89	90+	Nonaccrual	Total	Nonaccrual with no related ACL
Commercial and industrial	$45,477	$18	$16	$13	$200	$45,724	$31
Commercial real estate	14,256	—	1	—	11	14,268	1
Leases	1,478	45	—	5	1	1,529	—
Total commercial	61,211	63	17	18	212	61,521	32
Residential mortgages(1)	23,077	57	42	792	243	24,211	179
Home equity	11,969	42	14	—	239	12,264	188
Automobile	14,236	120	31	—	52	14,439	10
Education	13,244	26	11	2	23	13,306	3
Other retail	5,447	61	22	14	20	5,564	1
Total retail	67,973	306	120	808	577	69,784	381
Total	$129,184	$369	$137	$826	$789	$131,305	$413


	December 31, 2021
		Days Past Due and Accruing
(in millions)	Current	30-59	60-89	90+	Nonaccrual	Total	Nonaccrual with no related ACL
Commercial and industrial	$44,247	$47	$26	$9	$171	$44,500	$36
Commercial real estate	14,247	6	—	—	11	14,264	1
Leases	1,570	14	1	—	1	1,586	—
Total commercial	60,064	67	27	9	183	60,350	37
Residential mortgages(1)	21,918	102	52	549	201	22,822	137
Home equity	11,745	38	12	—	220	12,015	186
Automobile	14,324	131	39	—	55	14,549	22
Education	12,926	34	13	1	23	12,997	2
Other retail	5,331	40	23	16	20	5,430	2
Total retail	66,244	345	139	566	519	67,813	349
Total	$126,308	$412	$166	$575	$702	$128,163	$386

(1) 90+ days past due and accruing includes $792 million and $544 million of loans fully or partially guaranteed by the FHA, VA, and USDA at March 31, 2022 and December 31, 2021, 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 the loan or lease as nonaccrual.

At March 31, 2022 and December 31, 2021, the Company had collateral-dependent residential mortgage and home equity loans totaling $579 million and $542 million, respectively. At March 31, 2022 and December 31, 2021, the Company had collateral-dependent commercial loans totaling $21 million and $103 million, respectively.

The amortized cost basis of mortgage loans collateralized by residential real estate for which formal foreclosure proceedings were in process was $189 million and $142 million as of March 31, 2022 and December 31, 2021, respectively.

Troubled Debt Restructurings

The following tables summarize loans modified during the three months ended March 31, 2022 and 2021. 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.

Citizens Financial Group, Inc. | 51


		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


		Three Months Ended March 31, 2021
		Amortized Cost Basis
(dollars in millions)	Number of Contracts	Interest Rate Reduction(1)	Maturity Extension(2)	Other(3)	Total
Commercial and industrial	7	$—	$3	$—	$3

Total commercial	7	—	3	—	3
Residential mortgages	42	4	6	3	13
Home equity	147	2	5	4	11
Automobile	669	—	—	8	8
Education	147	—	—	4	4
Other retail	630	3	—	1	4
Total retail	1,635	9	11	20	40
Total	1,642	$9	$14	$20	$43

(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 and $2 million for the three months ended March 31, 2022 and 2021, respectively.

Unfunded commitments related to TDRs were $76 million and $56 million at March 31, 2022 and December 31, 2021, respectively.

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	2021
Commercial TDRs		$—	$22
Retail TDRs(1)		15	15
Total		$15	$37

(1) Includes $10 million and $2 million of loans fully or partially government guaranteed by the FHA, VA, and USDA for the three months ended March 31, 2022 and 2021, respectively.

Citizens Financial Group, Inc. | 52

Concentrations of Credit Risk

Most of the Company’s lending activity is with customers 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, 2022 and December 31, 2021, 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 facts surrounding the transaction.

NOTE 6 - MORTGAGE BANKING AND OTHER

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.

The following table summarizes activity related to residential mortgage loans sold with servicing rights retained:


	Three Months Ended March 31,
(in millions)		2022	2021
Cash proceeds from residential mortgage loans sold with servicing retained		$6,582	$9,038
Repurchased residential mortgages(1)		87	—
Gain on sales(2)		30	140
Contractually specified servicing, late and other ancillary fees(2)		67	58

(1) Includes government insured or guaranteed loans eligible for repurchase through the exercise of our 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 MSR was $92.8 billion and $90.2 billion at March 31, 2022 and December 31, 2021, respectively. The Company manages an active hedging strategy to manage the risk associated with changes in the value of the MSR portfolio, 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,
(in millions)		2022	2021
Fair value as of beginning of the period		$1,029	$658


Amounts capitalized		95	87
Changes in unpaid principal balance during the period(1)		(39)	(58)
Changes in fair value during the period(2)		156	206
Fair value at end of the period		$1,241	$893

(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.

Citizens Financial Group, Inc. | 53

The sensitivity analysis below presents the impact to the current MSR fair value of an immediate 10% and 20% adverse change in key economic assumptions. 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, 2022	December 31, 2021
Fair value	$1,241	$1,029
Weighted average life (years)	7.8	6.4
Weighted average constant prepayment rate	8.8%	10.7%
Decline in fair value from 10% adverse change	$40	$45
Decline in fair value from 20% adverse change	$78	$87
Weighted average option adjusted spread	621 bps	596 bps
Decline in fair value from 10% adverse change	$33	$25
Decline in fair value from 20% adverse change	$66	$50

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 9 for additional information.

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:


(in millions)	March 31, 2022	December 31, 2021
Education	$699	$761
Commercial and industrial(1)	83	80

(1) Represents the government guaranteed portion of SBA loans sold to outside investors.

NOTE 7 - VARIABLE INTEREST ENTITIES

Citizens is involved in various entities that are considered VIEs, including investments in limited partnerships that sponsor affordable housing projects, limited liability companies that sponsor renewable energy projects or asset-backed securities, and lending 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 investment in equity and asset-backed securities, unfunded commitments, and outstanding principal balance of loans to special purpose entities. The Company does not consolidate any of its investments in these entities. These investments are included in other assets in the Consolidated Balance Sheets. For more details see Note 11 in the Company’s 2021 Form 10-K.

A summary of these investments is presented below:


(in millions)	March 31, 2022	December 31, 2021
Lending to special purpose entities included in loans and leases	$2,602	$2,646
LIHTC investment included in other assets	2,130	1,978
LIHTC unfunded commitments included in other liabilities	1,050	927
Investment in asset-backed securities included in HTM securities	686	737
Renewable energy investments included in other assets	417	429

Lending to Special Purpose Entities

Citizens provides lending facilities to third-party sponsored special purpose entities. As of March 31, 2022 and December 31, 2021, the lending facilities had aggregate unpaid principal balances of $2.6 billion, and undrawn commitments to extend credit of $2.1 billion and $1.9 billion, respectively.

Citizens Financial Group, Inc. | 54

Low Income Housing Tax Credit Partnerships

The purpose of the Company’s equity investments is to assist in achieving the goals of the Community Reinvestment Act and to earn an adequate return of capital.

The following table presents other information related to the Company’s affordable housing tax credit investments:


	Three Months Ended March 31,
(in millions)		2022	2021
Tax credits included in income tax expense		$61	$51
Other tax benefits included in income tax expense		15	12
Total tax benefits included in income tax expense		76	63
Less: Amortization included in income tax expense		64	53
Net benefit from affordable housing tax credit investments included in income tax expense		$12	$10

No LIHTC investment impairment losses were recognized during the three months ended March 31, 2022 and 2021.

NOTE 8 - BORROWED FUNDS

Short-term borrowed funds

Short-term borrowed funds were $25 million and $74 million as of March 31, 2022 and December 31, 2021, respectively.

Long-term borrowed funds

The following table presents a summary of the Company’s long-term borrowed funds:


(in millions)	March 31, 2022	December 31, 2021
Parent Company:
4.150% fixed-rate subordinated debt, due September 2022	$168	$168
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	337	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	745	745
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	60
2.638% fixed-rate subordinated debt, due September 2032	551	550
CBNA’s Global Note Program:
3.250% senior unsecured notes, due February 2022(1)	—	700
0.845% floating-rate senior unsecured notes, due February 2022(1)(2)	—	300
1.318% floating-rate senior unsecured notes, due May 2022(2)	250	250
2.650% senior unsecured notes, due May 2022	500	503
3.700% senior unsecured notes, due March 2023	504	512
1.933% floating-rate senior unsecured notes, due March 2023(2)	250	250
2.250% senior unsecured notes, due April 2025	747	746
3.750% senior unsecured notes, due February 2026	498	524
Additional Borrowings by CBNA and Other Subsidiaries:
Federal Home Loan Bank advances, 0.774% weighted average rate, due through 2041	20	19
Other	24	29
Total long-term borrowed funds	$5,894	$6,932

(1) Notes were redeemed on January 14, 2022.

(2) Rate disclosed reflects the floating rate as of March 31, 2022, or final floating rate as applicable.

Citizens Financial Group, Inc. | 55

The Parent Company’s long-term borrowed funds as of March 31, 2022 and December 31, 2021 included principal balances of $3.2 billion, and unamortized deferred issuance costs and/or discounts of $78 million and $80 million, respectively. CBNA and other subsidiaries’ long-term borrowed funds as of March 31, 2022 and December 31, 2021 included principal balances of $2.8 billion and $3.8 billion, respectively, with unamortized deferred issuance costs and/or discounts of $6 million and $7 million, respectively, and hedging basis adjustments of $5 million and $42 million, respectively. See Note 9 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 borrowing capacity for FHLB advances and letters of credit was $2.8 billion and $2.3 billion at March 31, 2022 and December 31, 2021, respectively. The Company’s available FHLB borrowing capacity was $16.4 billion and $15.9 billion at March 31, 2022 and December 31, 2021, 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, 2022, the Company’s unused secured borrowing capacity was approximately $63.2 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.

The following table presents a summary of maturities for the Company’s long-term borrowed funds at March 31, 2022:


(in millions)	Parent Company	CBNA and Other Subsidiaries	Consolidated
Year
2022	$168	$755	$923
2023	—	758	758
2024	107	1	108
2025	469	760	1,229
2026	498	499	997
2027 and thereafter	1,859	20	1,879
Total	$3,101	$2,793	$5,894

NOTE 9 - 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 2021 Form 10-K.

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The following table presents derivative instruments included in the Consolidated Balance Sheets:


	March 31, 2022			December 31, 2021
(in millions)	Notional Amount(1)	Derivative Assets	Derivative Liabilities	Notional Amount(1)	Derivative Assets	Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate contracts	$17,250	$1	$1	$23,450	$12	$2
Derivatives not designated as hedging instruments:
Interest rate contracts	158,286	172	445	142,987	680	174
Foreign exchange contracts	22,809	378	349	21,336	263	231
Commodities contracts	694	1,501	1,496	514	508	505
TBA contracts	7,650	102	22	7,776	8	8
Other contracts	3,081	9	30	3,555	38	2
Total derivatives not designated as hedging instruments		2,162	2,342		1,497	920
Gross derivative fair values		2,163	2,343		1,509	922
Less: Gross amounts offset in the Consolidated Balance Sheets(2)		(312)	(312)		(235)	(235)
Less: Cash collateral applied(2)		(176)	(1,396)		(58)	(490)
Total net derivative fair values presented in the Consolidated Balance Sheets		$1,675	$635		$1,216	$197

(1) The notional or contractual amount of interest rate derivatives and foreign exchange contracts is the amount upon which interest and other payments under the contract are based. For interest rate contracts, the notional amount is typically not exchanged. Therefore, notional amounts should not be taken as the measure of credit or market risk, as they do not measure the true economic risk of these contracts.

(2) 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.

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 at inception all hedging relationships, 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

Citizens has outstanding interest rate swap agreements utilized to manage the interest rate exposure on its long-term borrowings and AFS debt securities. Certain fair value hedges have been designated as a last-of-layer hedge, which affords the Company the ability to execute a fair value hedge of the interest rate risk associated with a portfolio of similar prepayable assets whereby the last dollar amount estimated to remain in the portfolio of assets is identified as the hedged item.

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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,
(in millions)		2022	2021	Affected Line Item in the Consolidated Statements of Operations
Interest rate swaps hedging borrowed funds		($37)	($28)	Interest expense - long-term borrowed funds
Hedged long-term debt attributable to the risk being hedged		37	28	Interest expense - long-term borrowed funds


Interest rate swaps hedging debt securities available for sale		29	28	Interest income - investment securities
Hedged debt securities available for sale attributable to risk being hedged		(29)	(28)	Interest income - investment securities

The following table reflects amounts recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:


	March 31, 2022		December 31, 2021
(in millions)	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	$—	$—	$6,042	$—
Carrying amount of hedged liabilities	—	1,503	—	2,239
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	—	5	29	42

(1) The Company designated $2.0 billion as the hedged amount (from a closed portfolio of prepayable financial assets with an amortized cost basis of $6.0 billion as of December 31, 2021) in a last-of-layer hedging relationship, which commenced in the third quarter of 2019 and was terminated in the first quarter of 2022.

Cash Flow Hedges

Citizens has outstanding 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. During the next 12 months, there are $141 million in pre-tax net losses on derivative instruments included in OCI expected to be reclassified to net interest income in the Consolidated Statements of Operations. 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, 2022.

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,
(in millions)		2022	2021
Amount of pre-tax net gains (losses) recognized in OCI		($661)	($28)
Amount of pre-tax net gains (losses) reclassified from OCI into interest income		37	46
Amount of pre-tax net gains (losses) reclassified from OCI into interest expense		(5)	(12)

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 MSR portfolio. 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 portfolio derivatives are entered to hedge the risk of changes in the fair value of the Company’s MSRs.

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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
(in millions)		2022		2021
Economic hedge type:
Customer interest rate contracts		($767)		($348)	Foreign exchange and derivative products
Derivatives hedging interest rate risk		793		356	Foreign exchange and derivative products
Customer foreign exchange contracts		26		(116)	Foreign exchange and derivative products
Derivatives hedging foreign exchange risk		3		150	Foreign exchange and derivative products
Customer commodity contracts		1,152		94	Foreign exchange and derivative products
Derivatives hedging commodity price risk		(1,148)		(92)	Foreign exchange and derivative products
Residential loan commitments		(161)		(238)	Mortgage banking fees
Derivatives hedging residential loan commitments and mortgage loans held for sale, at fair value		271		275	Mortgage banking fees
Derivative contracts used to hedge residential MSRs		(146)		(182)	Mortgage banking fees
Total		$23		($101)

NOTE 10 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in the balances, net of income taxes, of each component of AOCI:


	As of and for the Three Months Ended March 31,
(in millions)	Net Unrealized Gains (Losses) on Derivatives	Net Unrealized Gains (Losses) on Debt Securities	Employee Benefit Plans	Total AOCI
Balance at January 1, 2021	($11)	$380	($429)	($60)
Other comprehensive income (loss) before reclassifications	(21)	(307)	—	(328)

Amounts reclassified to the Consolidated Statements of Operations	(25)	(2)	4	(23)
Net other comprehensive income (loss)	(46)	(309)	4	(351)

Balance at March 31, 2021	($57)	$71	($425)	($411)
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)
Primary location in the Consolidated Statements of Operations of amounts reclassified from AOCI	Net interest income	Securities gains, net	Other operating expense

Citizens Financial Group, Inc. | 59

NOTE 11 - STOCKHOLDERS’ EQUITY

Preferred Stock

The following table summarizes the Company’s preferred stock:


			March 31, 2022			December 31, 2021
(in millions, except per share and 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 2021 Form 10-K.

Dividends


	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
(in millions, except per share data)	Dividends Declared per Share	Dividends Declared	Dividends Paid	Dividends Declared per Share	Dividends Declared	Dividends Paid
Common stock	$0.39	$165	$165	$0.39	$167	$167
Preferred stock
Series A	$—	$—	$—	$10.49	$3	$3
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	6	6	14.13	5	5
Series G	10.00	3	3	—	—	—
Total preferred stock		$24	$33		$23	$32

NOTE 12 - 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 2021 Form 10-K.


(in millions)	March 31, 2022	December 31, 2021
Commitments to extend credit	$87,127	$84,206
Letters of credit	1,977	1,998
Risk participation agreements	17	39
Loans sold with recourse	85	82
Marketing rights	24	26
Total	$89,230	$86,351

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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.
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, 2022, 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.

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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 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:


	March 31, 2022			December 31, 2021
(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	$1,595	$1,610	($15)	$2,657	$2,591	$66
Commercial and industrial, and commercial real estate loans held for sale, at fair value	122	127	(5)	76	79	(3)

For more information on the election of the fair value option for these assets see Note 20 in the Company’s 2021 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 2021 Form 10-K.

Citizens Financial Group, Inc. | 62

The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at March 31, 2022:


(in millions)	Total	Level 1	Level 2	Level 3
Debt securities available for sale:
Mortgage-backed securities	$23,899	$—	$23,899	$—

Collateralized loan obligations	1,264	—	1,264	—
State and political subdivisions	2	—	2	—
U.S. Treasury and other	154	154	—	—
Total debt securities available for sale	25,319	154	25,165	—
Loans held for sale, at fair value:
Residential loans held for sale	1,595	—	1,595	—
Commercial loans held for sale	122	—	122	—
Total loans held for sale, at fair value	1,717	—	1,717	—
Mortgage servicing rights	1,241	—	—	1,241
Derivative assets:
Interest rate contracts	173	—	173	—
Foreign exchange contracts	378	—	378	—
Commodities contracts	1,501	—	1,501	—
TBA contracts	102	—	102	—
Other contracts	9	—	—	9
Total derivative assets	2,163	—	2,154	9
Equity securities, at fair value(1)	108	101	7	—
Total assets	$30,548	$255	$29,043	$1,250
Derivative liabilities:
Interest rate contracts	$446	$—	$446	$—
Foreign exchange contracts	349	—	349	—
Commodities contracts	1,496	—	1,496	—
TBA contracts	22	—	22	—
Other contracts	30	—	—	30
Total derivative liabilities	2,343	—	2,313	30
Total liabilities	$2,343	$—	$2,313	$30

(1) Excludes investments of $22 million that are measured at fair value using the net asset value per share (or its equivalent) practical expedient.

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 December 31, 2021:


(in millions)	Total	Level 1	Level 2	Level 3
Debt securities available for sale:
Mortgage-backed securities	$24,847	$—	$24,847	$—
Collateralized loan obligations	1,207	—	1,207	—
State and political subdivisions	2	—	2	—
U.S. Treasury and other	11	11	—	—
Total debt securities available for sale	26,067	11	26,056	—
Loans held for sale, at fair value:
Residential loans held for sale	2,657	—	2,657	—
Commercial loans held for sale	76	—	76	—
Total loans held for sale, at fair value	2,733	—	2,733	—
Mortgage servicing rights	1,029	—	—	1,029
Derivative assets:
Interest rate contracts	692	—	692	—
Foreign exchange contracts	263	—	263	—
Commodities contracts	508	—	508	—
TBA contracts	8	—	8	—
Other contracts	38	—	—	38
Total derivative assets	1,509	—	1,471	38
Equity securities, at fair value(1)	102	95	7	—
Total assets	$31,440	$106	$30,267	$1,067
Derivative liabilities:
Interest rate contracts	$176	$—	$176	$—
Foreign exchange contracts	231	—	231	—
Commodities contracts	505	—	505	—
TBA contracts	8	—	8	—
Other contracts	2	—	2	—
Total derivative liabilities	922	—	922	—
Total liabilities	$922	$—	$922	$—

(1) Excludes investments of $7 million that are measured at fair value using the net asset value per share (or its equivalent) practical expedient.

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, 2022
(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)


	Three Months Ended March 31, 2021
(in millions)		Mortgage Servicing Rights	Other Derivative Contracts
Beginning balance		$658	$197



Issuances		87	162
Settlements(1)		(58)	(83)
Changes in fair value during the period recognized in earnings(2)		206	(238)
Ending balance		$893	$38

(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.

Citizens Financial Group, Inc. | 64

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, 2022
	Valuation Technique	Unobservable Input	Range (Weighted Average)
Mortgage servicing rights	Discounted Cash Flow	Constant prepayment rate	7.74-22.35% CPR (8.8% CPR)
Option adjusted spread	400-1,060 bps (621 bps)
Other derivative contracts	Internal Model	Pull through rate	18.62-100.06% (82.66%)
MSR value	4.37-177.45 bps (100.00 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 2021 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,
(in millions)		2022	2021
Collateral-dependent loans		($2)	($19)

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


	March 31, 2022				December 31, 2021
(in millions)	Total	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3
Collateral-dependent loans	$600	$—	$600	$—	$645	$—	$645	$—

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, 2022
	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:
Debt securities held to maturity	$2,056	$2,011	$—	$—	$1,370	$1,355	$686	$656
Other loans held for sale	99	98	—	—	—	—	99	98
Loans and leases	131,305	129,134	—	—	600	600	130,705	128,534
Other assets	611	611	—	—	595	595	16	16
Financial liabilities:
Deposits	158,776	158,746	—	—	158,776	158,746	—	—
Short-term borrowed funds	25	25	—	—	25	25	—	—
Long-term borrowed funds	5,894	5,853	—	—	5,894	5,853	—	—

Citizens Financial Group, Inc. | 65


	December 31, 2021
	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:
Debt securities held to maturity	$2,242	$2,289	$—	$—	$1,505	$1,557	$737	$732
Other loans held for sale	735	735	—	—	—	—	735	735
Loans and leases	128,163	128,156	—	—	645	645	127,518	127,511
Other assets	624	624	—	—	609	609	15	15
Financial liabilities:
Deposits	154,361	154,366	—	—	154,361	154,366	—	—
Short-term borrowed funds	74	74	—	—	74	74	—	—
Long-term borrowed funds	6,932	7,188	—	—	6,932	7,188	—	—

NOTE 14 - 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, 2022				Three Months Ended March 31, 2021
(in millions)	Consumer Banking	Commercial Banking	Other	Consolidated	Consumer Banking	Commercial Banking	Other	Consolidated
Service charges and fees	$69	$27	$1	$97	$74	$25	$—	$99
Card fees	50	10	—	60	47	7	—	54
Capital markets fees	—	78	—	78	—	72	—	72
Trust and investment services fees	61	—	—	61	58	—	—	58
Other banking fees	1	2	1	4	—	2	—	2
Total revenue from contracts with customers	$181	$117	$2	$300	$179	$106	$—	$285
Total revenue from other sources(1)	76	96	26	198	172	64	21	257
Total noninterest income	$257	$213	$28	$498	$351	$170	$21	$542

(1) Includes bank-owned life insurance income of $21 million and $14 million for the three months ended March 31, 2022 and 2021, respectively.

The Company recognized trailing commissions of $4 million for the three months ended March 31, 2022 and 2021 related to ongoing commissions from previous investment sales.

NOTE 15 - OTHER OPERATING EXPENSE

The following table presents the details of other operating expense:


	Three Months Ended March 31,
(in millions)		2022	2021
Marketing		$26	$19
Deposit Insurance		20	15
Other		64	57
Other operating expense		$110	$91

Citizens Financial Group, Inc. | 66

NOTE 16 - EARNINGS PER SHARE


	Three Months Ended March 31,
(in millions, except share and per share data)		2022	2021
Numerator (basic and diluted):
Net income		$420	$611
Less: Preferred stock dividends		24	23
Net income available to common stockholders		$396	$588
Denominator:
Weighted-average common shares outstanding - basic		422,401,747	425,953,716
Dilutive common shares: share-based awards		2,269,124	1,926,814
Weighted-average common shares outstanding - diluted		424,670,871	427,880,530
Earnings per common share:
Basic		$0.94	$1.38
Diluted(1)		0.93	1.37

(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 2,222 and 305,210 for the three months ended March 31, 2022 and 2021, respectively.

NOTE 17 - 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 2021 Form 10-K.


	As of and for the Three Months Ended March 31, 2022
(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


	As of and for the Three Months Ended March 31, 2021
(in millions)	Consumer Banking	Commercial Banking	Other	Consolidated
Net interest income	$863	$421	($167)	$1,117
Noninterest income	351	170	21	542
Total revenue	1,214	591	(146)	1,659
Noninterest expense	750	227	41	1,018
Profit (loss) before provision (benefit) for credit losses	464	364	(187)	641
Provision (benefit) for credit losses	59	101	(300)	(140)
Income (loss) before income tax expense (benefit)	405	263	113	781
Income tax expense (benefit)	103	52	15	170
Net income (loss)	$302	$211	$98	$611
Total average assets	$75,283	$57,738	$49,548	$182,569

Citizens Financial Group, Inc. | 67

Citizens utilizes an FTP system to eliminate the effect of interest rate risk from the segments’ net interest income. This risk is centrally managed within the Treasury function and reported in the Other segment. The FTP methodology provides a funds credit for sources of funds and a funds charge for the use of funds by each segment. The sum of the interest income/expense and FTP charges/credits for each segment is its designated net interest income. The offset to these FTP charges and credits is recorded in the Other segment.

Effective January 1, 2022, the Company refined its FTP credit methodology for deposits provided by each business segment. The rationale for this FTP refinement is to better estimate the net interest income resulting from the strong growth in deposits caused by the COVID-19 government stimulus. This resulted in lower net interest income, primarily in Consumer, offset by an increase in Other. Prior periods have not been restated.

There have been no other 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 2021 Form 10-K.

NOTE 18 - SUBSEQUENT EVENTS

On April 6, 2022, Citizens completed the acquisition of Investors. For additional information regarding the acquisition see Note 2.

Previous: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS · Next: Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK