Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS


						Page
Consolidated Balance Sheets (unaudited)						33
Consolidated Statements of Operations (unaudited)						34
Consolidated Statements of Comprehensive Income (unaudited)						35
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)						36
Consolidated Statements of Cash Flows (unaudited)						37
Notes to Consolidated Financial Statements (unaudited)						38
Note 1 - Basis of Presentation						38
Note 2 - Securities						40
Note 3 - Loans and Leases						43
Note 4 - Allowance for Credit Losses, Nonaccrual Loans and Leases, and Concentrations of Credit Risk						43
Note 5 - Mortgage Banking and Other						52
Note 6 - Variable Interest Entities						54
Note 7 - Borrowed Funds						55
Note 8 - Derivatives						57
Note 9 - Accumulated Other Comprehensive Income (Loss)						60
Note 1 0 - Stockholders’ Equity						60
Note 1 1 - Commitments and Contingencies						61
Note 1 2 - Fair Value Measurements						62
Note 1 3 - Noninterest Income						68
Note 1 4 - Other Operating Expense						68
Note 1 5 - Earnings Per Share						68
Note 1 6 - Business Operating Segments						69

Citizens Financial Group, Inc. | 32

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(dollars in millions, except par value)	March 31, 2023	December 31, 2022
ASSETS:
Cash and due from banks	$1,283	$1,489
Interest-bearing cash and due from banks	6,691	9,058
Interest-bearing deposits in banks	320	303
Debt securities available for sale, at fair value (including $1,335 and $270 pledged to creditors, respectively)(1)	23,845	24,007
Debt securities held to maturity (fair value of $9,064 and $9,042 respectively, and including $163 and $110 pledged to creditors, respectively)(1)	9,677	9,834
Loans held for sale, at fair value	855	774
Other loans held for sale	1,000	208
Loans and leases	154,688	156,662
Less: Allowance for loan and lease losses	(2,017)	(1,983)
Net loans and leases	152,671	154,679
Derivative assets	569	842
Premises and equipment, net	866	844
Bank-owned life insurance	3,244	3,236
Goodwill	8,177	8,173
Other intangible assets(2)	185	197
Other assets	12,873	13,089
TOTAL ASSETS	$222,256	$226,733
LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing	$44,326	$49,283
Interest-bearing	127,868	131,441
Total deposits	172,194	180,724
Short-term borrowed funds	1,018	3
Derivative liabilities	1,704	1,909
Long-term borrowed funds	18,855	15,887
Other liabilities	4,284	4,520
TOTAL LIABILITIES	198,055	203,043
Commitments and Contingencies (refer to Note 11)
STOCKHOLDERS’ EQUITY:
Preferred stock:
$25.00 par value,100,000,000 shares authorized; 2,050,000 shares issued and outstanding at March 31, 2023 and December 31, 2022	2,014	2,014
Common stock:
$0.01 par value, 1,000,000,000 shares authorized; 647,009,415 shares issued and 483,982,264 shares outstanding at March 31, 2023 and 645,220,018 shares issued and 492,282,158 shares outstanding at December 31, 2022	6	6
Additional paid-in capital	22,183	22,142
Retained earnings	9,416	9,159
Treasury stock, at cost, 163,027,151 and 152,937,860 shares at March 31, 2023 and December 31, 2022, respectively	(5,475)	(5,071)
Accumulated other comprehensive income (loss)	(3,943)	(4,560)
TOTAL STOCKHOLDERS’ EQUITY	24,201	23,690
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$222,256	$226,733

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

(2) Excludes MSRs, which are reported in Other assets.

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,
(dollars in millions, except per share data)		2023	2022
INTEREST INCOME:
Interest and fees on loans and leases		$2,047	$1,048
Interest and fees on loans held for sale		15	16
Interest and fees on other loans held for sale		5	7
Investment securities		266	138
Interest-bearing deposits in banks		69	4
Total interest income		2,402	1,213
INTEREST EXPENSE:
Deposits		550	25
Short-term borrowed funds		6	—
Long-term borrowed funds		203	41
Total interest expense		759	66
Net interest income		1,643	1,147
Provision (benefit) for credit losses		168	3
Net interest income after provision (benefit) for credit losses		1,475	1,144
NONINTEREST INCOME:
Service charges and fees		100	98
Capital markets fees		83	93
Card fees		72	60
Mortgage banking fees		57	69
Trust and investment services fees		63	61
Foreign exchange and derivative products		48	51
Letter of credit and loan fees		40	38
Securities gains, net		5	4
Other income		17	24
Total noninterest income		485	498
NONINTEREST EXPENSE:
Salaries and employee benefits		658	594
Outside services		176	169
Equipment and software		169	150
Occupancy		124	83
Other operating expense		169	110
Total noninterest expense		1,296	1,106
Income before income tax expense		664	536
Income tax expense		153	116
NET INCOME		$511	$420
Net income available to common stockholders		$488	$396
Weighted-average common shares outstanding:
Basic		485,444,313	422,401,747
Diluted		487,712,146	424,670,871
Per common share information:
Basic earnings		$1.00	$0.94
Diluted earnings		1.00	0.93

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,
(dollars in millions)		2023	2022
Net income		$511	$420
Other comprehensive income (loss):
Net unrealized derivative instruments gains (losses) arising during the periods, net of income taxes of $60 and ($170), respectively		173	(491)
Reclassification adjustment for net derivative (gains) losses included in net income, net of income taxes of $33 and ($8), respectively		94	(24)
Net unrealized debt securities gains (losses) arising during the periods, net of income taxes of $109 and ($357), respectively		327	(1,077)
Reclassification of net debt securities (gains) losses to net income, net of income taxes of $7 and ($1), respectively		20	(3)
Reclassification of actuarial (gain) loss to net income, net of income taxes of $1 and $1, respectively		3	2
Total other comprehensive income (loss), net of income taxes		617	(1,593)
Total comprehensive income (loss)		$1,128	($1,173)

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
(dollars and shares in millions)	Shares	Amount	Shares	Amount
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
Balance at January 1, 2023	2	$2,014	492	$6	$22,142	$9,159	($5,071)	($4,560)	$23,690
Dividends to common stockholders	—	—	—	—	—	(205)	—	—	(205)
Dividends to preferred stockholders	—	—	—	—	—	(23)	—	—	(23)



Treasury stock purchased	—	—	(10)	—	—	—	(400)	—	(400)
Share repurchase excise tax	—	—	—	—	—	—	(4)	—	(4)
Share-based compensation plans	—	—	2	—	33	—	—	—	33
Employee stock purchase plan	—	—	—	—	8	—	—	—	8
Cumulative effect of change in accounting principle	—	—	—	—	—	(26)	—	—	(26)
Total comprehensive income (loss):
Net income	—	—	—	—	—	511	—	—	511
Other comprehensive income (loss)	—	—	—	—	—	—	—	617	617
Total comprehensive income (loss)	—	—	—	—	—	511	—	617	1,128
Balance at March 31, 2023	2	$2,014	484	$6	$22,183	$9,416	($5,475)	($3,943)	$24,201

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,
(dollars in millions)	2023	2022
OPERATING ACTIVITIES
Net income	$511	$420
Adjustments to reconcile net income to net change in cash due to operating activities:
Provision (benefit) for credit losses	168	3
Net change in loans held for sale	(81)	898
Depreciation, amortization and accretion	118	67
Deferred income taxes	(63)	(47)
Share-based compensation	33	33
Net gain on sales of assets	(5)	(4)
Net (increase) decrease in other assets	(372)	(1,216)
Net increase (decrease) in other liabilities	849	1,400
Net change due to operating activities	1,158	1,554
INVESTING ACTIVITIES
Investment securities:
Purchases of debt securities available for sale	(1,223)	(2,656)
Proceeds from maturities and paydowns of debt securities available for sale	423	1,203
Proceeds from sales of debt securities available for sale	1,395	704

Proceeds from maturities and paydowns of debt securities held to maturity	182	190

Net (increase) decrease in interest-bearing deposits in banks	(17)	(369)

Acquisitions, net of cash acquired(1)	—	(143)
Purchases of loans	—	(718)
Sales of loans	315	305
Net (increase) decrease in loans and leases	696	(2,196)
Capital expenditures, net	(52)	(51)
Purchase of bank-owned life insurance	—	(100)
Other	(227)	(83)
Net change due to investing activities	1,492	(3,914)
FINANCING ACTIVITIES
Net increase (decrease) in deposits	(8,530)	4,415
Net increase (decrease) in short-term borrowed funds	1,015	(52)
Proceeds from issuance of long-term borrowed funds	5,710	—
Repayments of long-term borrowed funds	(2,752)	(1,004)
Treasury stock purchased, including excise tax	(404)	—


Dividends paid to common stockholders	(205)	(165)
Dividends paid to preferred stockholders	(33)	(33)

Payments of employee tax withholding for share-based compensation	(24)	(23)
Net change due to financing activities	(5,223)	3,138
Net change in cash and cash equivalents(2)	(2,573)	778
Cash and cash equivalents at beginning of period(2)	10,547	9,158
Cash and cash equivalents at end of period(2)	$7,974	$9,936

(1) Includes cash paid of $143 million for the HSBC transaction for the three months ended March 31, 2022.

(2) 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 2022 Form 10-K. The Company’s principal business activity is banking, conducted through its 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 2022 Form 10-K.

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Accounting Pronouncements Adopted in 2023


Pronouncement	Summary of Guidance	Effects on Financial Statements
Troubled Debt Restructurings and Vintage Disclosures Issued March 2022	•Effective date: January 1, 2023. •Eliminates the separate recognition and measurement guidance for TDRs. •Requires evaluation of all modifications to borrowers experiencing financial difficulty (or FDMs) to determine whether the modification results in a new loan or continuation of an existing loan. •Requires expected credit losses measured under a discounted cash flow method to be determined using an effective interest rate based on the modified (not original) contractual terms of the loan. •Enhances disclosures by creditors for modifications of receivables from borrowers experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay or a term extension. •Requires disclosure of current period gross charge-offs by vintage year for loans and net investments in leases. •Transition is prospective, with an option to adopt the recognition and measurement guidance for TDRs on a modified retrospective basis, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.	•The Company adopted the new standard on January 1, 2023, and elected to apply the new measurement and recognition guidance for TDRs under the modified retrospective transition method. •Adoption did not have a material impact on the Company’s Consolidated Financial Statements. Required disclosures and discussion of significant accounting policies for modifications to borrowers experiencing financial difficulty are included in Note 4. •Disclosure of gross charge-offs by vintage year did not have a material impact on the Company’s Consolidated Financial Statements.
Fair Value Hedging - Portfolio Layer Method Issued March 2022	•Effective date: January 1, 2023. •Replaces the ‘last-of-layer’ method. •Allows the designation of multiple layers in a closed portfolio of financial assets. •Permits hedging of non-prepayable and prepayable assets. •Prohibits the consideration of basis adjustments when measuring expected credit losses of assets in the closed portfolio or determining whether an AFS security is impaired. •The guidance on hedging multiple layers in a closed portfolio is applied prospectively. The guidance on the accounting for fair value basis adjustments is applied on a modified retrospective basis.	•The Company adopted the new standard on January 1, 2023. •Adoption did not have a material impact on the Company’s Consolidated Financial Statements.
Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method Issued March 2023	•Effective date: January 1, 2024. •Permits use of the proportional amortization method of accounting for all tax equity investments provided that certain conditions are met. •Proportional amortization method is elected on a tax-credit-program-by-tax-credit-program basis. •Permits adoption under the modified retrospective method or retrospective method through a cumulative-effect adjustment to retained earnings as of the beginning of the current period or first period presented, respectively. Early adoption is permitted.	•The Company adopted the new standard on January 1, 2023 for renewable energy wind and new markets tax credit investments, under the modified retrospective approach. •Adoption resulted in a cumulative-effect reduction of $26 million, net of taxes, to retained earnings and a corresponding reduction to other assets of $101 million and other liabilities of $75 million, reflecting the elimination of deferred tax liabilities associated with renewable energy wind investments that qualify for the proportional amortization method of accounting. •Refer to Note 6 for additional information.

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NOTE 2 - SECURITIES

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


	March 31, 2023				December 31, 2022
(dollars in millions)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
U.S. Treasury and other	$3,378	$—	($126)	$3,252	$3,678	$1	($193)	$3,486
State and political subdivisions	2	—	—	2	2	—	—	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	20,957	20	(1,852)	19,125	21,250	10	(2,198)	19,062
Other/non-agency	280	—	(29)	251	280	—	(29)	251
Total mortgage-backed securities	21,237	20	(1,881)	19,376	21,530	10	(2,227)	19,313
Collateralized loan obligations	1,248	—	(33)	1,215	1,248	—	(42)	1,206
Total debt securities available for sale, at fair value	$25,865	$20	($2,040)	$23,845	$26,458	$11	($2,462)	$24,007
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	$9,125	$14	($599)	$8,540	$9,253	$4	($751)	$8,506
Total mortgage-backed securities	9,125	14	(599)	8,540	9,253	4	(751)	8,506
Asset-backed securities	552	2	(30)	524	581	—	(45)	536
Total debt securities held to maturity	$9,677	$16	($629)	$9,064	$9,834	$4	($796)	$9,042
Equity securities, at cost	$1,228	$—	$—	$1,228	$1,058	$—	$—	$1,058
Equity securities, at fair value	143	—	—	143	153	—	—	153

Accrued interest receivable on debt securities totaled $96 million and $107 million as of March 31, 2023 and December 31, 2022, respectively, and is included in other assets in the Consolidated Balance Sheets.

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The following table presents the amortized cost and fair value of debt securities by contractual maturity as of March 31, 2023. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.


	Distribution of Maturities
(dollars in millions)	1 Year or Less	After 1 Year through 5 Years	After 5 Years through 10 Years	After 10 Years	Total
Amortized cost:
U.S. Treasury and other	$—	$2,137	$1,241	$—	$3,378
State and political subdivisions		—	—	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	1,145	2,670	17,142	20,957
Other/non-agency	—	—	—	280	280
Collateralized loan obligations	—	—	24	1,224	1,248
Total debt securities available for sale	—	3,282	3,935	18,648	25,865
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	—	—	9,125	9,125
Asset-backed securities	—	552	—	—	552
Total debt securities held to maturity	—	552	—	9,125	9,677
Total amortized cost of debt securities	$—	$3,834	$3,935	$27,773	$35,542

Fair value:
U.S. Treasury and other	$—	$2,059	$1,193	$—	$3,252
State and political subdivisions	—	—	—	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	1,102	2,532	15,491	19,125
Other/non-agency	—	—	—	251	251
Collateralized loan obligations	—	—	24	1,191	1,215
Total debt securities available for sale	—	3,161	3,749	16,935	23,845
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	—	—	8,540	8,540
Asset-backed securities	—	524	—	—	524
Total debt securities held to maturity	—	524	—	8,540	9,064
Total fair value of debt securities	$—	$3,685	$3,749	$25,475	$32,909

Taxable interest income from investment securities as presented in the Consolidated Statements of Operations was $266 million and $138 million for the three months ended March 31, 2023 and 2022, respectively.

The following table presents realized gains and losses on sale of securities:


	Three Months Ended March 31,
(dollars in millions)		2023	2022
Gains		$9	$7
Losses		(4)	(3)
Securities gains, net		$5	$4

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


	March 31, 2023		December 31, 2022
(dollars in millions)	Amortized Cost	Fair Value	Amortized Cost	Fair Value
Pledged against derivatives, to qualify for fiduciary powers, or to secure public and other deposits as required by law	$4,079	$3,701	$3,966	$3,527
Pledged as collateral for FHLB borrowing capacity	243	217	244	217
Pledged against repurchase agreements	1,162	1,132	—	—

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The Company regularly enters into security repurchase agreements with unrelated counterparties, which involve the transfer of a security from one party to another, and a subsequent transfer of substantially the same security back to the original party. These repurchase agreements are typically short-term in nature and are accounted for as secured borrowed funds in the Company’s Consolidated Balance Sheets. The Company recognized no offsetting of short-term receivables or payables as of March 31, 2023 or December 31, 2022. The Company offsets certain derivative assets and liabilities in the Consolidated Balance Sheets. For further information see Note 8.

There were no securitizations of mortgage loans retained in the investment portfolio for the three months ended March 31, 2023 and 2022.

Impairment

The Company evaluated its existing HTM portfolio as of March 31, 2023 and concluded that 94% of HTM securities met the zero expected credit loss criteria and, therefore, no ACL was recognized. Lifetime expected credit losses on the remainder of the HTM portfolio were determined to be insignificant based on the modeling of the Company’s credit loss position in the securities. The Company monitors the credit exposure through the use of credit quality indicators. For these securities, the Company uses external credit ratings or an internally derived credit rating when an external rating is not available. All securities were determined to be investment grade at March 31, 2023.

The following tables present AFS debt securities with fair values below their respective carrying values, separated by the duration the securities have been in a continuous unrealized loss position:


	March 31, 2023
	Less than 12 Months		12 Months or Longer		Total
(dollars in millions)	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
U.S. Treasury and other	$3,114	($116)	$138	($10)	$3,252	($126)
State and political subdivisions	1	—	—	—	1	—
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	7,101	(302)	11,185	(1,550)	18,286	(1,852)
Other/non-agency	34	(3)	217	(26)	251	(29)
Total mortgage-backed securities	7,135	(305)	11,402	(1,576)	18,537	(1,881)
Collateralized loan obligations	39	—	1,176	(33)	1,215	(33)
Total	$10,289	($421)	$12,716	($1,619)	$23,005	($2,040)


	December 31, 2022
	Less than 12 Months		12 Months or Longer		Total
(dollars in millions)	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
U.S. Treasury and other	$3,356	($193)	$—	$—	$3,356	($193)
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	13,353	(1,136)	5,042	(1,062)	18,395	(2,198)
Other/non-agency	80	(8)	171	(21)	251	(29)
Total mortgage-backed securities	13,433	(1,144)	5,213	(1,083)	18,646	(2,227)
Collateralized loan obligations	785	(26)	421	(16)	1,206	(42)
Total	$17,574	($1,363)	$5,634	($1,099)	$23,208	($2,462)

Citizens does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to recovery of their amortized cost bases. Citizens has determined that credit losses are not expected to be incurred on the AFS debt securities identified with unrealized losses as of March 31, 2023. The unrealized losses on these debt securities reflect non-credit-related factors driven by changes in interest rates. Therefore, the Company has determined that these debt securities are not impaired.

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NOTE 3 - LOANS AND LEASES

Loans held for investment are reported at the amount of their outstanding principal, net of charge-offs, unearned income, deferred loan origination fees and costs, and unamortized premiums or discounts on purchased loans.

The following table presents loans and leases, excluding LHFS:


(dollars in millions)	March 31, 2023	December 31, 2022
Commercial and industrial	$50,450	$51,836
Commercial real estate	28,999	28,865
Leases	1,417	1,479
Total commercial	80,866	82,180
Residential mortgages	30,362	29,921
Home equity	14,135	14,043
Automobile	11,535	12,292
Education	12,634	12,808
Other retail	5,156	5,418
Total retail	73,822	74,482
Total loans and leases	$154,688	$156,662

Accrued interest receivable on loans and leases held for investment totaled $841 million and $820 million as of March 31, 2023 and December 31, 2022, respectively, and is included in other assets in the Consolidated Balance Sheets.

Loans pledged as collateral for FHLB borrowing capacity, primarily residential mortgages and home equity products, totaled $36.7 billion and $38.4 billion at March 31, 2023 and December 31, 2022, respectively. Loans pledged as collateral to support the contingent ability to borrow at the FRB discount window, if necessary, were primarily comprised of education, automobile, commercial and industrial, and commercial real estate loans, and totaled $36.2 billion and $34.8 billion at March 31, 2023 and December 31, 2022, respectively.

Interest income on direct financing and sales-type leases for the three months ended March 31, 2023 and 2022 was $12 million and $11 million, respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations.

The following table presents the composition of LHFS:


	March 31, 2023			December 31, 2022
(dollars in millions)	Residential Mortgages(1)	Commercial(2)	Total	Residential Mortgages(1)	Commercial(2)	Total
Loans held for sale at fair value	$767	$88	$855	$666	$108	$774
Other loans held for sale	—	1,000	1,000	—	208	208

(1) Residential mortgage LHFS are originated for sale.

(2) Commercial LHFS at fair value consist of loans managed by the Company’s commercial secondary loan desk. Other commercial LHFS primarily consist of loans associated with the Company’s syndication business and, at March 31, 2023, also includes loans transferred to LHFS as part of the Company’s balance sheet optimization actions during the first quarter of 2023.

NOTE 4 - ALLOWANCE FOR CREDIT LOSSES, NONACCRUAL LOANS AND LEASES, AND CONCENTRATIONS OF CREDIT RISK

Allowance for Credit Losses

Management’s estimate of expected credit losses in the Company’s loan and lease portfolios is recorded in the ALLL and the allowance for unfunded lending commitments (collectively the ACL). The Company’s estimate of expected credit losses considers extensive historical loss experience, including the impact of loss mitigation and restructuring programs that the Company offers to borrowers experiencing financial difficulty, as well as projected loss severity as a result of loan default.

Effective January 1, 2023, the Company adopted new accounting guidance that eliminates the separate recognition and measurement of TDRs. Upon adoption of this guidance, the ACL for loans previously identified as TDRs is measured at the product level based on post-modification credit attributes and use of an econometric model.

Citizens Financial Group, Inc. | 43

For a detailed discussion of the ACL reserve methodology and estimation techniques as of December 31, 2022, see Note 6 in the Company’s 2022 Form 10-K. There were no significant changes to the ACL reserve methodology during the three months ended March 31, 2023.

The following table presents a summary of changes in the ACL for the three months ended March 31, 2023:


	Three Months Ended March 31, 2023
(dollars in millions)	Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period	$1,060	$923	$1,983



Charge-offs	(59)	(112)	(171)
Recoveries	7	31	38
Net charge-offs	(52)	(81)	(133)
Provision expense (benefit) for loans and leases	103	64	167
Allowance for loan and lease losses, end of period	1,111	906	2,017
Allowance for unfunded lending commitments, beginning of period	207	50	257


Provision expense (benefit) for unfunded lending commitments	8	(7)	1

Allowance for unfunded lending commitments, end of period	215	43	258
Total allowance for credit losses, end of period	$1,326	$949	$2,275

During the three months ended March 31, 2023, net charge-offs of $133 million and a credit provision of $168 million resulted in an increase of $35 million to the ACL.

Our ACL as of March 31, 2023 accounts for an economic forecast over our two-year reasonable and supportable period with peak unemployment of approximately 6% and peak-to-trough GDP decline of approximately 1%. This forecast reflects a moderate recession over the two-year reasonable and supportable period.

The following table presents a summary of changes in the ACL for the three months ended March 31, 2022:


	Three Months Ended March 31, 2022
(dollars in millions)	Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period	$821	$937	$1,758



Charge-offs	(14)	(87)	(101)
Recoveries	3	39	42
Net charge-offs	(11)	(48)	(59)
Provision expense (benefit) for loans and leases(1)	(32)	53	21
Allowance for loan and lease losses, end of period	778	942	1,720
Allowance for unfunded lending commitments, beginning of period	153	23	176


Provision expense (benefit) for unfunded lending commitments	(6)	(12)	(18)

Allowance for unfunded lending commitments, end of period	147	11	158
Total allowance for credit losses, end of period	$925	$953	$1,878

(1) Includes $24 million of initial provision expense related to non-PCD loans and leases acquired from HSBC for the three months ended March 31, 2022.

Credit Quality Indicators

The Company presents loan and lease portfolio segments and classes by credit quality indicator and vintage year. Citizens defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. In general, renewals are categorized as new credit decisions and reflect the renewal date as the vintage date.

Citizens utilizes regulatory classification ratings to monitor credit quality for commercial loans and leases. For more information on regulatory classification ratings see Note 6 in the Company’s 2022 Form 10-K.

Citizens Financial Group, Inc. | 44

The following table presents the amortized cost basis of commercial loans and leases by vintage date and regulatory classification rating as of March 31, 2023, and gross charge-offs by vintage date for the three months ended March 31, 2023:


	Term Loans by Origination Year						Revolving Loans
(dollars in millions)	2023	2022	2021	2020	2019	Prior to 2019	Within the Revolving Period	Converted to Term	Total
Commercial and industrial
Pass	$1,357	$7,665	$7,610	$1,832	$1,766	$2,791	$23,680	$129	$46,830
Special Mention	—	192	242	127	15	196	382	—	1,154
Substandard	36	286	279	216	178	397	811	12	2,215
Doubtful	18	34	23	3	7	88	74	4	251
Total commercial and industrial	1,411	8,177	8,154	2,178	1,966	3,472	24,947	145	50,450
Gross charge-offs	—	—	27	4	—	—	24	—	55
Commercial real estate
Pass	603	5,375	6,486	3,284	2,827	5,124	1,585	4	25,288
Special Mention	—	489	95	309	274	279	11	—	1,457
Substandard	—	154	82	160	574	1,119	25	—	2,114
Doubtful	—	8	1	6	88	37	—	—	140
Total commercial real estate	603	6,026	6,664	3,759	3,763	6,559	1,621	4	28,999
Gross charge-offs	—	—	—	—	1	3	—	—	4
Leases
Pass	59	240	331	230	85	421	—	—	1,366
Special Mention	3	2	6	4	2	—	—	—	17
Substandard	—	9	11	3	8	3	—	—	34
Doubtful	—	—	—	—	—	—	—	—	—
Total leases	62	251	348	237	95	424	—	—	1,417
Gross charge-offs	—	—	—	—	—	—	—	—	—
Total commercial
Pass	2,019	13,280	14,427	5,346	4,678	8,336	25,265	133	73,484
Special Mention	3	683	343	440	291	475	393	—	2,628
Substandard	36	449	372	379	760	1,519	836	12	4,363
Doubtful	18	42	24	9	95	125	74	4	391
Total commercial	$2,076	$14,454	$15,166	$6,174	$5,824	$10,455	$26,568	$149	$80,866
Gross charge-offs	$—	$—	$27	$4	$1	$3	$24	$—	$59

Citizens Financial Group, Inc. | 45

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


	Term Loans by Origination Year						Revolving Loans
(dollars in millions)	2022	2021	2020	2019	2018	Prior to 2018	Within the Revolving Period	Converted to Term	Total
Commercial and industrial
Pass	$8,304	$8,469	$2,224	$2,074	$1,334	$1,952	$24,211	$148	$48,716
Special Mention	124	189	120	74	48	153	364	—	1,072
Substandard	150	218	203	255	99	349	597	14	1,885
Doubtful	10	14	1	5	41	14	76	2	163
Total commercial and industrial	8,588	8,890	2,548	2,408	1,522	2,468	25,248	164	51,836

Commercial real estate
Pass	5,767	6,442	3,639	3,066	2,145	3,536	1,888	3	26,486
Special Mention	1	119	103	390	99	113	62	—	887
Substandard	92	18	79	253	350	610	23	—	1,425
Doubtful	—	2	9	55	—	1	—	—	67
Total commercial real estate	5,860	6,581	3,830	3,764	2,594	4,260	1,973	3	28,865

Leases
Pass	263	363	250	99	128	345	—	—	1,448
Special Mention	4	5	2	6	1	3	—	—	21
Substandard	—	4	3	3	—	—	—	—	10
Doubtful	—	—	—	—	—	—	—	—	—
Total leases	267	372	255	108	129	348	—	—	1,479

Total commercial
Pass	14,334	15,274	6,113	5,239	3,607	5,833	26,099	151	76,650
Special Mention	129	313	225	470	148	269	426	—	1,980
Substandard	242	240	285	511	449	959	620	14	3,320
Doubtful	10	16	10	60	41	15	76	2	230
Total commercial	$14,715	$15,843	$6,633	$6,280	$4,245	$7,076	$27,221	$167	$82,180

For retail loans, Citizens utilizes FICO credit scores and the loan’s payment and delinquency status to monitor credit quality. Management believes FICO scores are the strongest indicator of credit losses over the contractual life of the loan and assist management in predicting the borrower’s future payment performance. Scores are based on current and historical national industry-wide consumer level credit performance data.

Citizens Financial Group, Inc. | 46

The following table presents the amortized cost basis of retail loans by vintage date and current FICO score as of March 31, 2023, and gross charge-offs by vintage date for the three months ended March 31, 2023:


	Term Loans by Origination Year						Revolving Loans
(dollars in millions)	2023	2022	2021	2020	2019	Prior to 2019	Within the Revolving Period	Converted to Term	Total
Residential mortgages
800+	$133	$2,528	$5,105	$3,202	$1,167	$3,289	$—	$—	$15,424
740-799	344	2,225	2,850	1,566	628	1,747	—	—	9,360
680-739	87	671	863	493	293	955	—	—	3,362
620-679	18	139	158	99	139	492	—	—	1,045
<620	—	25	81	92	167	588	—	—	953
No FICO available(1)	1	—	2	2	3	210	—	—	218
Total residential mortgages	583	5,588	9,059	5,454	2,397	7,281	—	—	30,362
Gross charge-offs	—	—	—	—	—	1	—	—	1
Home equity
800+	—	4	5	2	5	108	4,957	257	5,338
740-799	—	1	2	1	4	98	4,306	263	4,675
680-739	—	1	1	1	6	115	2,386	229	2,739
620-679	—	—	1	2	10	98	628	144	883
<620	—	—	—	2	10	100	219	169	500

Total home equity	—	6	9	8	35	519	12,496	1,062	14,135
Gross charge-offs	—	—	—	—	—	1	1	—	2
Automobile
800+	95	625	1,362	524	276	130	—	—	3,012
740-799	141	877	1,434	567	290	141	—	—	3,450
680-739	154	820	1,054	400	214	110	—	—	2,752
620-679	94	502	519	183	114	69	—	—	1,481
<620	14	217	316	125	97	69	—	—	838
No FICO available(1)	2	—	—	—	—	—	—	—	2
Total automobile	500	3,041	4,685	1,799	991	519	—	—	11,535
Gross charge-offs	—	7	11	4	4	4	—	—	30
Education
800+	74	652	1,710	1,522	668	1,391	—	—	6,017
740-799	106	771	1,248	1,042	442	808	—	—	4,417
680-739	53	361	396	331	159	362	—	—	1,662
620-679	7	69	74	61	38	125	—	—	374
<620	—	12	18	21	12	57	—	—	120
No FICO available(1)	3	1	—	—	—	40	—	—	44
Total education	243	1,866	3,446	2,977	1,319	2,783	—	—	12,634
Gross charge-offs	—	2	3	4	3	11	—	—	23
Other retail
800+	16	163	82	74	37	40	475	—	887
740-799	22	195	101	94	51	44	966	1	1,474
680-739	18	149	85	82	40	27	1,000	3	1,404
620-679	13	92	50	42	14	9	435	4	659
<620	2	42	27	22	7	4	210	5	319
No FICO available(1)	2	5	1	2	—	—	402	1	413
Total other retail	73	646	346	316	149	124	3,488	14	5,156
Gross charge-offs	5	15	4	3	3	3	23	—	56
Total retail
800+	318	3,972	8,264	5,324	2,153	4,958	5,432	257	30,678
740-799	613	4,069	5,635	3,270	1,415	2,838	5,272	264	23,376
680-739	312	2,002	2,399	1,307	712	1,569	3,386	232	11,919
620-679	132	802	802	387	315	793	1,063	148	4,442
<620	16	296	442	262	293	818	429	174	2,730
No FICO available(1)	8	6	3	4	3	250	402	1	677
Total retail	$1,399	$11,147	$17,545	$10,554	$4,891	$11,226	$15,984	$1,076	$73,822
Gross charge-offs	$5	$24	$18	$11	$10	$20	$24	$—	$112

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

Citizens Financial Group, Inc. | 47

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


	Term Loans by Origination Year						Revolving Loans
(dollars in millions)	2022	2021	2020	2019	2018	Prior to 2018	Within the Revolving Period	Converted to Term	Total
Residential mortgages
800+	$2,132	$4,943	$3,143	$1,180	$363	$3,081	$—	$—	$14,842
740-799	2,376	2,991	1,660	638	257	1,635	—	—	9,557
680-739	769	899	502	308	149	851	—	—	3,478
620-679	125	168	135	138	99	422	—	—	1,087
<620	17	68	77	165	147	455	—	—	929
No FICO available(1)	2	2	2	3	2	17	—	—	28
Total residential mortgages	5,421	9,071	5,519	2,432	1,017	6,461	—	—	29,921

Home equity
800+	4	5	2	5	6	110	4,958	267	5,357
740-799	2	2	1	4	6	97	4,350	274	4,736
680-739	1	1	1	6	11	114	2,296	234	2,664
620-679	—	1	2	9	16	93	558	143	822
<620	—	—	2	12	18	82	178	172	464

Total home equity	7	9	8	36	57	496	12,340	1,090	14,043

Automobile
800+	650	1,453	584	324	120	54	—	—	3,185
740-799	962	1,606	649	343	134	56	—	—	3,750
680-739	920	1,187	460	254	102	44	—	—	2,967
620-679	554	586	205	133	62	28	—	—	1,568
<620	188	309	130	106	56	31	—	—	820
No FICO available(1)	2	—	—	—	—	—	—	—	2
Total automobile	3,276	5,141	2,028	1,160	474	213	—	—	12,292

Education
800+	548	1,720	1,567	694	410	1,068	—	—	6,007
740-799	735	1,351	1,126	486	267	609	—	—	4,574
680-739	363	423	356	170	103	288	—	—	1,703
620-679	54	76	62	38	29	102	—	—	361
<620	6	16	20	12	11	50	—	—	115
No FICO available(1)	6	—	—	—	—	42	—	—	48
Total education	1,712	3,586	3,131	1,400	820	2,159	—	—	12,808

Other retail
800+	182	105	93	48	25	27	491	—	971
740-799	230	134	121	68	31	25	974	1	1,584
680-739	175	109	103	52	21	14	993	4	1,471
620-679	108	65	52	18	8	4	435	4	694
<620	35	30	25	9	4	2	190	6	301
No FICO available(1)	12	1	3	—	—	—	380	1	397
Total other retail	742	444	397	195	89	72	3,463	16	5,418

Total retail
800+	3,516	8,226	5,389	2,251	924	4,340	5,449	267	30,362
740-799	4,305	6,084	3,557	1,539	695	2,422	5,324	275	24,201
680-739	2,228	2,619	1,422	790	386	1,311	3,289	238	12,283
620-679	841	896	456	336	214	649	993	147	4,532
<620	246	423	254	304	236	620	368	178	2,629
No FICO available(1)	22	3	5	3	2	59	380	1	475
Total retail	$11,158	$18,251	$11,083	$5,223	$2,457	$9,401	$15,803	$1,106	$74,482

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

Citizens Financial Group, Inc. | 48

Nonaccrual and Past Due Assets

The following tables present an aging analysis of accruing loans and leases, and nonaccrual loans and leases as of March 31, 2023 and December 31, 2022:


	March 31, 2023
		Days Past Due and Accruing
(dollars in millions)	Current	30-59	60-89	90+	Nonaccrual	Total	Nonaccrual with no related ACL
Commercial and industrial	$50,007	$119	$6	$21	$297	$50,450	$63
Commercial real estate	28,558	231	7	63	140	28,999	1
Leases	1,416	1	—	—	—	1,417	—
Total commercial	79,981	351	13	84	437	80,866	64
Residential mortgages(1)	29,556	202	74	314	216	30,362	162
Home equity	13,804	68	23	—	240	14,135	180
Automobile	11,323	128	34	—	50	11,535	8
Education	12,561	33	14	3	23	12,634	3
Other retail	5,034	42	27	23	30	5,156	1
Total retail	72,278	473	172	340	559	73,822	354
Total	$152,259	$824	$185	$424	$996	$154,688	$418


	December 31, 2022
		Days Past Due and Accruing
(dollars in millions)	Current	30-59	60-89	90+	Nonaccrual	Total	Nonaccrual with no related ACL
Commercial and industrial	$51,389	$152	$25	$21	$249	$51,836	$64
Commercial real estate	28,665	51	45	1	103	28,865	7
Leases	1,475	4	—	—	—	1,479	—
Total commercial	81,529	207	70	22	352	82,180	71
Residential mortgages(1)	29,228	95	45	319	234	29,921	187
Home equity	13,719	64	19	—	241	14,043	185
Automobile	12,039	152	45	—	56	12,292	9
Education	12,718	36	17	4	33	12,808	3
Other retail	5,294	44	30	22	28	5,418	1
Total retail	72,998	391	156	345	592	74,482	385
Total	$154,527	$598	$226	$367	$944	$156,662	$456

(1) 90+ days past due and accruing includes $309 million and $316 million of loans fully or partially guaranteed by the FHA, VA, and USDA at March 31, 2023 and December 31, 2022, respectively.

Interest income is generally not recognized for loans and leases that are on nonaccrual status. The Company reverses accrued interest receivable with a charge to interest income upon classifying a loan or lease as nonaccrual.

At March 31, 2023 and December 31, 2022, the Company had collateral-dependent residential mortgage and home equity loans totaling $556 million and $561 million, respectively. At March 31, 2023 and December 31, 2022, the Company had collateral-dependent commercial loans totaling $115 million and $21 million, respectively.

The amortized cost basis of mortgage loans collateralized by residential real estate for which formal foreclosure proceedings were in-process was $293 million and $250 million as of March 31, 2023 and December 31, 2022, respectively.

Citizens Financial Group, Inc. | 49

Loan Modifications to Borrowers Experiencing Financial Difficulty

Effective January 1, 2023, the Company adopted accounting guidance that eliminates the recognition and measurement of TDRs. Upon adoption of this guidance, all loan modifications to borrowers experiencing financial difficulty, or FDMs, are evaluated to determine whether the modification should be accounted for as a new loan or a continuation of the existing loan. The existing loan is derecognized and the restructured loan is accounted for as a new loan if the effective yield on the restructured loan is at least equal to the effective yield for comparable loans with similar collection risk and the modification to the original loan is more than minor. Any unamortized fees and costs from the original loan are recognized in interest income when the new loan is granted. If a loan restructuring does not meet these conditions, the existing loan’s amortized cost basis is carried forward and the modified loan is accounted for as a continuation of the existing loan. FDMs are generally accounted for as a continuation of the existing loan given the terms are typically not at market rates.

The Company offers loan modifications to retail and commercial borrowers that may result in a payment delay, interest rate reduction, term extension, principal forgiveness, or combination thereof. Commercial loan modifications are offered on a case-by-case basis and are generally payment delay, term extension and/or interest rate reduction modification types. Principal forgiveness is offered in rare circumstances. Retail loan modifications are offered through structured loan modification programs. Forbearance (due to hardship) programs result in modification types including payment delay and/or term extension. Other retail loan modification programs target interest rate reduction or a combination of interest rate reduction and term extension. Credit card settlement programs result in principal forgiveness. In addition, certain reorganization bankruptcy judgments result in interest rate reduction, term extension or principal forgiveness modification types.

The following table presents the period-end amortized cost of loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023, disaggregated by class of financing receivable and modification type. The modification type reflects the cumulative effect of all FDMs received during the indicated period.


	Three Months Ended March 31, 2023
(dollars in millions)	Interest Rate Reduction	Term Extension	Payment Delay	Principal Forgiveness	Interest Rate Reduction and Term Extension	Term Extension and Payment Delay	Total	Total as a % of Loan Class(1)
Commercial and industrial	$—	$44	$32	$—	$—	$21	$97	0.19	%
Commercial real estate	—	55	—	—	—	—	55	0.19
Leases	—	—	—	—	—	—	—	—
Total commercial	—	99	32	—	—	21	152	0.19
Residential mortgages	2	19	—	—	3	—	24	0.08
Home equity	—	1	—	—	2	—	3	0.02
Automobile	—	—	—	—	—	—	—	—
Education	1	—	1	—	—	—	2	0.02
Other retail	3	—	—	—	—	—	3	0.06
Total retail	6	20	1	—	5	—	32	0.04
Total(2)	$6	$119	$33	$—	$5	$21	$184	0.12	%

(1) Represents the total amortized cost as of period-end divided by the period-end amortized cost of the corresponding loan class. Accrued interest receivable is excluded from amortized cost and is immaterial.

(2) Excludes the period-end amortized cost of $7 million relative to borrowers that had their debt discharged by means of a Chapter 7 bankruptcy filing during the three months ended March 31, 2023.

Citizens Financial Group, Inc. | 50

The following table presents the financial effect of loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023, disaggregated by class of financing receivable.


	Three Months Ended March 31, 2023
(amounts in whole dollars)	Weighted-Average Interest Rate Reduction(1)(5)		Weighted-Average Term Extension (in Months)(2)(5)	Weighted-Average Payment Deferral(3)(5)	Amount of Principal Forgiven(4)
Commercial and industrial	4.05	%	9	$658,467	$—
Commercial real estate	—		14	—	—
Leases	—		—	—	—
Residential mortgages	1.47		44	—	—
Home equity	2.02		139	3,863	—
Automobile	2.76		23	1,005	2,702
Education	5.77		—	3,037	—
Other retail	17.79		22	—	1,156,256

(1) Represents the weighted-average reduction of the loan’s interest rate.

(2) Represents the weighted-average extension of a loan’s maturity date.

(3) Represents the weighted-average amount of payments delayed as a result of the loan modification.

(4) Amounts are recorded as charge-offs.

(5) Weighted based on period-end amortized cost.

The following table presents an aging analysis of the period-end amortized cost of loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2023, disaggregated by class of financing receivable. A loan in a forbearance or repayment plan is reported as past due according to its contractual terms until contractually modified. Subsequent to modification, it is reported as past due based on its restructured terms.


	March 31, 2023
		Days Past Due and Accruing
(dollars in millions)	Current	30-59	60-89	90+	Nonaccrual	Total
Commercial and industrial	$76	$—	$—	$—	$21	$97
Commercial real estate	55	—	—	—	—	55
Leases	—	—	—	—	—	—
Total commercial	131	—	—	—	21	152
Residential mortgages	16	4	—	2	2	24
Home equity	1	—	—	—	2	3
Automobile	—	—	—	—	—	—
Education	2	—	—	—	—	2
Other retail	3	—	—	—	—	3
Total retail	22	4	—	2	4	32
Total	$153	$4	$—	$2	$25	$184

The period-end amortized cost of loans modified during the three months ended March 31, 2023 that subsequently defaulted is immaterial and not presented as a result. A loan is considered to be in default if, subsequent to modification, it becomes 90 or more days past due or is placed on nonaccrual status.

Unfunded commitments related to loans modified during the three months ended March 31, 2023 were $12 million at March 31, 2023.

Citizens Financial Group, Inc. | 51

Troubled Debt Restructuring Disclosures Prior to the Adoption of ASU 2022-02

The following tables summarize loans modified during the three months ended March 31, 2022. The balances represent the post-modification outstanding amortized cost basis and may include loans that became TDRs during the period and were subsequently paid off in full, charged off, or sold prior to period end. Pre-modification balances for modified loans approximate the post-modification balances shown.


		Three Months Ended March 31, 2022
		Amortized Cost Basis
(dollars in millions)	Number of Contracts	Interest Rate Reduction(1)	Maturity Extension(2)	Other(3)	Total
Commercial and industrial	10	$—	$24	$7	$31

Total commercial	10	—	24	7	31
Residential mortgages	1,181	22	14	214	250
Home equity	178	2	—	9	11
Automobile	165	1	—	1	2
Education	143	—	—	6	6
Other retail	521	2	—	—	2
Total retail	2,188	27	14	230	271
Total	2,198	$27	$38	$237	$302

(1) Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

(2) Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

(3) Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forgiveness, and capitalizing arrearages. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post-modification balances being higher than pre-modification.

Modified TDRs resulted in charge-offs of $1 million for the three months ended March 31, 2022. Unfunded commitments related to TDRs were $81 million at December 31, 2022.

The following table provides a summary of TDRs that defaulted (became 90 days or more past due) within 12 months of their modification date:


						Three Months Ended March 31,
(dollars in millions)						2022
Commercial TDRs						$—
Retail TDRs(1)						15
Total						$15

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

Concentrations of Credit Risk

The Company’s lending activity is geographically well diversified with an emphasis in our core markets located in the New England, Mid-Atlantic and Midwest regions. Generally, loans are collateralized by assets including real estate, inventory, accounts receivable, other personal property and investment securities. As of March 31, 2023 and December 31, 2022, Citizens had a significant amount of loans collateralized by residential and commercial real estate. There were no significant concentration risks within the commercial or retail loan portfolios. Exposure to credit losses arising from lending transactions may fluctuate with fair values of collateral supporting loans, which may not perform according to contractual agreements. The Company’s policy is to collateralize loans to the extent necessary; however, unsecured loans are also granted on the basis of the financial strength of the applicant and the facts surrounding the transaction.

NOTE 5 - MORTGAGE BANKING AND OTHER SERVICED LOANS

The Company sells residential mortgages into the secondary market. The Company retains no beneficial interests in these sales, but may retain the servicing rights for the loans sold. The Company may exercise its option to repurchase eligible government guaranteed residential mortgages or may be obligated to subsequently repurchase a loan if the purchaser discovers a representation or warranty violation such as noncompliance with eligibility or servicing requirements, or customer fraud that should have been identified in a loan file review.

Citizens Financial Group, Inc. | 52

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


	Three Months Ended March 31,
(dollars in millions)		2023	2022
Cash proceeds from residential mortgage loans sold with servicing retained		$1,575	$6,582
Repurchased residential mortgages(1)		—	87
Gain on sales(2)		19	30
Contractually specified servicing, late and other ancillary fees(2)		77	67

(1) Includes government insured or guaranteed loans repurchased through the exercise of the Company’s removal of account provision option.

(2) Reported in mortgage banking fees in the Consolidated Statements of Operations.

The unpaid principal balance of residential mortgage loans related to our MSRs was $96.3 billion and $96.7 billion at March 31, 2023 and December 31, 2022, respectively. The Company manages the risk associated with changes in the value of the MSRs with an active hedging strategy, which includes the purchase of freestanding derivatives.

The following table summarizes changes in MSRs recorded using the fair value method:


	As of and for the Three Months Ended March 31,
(dollars in millions)		2023	2022
Fair value as of beginning of the period		$1,530	$1,029


Amounts capitalized		21	95

Changes in unpaid principal balance during the period(1)		(41)	(39)
Changes in fair value during the period(2)		(14)	156
Fair value at end of the period		$1,496	$1,241

(1) Represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial

paydowns, and ii) loans that paid off during the period.

(2) Represents changes in value primarily driven by market conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.

The fair value of MSRs is estimated by using the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, contractual servicing fee income, servicing costs, default rates, ancillary income, and other economic factors, which are determined based on current market interest rates. The valuation does not attempt to forecast or predict the future direction of interest rates.

The sensitivity analysis below presents the impact of an immediate 10% and 20% adverse change in key economic assumptions to the current fair value of MSRs. These sensitivities are hypothetical, with the effect of a variation in a particular assumption on the fair value of the MSRs calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in interest rates, which drive changes in prepayment rates, could result in changes in the discount rates), which may amplify or counteract the sensitivities. The primary risk inherent in the Company’s MSRs is an increase in prepayments of the underlying mortgage loans serviced, which is largely dependent upon movements in market interest rates.


(dollars in millions)	March 31, 2023	December 31, 2022
Fair value	$1,496	$1,530
Weighted average life (years)	8.8	9.1
Weighted average constant prepayment rate	7.3%	6.8%
Decline in fair value from 10% adverse change	$36	$34
Decline in fair value from 20% adverse change	$69	$66
Weighted average option adjusted spread	628 bps	629 bps
Decline in fair value from 10% adverse change	$41	$43
Decline in fair value from 20% adverse change	$83	$86

The Company’s mortgage banking derivatives include commitments to originate mortgages held for sale, certain loan sale agreements, and other financial instruments that meet the definition of a derivative. Refer to Note 8 for additional information.

Citizens Financial Group, Inc. | 53

Other Serviced Loans

From time to time, Citizens engages in other servicing relationships. The following table presents the unpaid principal balance of other serviced loans:


(dollars in millions)	March 31, 2023	December 31, 2022
Education	$567	$602
Commercial and industrial(1)	95	91

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

NOTE 6 - VARIABLE INTEREST ENTITIES

Citizens is involved in various entities that are considered VIEs, including investments in entities that sponsor affordable housing, renewable energy and economic development projects, and asset-backed securities. In addition, Citizens provides lending facilities to special purpose entities. Citizens’ maximum exposure to loss as a result of its involvement with these entities is limited to the balance sheet carrying amount of its investments, unfunded commitments, and the outstanding principal balance of loans to special purpose entities. The Company does not consolidate any of its investments in these entities. For more details see Note 11 in the Company’s 2022 Form 10-K.

A summary of these investments is presented below:


(dollars in millions)	March 31, 2023	December 31, 2022
Lending to special purpose entities included in loans and leases	$4,915	$4,578
LIHTC investments included in other assets	2,228	2,230
LIHTC unfunded commitments included in other liabilities	1,006	1,046
Asset-backed investments included in HTM securities	552	581
Renewable energy wind investments included in other assets	264	374
NMTC investments included in other assets	4	4

Lending to Special Purpose Entities

Citizens provides lending facilities to third-party sponsored special purpose entities. As of March 31, 2023 and December 31, 2022, the lending facilities had undrawn commitments to extend credit of $2.3 billion and $2.4 billion, respectively. For more information on commitments to extend credit see Note 11.

Low Income Housing Tax Credit Partnerships

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

Renewable Energy Entities

The Company’s investments in certain renewable energy entities provide benefits from a return generated by government incentives plus other tax attributes that are associated with tax ownership (e.g., tax depreciation).

Effective January 1, 2023, the Company made an election to account for its renewable energy wind investments using the proportional amortization method under newly adopted accounting guidance. Under the proportional amortization method, the Company amortizes the initial cost of its qualifying renewable energy wind investments in proportion to the income tax credits and other income tax benefits received in the current period as compared to the total income tax credits and other income tax benefits expected to be received over the life of the investment. The net amortization and income tax credits and other income tax benefits received are included as a component of income tax expense (benefit).

Contingent commitments related to the Company’s renewable energy wind investments were $7 million at March 31, 2023, and are expected to be paid in varying amounts through 2026. These payments are contingent upon the level of electricity production attained by the wind farm relative to its targeted threshold and changes in the production tax credit rates set by the Internal Revenue Service.

Citizens Financial Group, Inc. | 54

New Markets Tax Credit Program

The Company participates in the NMTC program which provides a tax incentive for private sector investment into economic development projects and businesses located in low-income communities. The United States Department of the Treasury oversees the program and it is directly administered by the Community Development Financial Institutions Fund.

The Company’s investments in entities that sponsor economic development projects provide income tax credits to offset federal taxable income over a specified period of time. Independent third parties manage these entities and have the power to direct the activities which most significantly affect their performance. Therefore, Citizens is not the primary beneficiary of these entities and does not consolidate these VIEs as a result.

Effective January 1, 2023, the Company made an election to account for its NMTC investments using the proportional amortization method under newly adopted accounting guidance. Under the proportional amortization method, the Company applies a practical expedient and amortizes the initial cost of its qualifying NMTC investments in proportion to the income tax credits received in the current period as compared to the total income tax credits expected to be received over the life of the investment. The net amortization and income tax credits and other income tax benefits received are included as a component of income tax expense (benefit).

The following table summarizes the impact to the Consolidated Statements of Operations relative to the Company’s tax credit programs for which it has elected to apply the proportional amortization method of accounting:


	Three Months Ended March 31,
(dollars in millions)		2023	2022
Tax credits recognized		$87	$61
Other tax benefits recognized		18	15
Amortization		(81)	(64)
Net benefit included in income tax expense		24	12
Other income		1	—
Allocated income (loss) on investments		(3)	—
Net benefit included in noninterest income		(2)	—
Net benefit included in the Consolidated Statements of Operations(1)		$22	$12

(1) Includes the impact of tax credit investments when the election to apply the proportional amortization method was in effect during the periods presented. For 2023, this includes LIHTC, renewable energy wind and NMTC investments, and for 2022, includes LIHTC investments.

The Company did not recognize impairment losses resulting from the forfeiture or ineligibility of income tax credits or other circumstances during the three months ended March 31, 2023 and 2022.

NOTE 7 - BORROWED FUNDS

Short-term borrowed funds

Short-term borrowed funds were $1.0 billion and $3 million as of March 31, 2023 and December 31, 2022, respectively.

Citizens Financial Group, Inc. | 55

Long-term borrowed funds

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


(dollars in millions)	March 31, 2023	December 31, 2022
Parent Company:
3.750% fixed-rate subordinated debt, due July 2024	$90	$90
4.023% fixed-rate subordinated debt, due October 2024	17	17
4.350% fixed-rate subordinated debt, due August 2025	133	133
4.300% fixed-rate subordinated debt, due December 2025	336	336
2.850% fixed-rate senior unsecured notes, due July 2026	498	498
2.500% fixed-rate senior unsecured notes, due February 2030	298	298
3.250% fixed-rate senior unsecured notes, due April 2030	746	746
3.750% fixed-rate reset subordinated debt, due February 2031	69	69
4.300% fixed-rate reset subordinated debt, due February 2031	135	135
4.350% fixed-rate reset subordinated debt, due February 2031	60	61
2.638% fixed-rate subordinated debt, due September 2032	558	556
5.641% fixed-rate reset subordinated debt, due May 2037	398	397
CBNA’s Global Note Program:
3.700% senior unsecured notes, due March 2023(1)	—	497
5.676% floating-rate senior unsecured notes, due March 2023(1)(2)	—	250
2.250% senior unsecured notes, due April 2025	748	748
4.119% fixed/floating-rate senior unsecured notes, due May 2025	648	648
6.064% fixed/floating-rate senior unsecured notes, due October 2025	598	598
5.284% fixed/floating-rate senior unsecured notes, due January 2026	449	—
3.750% senior unsecured notes, due February 2026	481	475
4.575% fixed/floating-rate senior unsecured notes, due August 2028	797	797
Additional Borrowings by CBNA and Other Subsidiaries:
Federal Home Loan Bank advances, 4.873% weighted average rate, due through 2041(3)	11,779	8,519
Other	17	19
Total long-term borrowed funds	$18,855	$15,887

(1) Notes were redeemed on February 27, 2023.

(2) Rate disclosed reflects the floating rate as of March 31, 2023, or final floating rate as applicable.

(3) Rate disclosed reflects the weighted average rate as of March 31, 2023.

The Parent Company’s long-term borrowed funds as of March 31, 2023 and December 31, 2022 include principal balances of $3.4 billion, and unamortized deferred issuance costs and/or discounts of $73 million and $75 million, respectively. CBNA and other subsidiaries’ long-term borrowed funds as of March 31, 2023 and December 31, 2022 include principal balances of $15.5 billion and $12.6 billion, respectively, with unamortized deferred issuance costs and/or discounts of $11 million and $10 million, respectively, and hedging basis adjustments of ($18) million and ($27) million, respectively. See Note 8 for further information about the Company’s hedging of certain long-term borrowed funds.

Advances, lines of credit and letters of credit from the FHLB are collateralized primarily by residential mortgages and home equity products at least sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized FHLB borrowing capacity, primarily for advances and letters of credit, was $18.7 billion and $15.7 billion at March 31, 2023 and December 31, 2022, respectively. The Company’s available FHLB borrowing capacity was $6.8 billion and $11.5 billion at March 31, 2023 and December 31, 2022, respectively. Citizens can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At March 31, 2023, the Company’s unused secured borrowing capacity was approximately $59.4 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.

Citizens Financial Group, Inc. | 56

The following table presents a summary of maturities for the Company’s long-term borrowed funds at March 31, 2023:


(dollars in millions)	Parent Company	CBNA and Other Subsidiaries	Consolidated
Year
2023	$—	$2	$2
2024	107	11,751	11,858
2025	469	2,019	2,488
2026	498	930	1,428
2027	—	1	1
2028 and thereafter	2,264	814	3,078
Total	$3,338	$15,517	$18,855

NOTE 8 - DERIVATIVES

In the normal course of business Citizens enters into a variety of derivative transactions to meet the financing and hedging needs of its customers and to reduce its own exposure to fluctuations in interest rates and foreign currency exchange rates. These transactions include interest rate swap contracts, interest rate options, foreign exchange contracts, residential loan commitment rate locks, interest rate future contracts, swaptions, certain commodities, forward commitments to sell TBAs, forward sale contracts and purchase options. The Company does not use derivatives for speculative purposes. Information regarding the valuation methodology and inputs used to estimate the fair value of the Company’s derivative instruments is described in Note 20 in the Company’s 2022 Form 10-K.

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


	March 31, 2023			December 31, 2022
(dollars in millions)	Notional Amount	Derivative Assets	Derivative Liabilities	Notional Amount	Derivative Assets	Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate contracts	$58,750	$99	$18	$42,250	$16	$53
Derivatives not designated as hedging instruments:
Interest rate contracts	195,041	278	1,276	174,384	331	1,579
Foreign exchange contracts	30,187	456	407	29,475	527	519
Commodities contracts	998	819	789	1,103	953	942
TBA contracts	3,406	14	14	2,370	7	14
Other contracts	1,261	13	—	913	5	4
Total derivatives not designated as hedging instruments		1,580	2,486		1,823	3,058
Gross derivative fair values		1,679	2,504		1,839	3,111
Less: Gross amounts offset in the Consolidated Balance Sheets(1)		(613)	(613)		(623)	(623)
Less: Cash collateral applied(1)		(497)	(187)		(374)	(579)
Total net derivative fair values presented in the Consolidated Balance Sheets		$569	$1,704		$842	$1,909

(1) Amounts represent the impact of enforceable master netting agreements that allow the Company to net settle positive and negative positions, as well as collateral paid and received.

Citizens Financial Group, Inc. | 57

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

Derivatives Designated As Hedging Instruments

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

Fair Value Hedges

In a fair value hedge, changes in the fair value of both the derivative instrument and the hedged asset or liability attributable to the risk being hedged are recognized in the same income statement line item in the Consolidated Statements of Operations when the changes in fair value occur.

The following table presents the change in fair value of interest rate contracts designated as fair value hedges, as well as the change in fair value of the related hedged items attributable to the risk being hedged, included in the Consolidated Statements of Operations:


	Three Months Ended March 31,
(dollars in millions)		2023	2022	Affected Line Item in the Consolidated Statements of Operations
Interest rate swaps hedging borrowed funds		$8	($37)	Interest expense - long-term borrowed funds
Hedged long-term borrowed funds attributable to the risk being hedged		(8)	37	Interest expense - long-term borrowed funds


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

The following table reflects amounts recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges on long-term borrowed funds:


(dollars in millions)	March 31, 2023	December 31, 2022


Carrying amount of hedged liabilities	$481		$972
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	(18)		(27)

Cash Flow Hedges

In a cash flow hedge the entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is initially recorded in OCI and is subsequently reclassified from AOCI to current period earnings (net interest income) in the same period that the hedged item affects earnings.

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

Citizens Financial Group, Inc. | 58

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


	Three Months Ended March 31,
(dollars in millions)		2023	2022
Amount of pre-tax net gains (losses) recognized in OCI		$233	($661)
Amount of pre-tax net gains (losses) reclassified from AOCI into interest income		(127)	37
Amount of pre-tax net gains (losses) reclassified from AOCI into interest expense		—	(5)

Using the interest rate curve at March 31, 2023 with respect to cash flow hedge strategies, the Company estimates that approximately $514 million in pre-tax net losses will be reclassified from AOCI to net interest income over the next 12 months, including $452 million related to terminated swaps. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to March 31, 2023.

Derivatives Not Designated As Hedging Instruments

Economic Hedges

The Company’s economic hedges include those related to offsetting customer derivatives, residential mortgage loan derivatives (including interest rate lock commitments and forward sales commitments) and derivatives to hedge its residential MSRs. Customer derivatives include interest rate, foreign exchange and commodity derivative contracts designed to meet the hedging and financing needs of the Company’s customers, and are economically hedged by the Company to offset its market exposure. Interest rate lock commitments on residential mortgage loans that will be held for sale are considered derivative instruments, and are economically hedged by entering into forward sale commitments to manage changes in fair value due to interest rate risk. Residential MSR derivatives are entered to hedge the risk of changes in the fair value of the Company’s MSRs.

The following table presents the effect of economic hedges on noninterest income:


		Amounts Recognized in Noninterest Income for the
	Three Months Ended March 31,		Affected Line Item in the Consolidated Statements of Operations
(dollars in millions)		2023		2022
Economic hedge type:
Customer interest rate contracts		$34		($767)	Foreign exchange and derivative products
Derivatives hedging interest rate risk		(19)		793	Foreign exchange and derivative products
Customer foreign exchange contracts		(4)		26	Foreign exchange and derivative products
Derivatives hedging foreign exchange risk		(2)		3	Foreign exchange and derivative products
Customer commodity contracts		(475)		1,152	Foreign exchange and derivative products
Derivatives hedging commodity price risk		486		(1,148)	Foreign exchange and derivative products
Residential loan commitments		2		(161)	Mortgage banking fees
Derivatives hedging residential loan commitments and mortgage loans held for sale, at fair value		(11)		271	Mortgage banking fees
Derivative contracts used to hedge residential MSRs		16		(146)	Mortgage banking fees
Total		$27		$23

Citizens Financial Group, Inc. | 59

NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables present the changes in the balances, net of income taxes, of each component of AOCI:


	As of and for the Three Months Ended March 31,
(dollars in millions)	Net Unrealized Gains (Losses) on Derivatives	Net Unrealized Gains (Losses) on Debt Securities	Employee Benefit Plans	Total AOCI
Balance at January 1, 2022	($161)	($156)	($348)	($665)
Other comprehensive income (loss) before reclassifications	(491)	(1,077)	—	(1,568)

Amounts reclassified to the Consolidated Statements of Operations	(24)	(3)	2	(25)
Net other comprehensive income (loss)	(515)	(1,080)	2	(1,593)

Balance at March 31, 2022	($676)	($1,236)	($346)	($2,258)
Balance at January 1, 2023	($1,416)	($2,771)	($373)	($4,560)
Other comprehensive income (loss) before reclassifications	173	327	—	500
Amounts reclassified to the Consolidated Statements of Operations	94	20	3	117
Net other comprehensive income (loss)	267	347	3	617

Balance at March 31, 2023	($1,149)	($2,424)	($370)	($3,943)
Primary location in the Consolidated Statements of Operations of amounts reclassified from AOCI	Net interest income	Securities gains, net	Other operating expense

The Company’s accumulated other comprehensive loss at March 31, 2023 decreased $617 million compared to December 31, 2022, driven by the impact of lower interest rates and the reclassification of $117 million of losses to the Consolidated Statements of Operations.

NOTE 10 - STOCKHOLDERS’ EQUITY

Preferred Stock

The following table summarizes the Company’s preferred stock:


			March 31, 2023			December 31, 2022
(dollars in millions, except per share data)	Liquidation value per share		Preferred Shares		Carrying Amount	Preferred Shares	Carrying Amount
Authorized ($25 par value per share)			100,000,000			100,000,000
Issued and outstanding:
Series B	$1,000		300,000		$296	300,000	$296
Series C	1,000		300,000		297	300,000	297
Series D	1,000	(1)	300,000	(2)	293	300,000	293
Series E	1,000	(1)	450,000	(3)	437	450,000	437
Series F	1,000		400,000		395	400,000	395
Series G	1,000		300,000		296	300,000	296
Total			2,050,000		$2,014	2,050,000	$2,014

(1) Equivalent to $25 per depositary share.

(2) Represented by 12,000,000 depositary shares each representing a 1/40th interest in the Series D Preferred Stock.

(3) Represented by 18,000,000 depositary shares each representing a 1/40th interest in the Series E Preferred Stock.

For further detail regarding the terms and conditions of the Company’s preferred stock, see Note 17 in the Company’s 2022 Form 10-K.

Citizens Financial Group, Inc. | 60

Dividends


	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
(dollars in millions, except per share data)	Dividends Declared per Share	Dividends Declared	Dividends Paid	Dividends Declared per Share	Dividends Declared	Dividends Paid
Common stock	$0.42	$205	$205	$0.39	$165	$165
Preferred stock
Series B	$—	$—	$9	$—	$—	$9
Series C	15.94	5	5	15.94	5	5
Series D	15.88	5	5	15.88	5	5
Series E	12.50	5	5	12.50	5	5
Series F	14.13	5	6	14.13	6	6
Series G	10.00	3	3	10.00	3	3
Total preferred stock		$23	$33		$24	$33

Treasury Stock

During the three months ended March 31, 2023, the Company repurchased $400 million, or 10,089,291 shares, of its outstanding common stock, which are held in treasury stock.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

A summary of outstanding off-balance sheet arrangements is presented below. For more information on these arrangements, see Note 19 in the Company’s 2022 Form 10-K.


(dollars in millions)	March 31, 2023	December 31, 2022
Commitments to extend credit	$95,965	$96,076
Letters of credit	2,079	2,119
Risk participation agreements	4	4
Loans sold with recourse	97	92
Marketing rights	23	23
Total	$98,168	$98,314

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to customers in accordance with conditions contractually agreed upon in advance. Generally, the commitments have fixed expiration dates or termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.

Letters of Credit

Letters of credit in the table above reflect commercial, standby financial and standby performance letters of credit. Financial and performance standby letters of credit are issued by the Company for the benefit of its customers. They are used as conditional guarantees of payment to a third party in the event the customer either fails to make specific payments (financial) or fails to complete a specific project (performance). The Company’s exposure to credit loss in the event of counterparty nonperformance in connection with the above instruments is represented by the contractual amount of those instruments. Generally, letters of credit are collateralized by cash, accounts receivable, inventory or investment securities. Credit risk associated with letters of credit is considered in determining the appropriate amounts of allowances for unfunded commitments. Standby letters of credit and commercial letters of credit are issued for terms of up to ten years and one year, respectively.

Other Commitments

Citizens has additional off-balance sheet arrangements that are summarized below:

Marketing Rights - During 2003, Citizens entered into a 25-year agreement to acquire the naming and marketing rights of a baseball stadium in Pennsylvania.

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Loans sold with recourse - Citizens is an originator and servicer of residential mortgages and routinely sells such mortgage loans in the secondary market and to GSEs. In the context of such sales, the Company makes certain representations and warranties regarding the characteristics of the underlying loans and, as a result, may be contractually required to repurchase such loans or indemnify certain parties against losses for certain breaches of those representations and warranties. The Company also sells the government guaranteed portion of certain SBA loans to outside investors, for which it retains the servicing rights.
Risk Participation Agreements - RPAs are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. The current amount of credit exposure is spread out over multiple counterparties. At March 31, 2023, the remaining terms on these RPAs ranged from less than one year to eight years.

Contingencies

The Company operates in a legal and regulatory environment that exposes it to potentially significant risks. A certain amount of litigation ordinarily results from the nature of the Company’s banking and other businesses. The Company is a party to legal proceedings, including class actions. The Company is also the subject of investigations, reviews, subpoenas, and regulatory matters arising out of its normal business operations which, in some instances, relate to concerns about fair lending, unfair and/or deceptive practices, and mortgage-related issues. In addition, the Company engages in discussions with relevant governmental and regulatory authorities on a regular and ongoing basis regarding various issues, and any issues discussed or identified may result in investigatory or other action being taken. Litigation and regulatory matters may result in settlements, damages, fines, penalties, public or private censure, increased costs, required remediation, restrictions on business activities, or other impacts on the Company.

In these disputes and proceedings, the Company contests liability and the amount of damages as appropriate. Given their complex nature, and based on the Company's experience, it may be years before some of these matters are finally resolved. Moreover, before liability can be reasonably estimated for a claim, numerous legal and factual issues may need to be examined, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal issues relevant to the proceedings in question. The Company cannot predict with certainty if, how, or when such claims will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or indeterminate damages. The Company recognizes a provision for a claim when, in the opinion of management after seeking legal advice, it is probable that a liability exists and the amount of loss can be reasonably estimated. In many proceedings, however, it is not possible to determine whether any loss is probable or to estimate the amount of any loss.

Based on information currently available, the advice of legal counsel and other advisers, and established reserves, management believes that the aggregate liabilities, if any, potentially arising from these proceedings will not have a materially adverse effect on the Company’s unaudited interim Consolidated Financial Statements.

NOTE 12 - FAIR VALUE MEASUREMENTS

Citizens measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities for which fair value is the required or elected measurement basis of accounting. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or for disclosure purposes. Nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets. Citizens also applies the fair value measurement guidance to determine amounts reported for certain disclosures in this Note for assets and liabilities that are not required to be reported at fair value in the financial statements.

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Fair Value Option

Citizens elected to account for residential mortgage LHFS and certain commercial and industrial, and commercial real estate LHFS at fair value. The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of LHFS measured at fair value:


	March 31, 2023			December 31, 2022
(dollars in millions)	Aggregate Fair Value	Aggregate Unpaid Principal	Aggregate Fair Value Greater (Less) Than Aggregate Unpaid Principal	Aggregate Fair Value	Aggregate Unpaid Principal	Aggregate Fair Value Greater (Less) Than Aggregate Unpaid Principal
Residential mortgage loans held for sale, at fair value	$767	$753	$14	$666	$656	$10
Commercial and industrial, and commercial real estate loans held for sale, at fair value	88	99	(11)	108	127	(19)

For more information on the election of the fair value option for these assets see Note 20 in the Company’s 2022 Form 10-K.

Recurring Fair Value Measurements

Citizens utilizes a variety of valuation techniques to measure its assets and liabilities at fair value on a recurring basis. For more information on the valuation techniques utilized to measure recurring fair value see Note 20 in the Company’s 2022 Form 10-K.

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The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at March 31, 2023:


(dollars in millions)	Total	Level 1	Level 2	Level 3
Debt securities available for sale:
Mortgage-backed securities	$19,376	$—	$19,376	$—

Collateralized loan obligations	1,215	—	1,215	—
State and political subdivisions	2	—	2	—
U.S. Treasury and other	3,252	3,252	—	—
Total debt securities available for sale	23,845	3,252	20,593	—
Loans held for sale, at fair value:
Residential loans held for sale	767	—	767	—
Commercial loans held for sale	88	—	88	—
Total loans held for sale, at fair value	855	—	855	—
Mortgage servicing rights	1,496	—	—	1,496
Derivative assets:
Interest rate contracts	377	—	377	—
Foreign exchange contracts	456	—	456	—
Commodities contracts	819	—	819	—
TBA contracts	14	—	14	—
Other contracts	13	—	—	13
Total derivative assets	1,679	—	1,666	13
Equity securities, at fair value(1)	101	101	—	—
Total assets	$27,976	$3,353	$23,114	$1,509
Derivative liabilities:
Interest rate contracts	$1,294	$—	$1,294	$—
Foreign exchange contracts	407	—	407	—
Commodities contracts	789	—	789	—
TBA contracts	14	—	14	—
Other contracts	—	—	—	—
Total derivative liabilities	2,504	—	2,504	—
Total liabilities	$2,504	$—	$2,504	$—

(1) Excludes investments of $42 million included in other assets in the Consolidated Balance Sheets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient. These investments include capital contributions to private investment funds and have unfunded capital commitments of $41 million at March 31, 2023, which may be called at any time during prescribed time periods. The credit exposure is generally limited to the carrying amount of investments made and unfunded capital commitments.

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


(dollars in millions)	Total	Level 1	Level 2	Level 3
Debt securities available for sale:
Mortgage-backed securities	$19,313	$—	$19,313	$—
Collateralized loan obligations	1,206	—	1,206	—
State and political subdivisions	2	—	2	—
U.S. Treasury and other	3,486	3,486	—	—
Total debt securities available for sale	24,007	3,486	20,521	—
Loans held for sale, at fair value:
Residential loans held for sale	666	—	666	—
Commercial loans held for sale	108	—	108	—
Total loans held for sale, at fair value	774	—	774	—
Mortgage servicing rights	1,530	—	—	1,530
Derivative assets:
Interest rate contracts	347	—	347	—
Foreign exchange contracts	527	—	527	—
Commodities contracts	953	—	953	—
TBA contracts	7	—	7	—
Other contracts	5	—	—	5
Total derivative assets	1,839	—	1,834	5
Equity securities, at fair value(1)	110	110	—	—
Total assets	28,260	$3,596	$23,129	$1,535
Derivative liabilities:
Interest rate contracts	$1,632	$—	$1,632	$—
Foreign exchange contracts	519	—	519	—
Commodities contracts	942	—	942	—
TBA contracts	14	—	14	—
Other contracts	4	—	—	4
Total derivative liabilities	3,111	—	3,107	4
Total liabilities	$3,111	$—	$3,107	$4

(1) Excludes investments of $43 million included in other assets in the Consolidated Balance Sheets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient. These investments include capital contributions to private investment funds and have unfunded capital commitments of $42 million at December 31, 2022, which may be called at any time during prescribed time periods. The credit exposure is generally limited to the carrying amount of investments made and unfunded capital commitments.

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


	Three Months Ended March 31, 2023
(dollars in millions)		Mortgage Servicing Rights	Other Derivative Contracts
Beginning balance		$1,530	$1
Issuances		21	15

Settlements(1)		(41)	(5)
Changes in fair value during the period recognized in earnings(2)		(14)	2
Ending balance		$1,496	$13


	Three Months Ended March 31, 2022
(dollars in millions)		Mortgage Servicing Rights	Other Derivative Contracts
Beginning balance		$1,029	$38



Issuances		95	41
Settlements(1)		(39)	61
Changes in fair value during the period recognized in earnings(2)		156	(161)
Ending balance		$1,241	($21)

(1) For MSRs, represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial paydowns, and ii) loans that paid off during the period. For other derivative contracts, represents the closeout of interest rate lock commitments.

(2) Represents changes in value primarily driven by market conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.

The following table presents quantitative information about the Company’s Level 3 assets, including the range and weighted-average of the significant unobservable inputs used to fair value these assets, as well as valuation techniques used.


	As of March 31, 2023
	Valuation Technique	Unobservable Input	Range (Weighted Average)
Mortgage servicing rights	Discounted Cash Flow	Constant prepayment rate	6.20-17.80% CPR (7.30% CPR)
Option adjusted spread	398-1,058 bps (628 bps)
Other derivative contracts	Internal Model	Pull through rate	8.67-99.70% (77.85%)
MSR value	(14.11)-141.45 bps (75.73 bps)

Nonrecurring Fair Value Measurements

Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. For more information on the valuation techniques utilized to measure nonrecurring fair value see Note 20 in the Company’s 2022 Form 10-K.

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


	Three Months Ended March 31,
(dollars in millions)		2023	2022
Collateral-dependent loans		($4)	($2)

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


	March 31, 2023				December 31, 2022
(dollars in millions)	Total	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3
Collateral-dependent loans	$671	$—	$671	$—	$582	$—	$582	$—

Fair Value of Financial Instruments

The following tables present the estimated fair value for financial instruments not recorded at fair value in the unaudited interim Consolidated Financial Statements. The carrying amounts are recorded in the Consolidated Balance Sheets under the indicated captions:


	March 31, 2023
	Total		Level 1		Level 2		Level 3
(dollars in millions)	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value
Financial assets:
Debt securities held to maturity	$9,677	$9,064	$—	$—	$9,125	$8,540	$552	$524
Other loans held for sale	1,000	1,000	—	—	—	—	1,000	1,000
Loans and leases	154,688	149,332	—	—	671	671	154,017	148,661
Other assets	1,228	1,228	—	—	1,208	1,208	20	20
Financial liabilities:
Deposits	172,194	172,096	—	—	172,194	172,096	—	—
Short-term borrowed funds	1,018	1,018	—	—	1,018	1,018	—	—
Long-term borrowed funds	18,855	18,155	—	—	18,855	18,155	—	—


	December 31, 2022
	Total		Level 1		Level 2		Level 3
(dollars in millions)	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value
Financial assets:
Debt securities held to maturity	$9,834	$9,042	$—	$—	$9,253	$8,506	$581	$536
Other loans held for sale	208	208	—	—	—	—	208	208
Loans and leases	156,662	151,601	—	—	582	582	156,080	151,019
Other assets	1,058	1,058	—	—	1,038	1,038	20	20
Financial liabilities:
Deposits	180,724	180,566	—	—	180,724	180,566	—	—
Short-term borrowed funds	3	3	—	—	3	3	—	—
Long-term borrowed funds	15,887	15,469	—	—	15,887	15,469	—	—

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NOTE 13 - NONINTEREST INCOME

Revenues from Contracts with Customers

The following table presents the components of revenue from contracts with customers disaggregated by revenue stream and business operating segment:


	Three Months Ended March 31, 2023				Three Months Ended March 31, 2022
(dollars in millions)	Consumer Banking	Commercial Banking	Other	Consolidated	Consumer Banking	Commercial Banking	Other	Consolidated
Service charges and fees	$67	$32	$—	$99	$69	$27	$1	$97
Card fees	59	12	—	71	50	10	—	60
Capital markets fees	—	71	—	71	—	78	—	78
Trust and investment services fees	63	—	—	63	61	—	—	61
Other banking fees	1	4	—	5	1	2	1	4
Total revenue from contracts with customers	$190	$119	$—	$309	$181	$117	$2	$300
Total revenue from other sources(1)	66	82	28	176	76	96	26	198
Total noninterest income	$256	$201	$28	$485	$257	$213	$28	$498

(1) Includes bank-owned life insurance income of $23 million and $21 million for the three months ended March 31, 2023 and 2022, respectively.

The Company recognized trailing commissions of $4 million for the three months ended March 31, 2023 and 2022 related to ongoing commissions from previous investment sales.

NOTE 14 - OTHER OPERATING EXPENSE

The following table presents the details of other operating expense:


	Three Months Ended March 31,
(dollars in millions)		2023	2022
Marketing		$38	$26
Deposit insurance		36	20
Other		95	64
Other operating expense		$169	$110

NOTE 15 - EARNINGS PER SHARE


	Three Months Ended March 31,
(dollars in millions, except per share data)		2023	2022
Numerator (basic and diluted):
Net income		$511	$420
Less: Preferred stock dividends		23	24
Net income available to common stockholders		$488	$396
Denominator:
Weighted-average common shares outstanding - basic		485,444,313	422,401,747
Dilutive common shares: share-based awards		2,267,833	2,269,124
Weighted-average common shares outstanding - diluted		487,712,146	424,670,871
Earnings per common share:
Basic		$1.00	$0.94
Diluted(1)		1.00	0.93

(1) Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. Excluded from the computation of diluted EPS were weighted average antidilutive shares totaling 1,278,383 and 2,222 for the three months ended March 31, 2023 and 2022, respectively.

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NOTE 16 - BUSINESS OPERATING SEGMENTS

Citizens is managed by its Chief Executive Officer on a segment basis. The Company’s two business operating segments are Consumer Banking and Commercial Banking. The business segments are determined based on the products and services provided, or the type of customer served. Each segment has a segment head who reports directly to the Chief Executive Officer. The Chief Executive Officer has final authority over resource allocation decisions and performance assessment. The business segments reflect this management structure and the manner in which financial information is currently evaluated by the Chief Executive Officer. For more information on the Company’s business operating segments, as well as Other non-segment operations, see Note 26 in the Company’s 2022 Form 10-K.


	As of and for the Three Months Ended March 31, 2023
(dollars in millions)	Consumer Banking	Commercial Banking	Other	Consolidated
Net interest income	$1,096	$597	($50)	$1,643
Noninterest income	256	201	28	485
Total revenue	1,352	798	(22)	2,128
Noninterest expense	889	331	76	1,296
Profit (loss) before provision (benefit) for credit losses	463	467	(98)	832
Provision (benefit) for credit losses	83	47	38	168
Income (loss) before income tax expense (benefit)	380	420	(136)	664
Income tax expense (benefit)	99	101	(47)	153
Net income (loss)	$281	$319	($89)	$511
Total average assets	$87,558	$78,891	$56,262	$222,711


	As of and for the Three Months Ended March 31, 2022
(dollars in millions)	Consumer Banking	Commercial Banking	Other	Consolidated
Net interest income	$857	$416	($126)	$1,147
Noninterest income	257	213	28	498
Total revenue	1,114	629	(98)	1,645
Noninterest expense	784	272	50	1,106
Profit (loss) before provision (benefit) for credit losses	330	357	(148)	539
Provision (benefit) for credit losses	49	12	(58)	3
Income (loss) before income tax expense (benefit)	281	345	(90)	536
Income tax expense (benefit)	72	74	(30)	116
Net income (loss)	$209	$271	($60)	$420
Total average assets	$77,551	$61,118	$49,648	$188,317

There have been no significant changes in the management accounting practices utilized by the Company regarding the basis of presentation for segment results as discussed in Note 26 in the Company’s 2022 Form 10-K.

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