Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS


						Page
Consolidated Balance Sheets (unaudited)						41
Consolidated Statements of Operations (unaudited)						42
Consolidated Statements of Comprehensive Income (unaudited)						43
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)						44
Consolidated Statements of Cash Flows (unaudited)						46
Notes to Consolidated Financial Statements (unaudited)						47
Note 1 - Basis of Presentation						47
Note 2 - Securities						49
Note 3 - Loans and Leases						52
Note 4 - Credit Quality and the Allowance for Credit Losses						52
Note 5 - Mortgage Banking and Other						64
Note 6 - Variable Interest Entities						65
Note 7 - Borrowed Funds						67
Note 8 - Derivatives						69
Note 9 - Accumulated Other Comprehensive Income (Loss)						72
Note 10 - Stockholders’ Equity						73
Note 11 - Commitments and Contingencies						74
Note 12 - Fair Value Measurements						75
Note 13 - Noninterest Income						80
Note 14 - Other Operating Expense						80
Note 15 - Earnings Per Share						81
Note 16 - Business Operating Segments						81

Citizens Financial Group, Inc. | 40

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(dollars in millions, except par value)	June 30, 2023	December 31, 2022
ASSETS:
Cash and due from banks(1)	$1,689	$1,489
Interest-bearing cash and due from banks	9,878	9,058
Interest-bearing deposits in banks	284	303
Debt securities available for sale, at fair value (including $1,393 and $270 pledged to creditors, respectively)(2)	24,755	24,007
Debt securities held to maturity (fair value of $8,728 and $9,042 respectively, and including $179 and $110 pledged to creditors, respectively)(2)	9,520	9,834
Loans held for sale, at fair value	1,225	774
Other loans held for sale	196	208
Loans and leases(1)	151,320	156,662
Less: Allowance for loan and lease losses	(2,044)	(1,983)
Net loans and leases	149,276	154,679
Derivative assets	719	842
Premises and equipment, net	876	844
Bank-owned life insurance	3,263	3,236
Goodwill	8,188	8,173
Other intangible assets(3)	175	197
Other assets(1)	13,022	13,089
TOTAL ASSETS	$223,066	$226,733
LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing	$40,286	$49,283
Interest-bearing	137,381	131,441
Total deposits	177,667	180,724
Short-term borrowed funds	1,099	3
Derivative liabilities	2,270	1,909
Long-term borrowed funds(1)	14,100	15,887
Other liabilities(1)	4,345	4,520
TOTAL LIABILITIES	199,481	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 June 30, 2023 and December 31, 2022	2,014	2,014
Common stock:
$0.01 par value, 1,000,000,000 shares authorized; 647,357,402 shares issued and 474,682,759 shares outstanding at June 30, 2023 and 645,220,018 shares issued and 492,282,158 shares outstanding at December 31, 2022	6	6
Additional paid-in capital	22,207	22,142
Retained earnings	9,655	9,159
Treasury stock, at cost, 172,674,643 and 152,937,860 shares at June 30, 2023 and December 31, 2022, respectively	(5,734)	(5,071)
Accumulated other comprehensive income (loss)	(4,563)	(4,560)
TOTAL STOCKHOLDERS’ EQUITY	23,585	23,690
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$223,066	$226,733

(1) Includes amounts in consolidated VIEs. See Note 6 for additional information.

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

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

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

Citizens Financial Group, Inc. | 41

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended June 30,		Six Months Ended June 30,
(dollars in millions, except per share data)	2023	2022	2023	2022
INTEREST INCOME:
Interest and fees on loans and leases	$2,132	$1,370	$4,179	$2,418
Interest and fees on loans held for sale	20	17	35	33
Interest and fees on other loans held for sale	12	25	17	32
Investment securities	267	201	533	339
Interest-bearing deposits in banks	100	13	169	17
Total interest income	2,531	1,626	4,933	2,839
INTEREST EXPENSE:
Deposits	723	54	1,273	79
Short-term borrowed funds	22	10	28	10
Long-term borrowed funds	198	57	401	98
Total interest expense	943	121	1,702	187
Net interest income	1,588	1,505	3,231	2,652
Provision (benefit) for credit losses	176	216	344	219
Net interest income after provision (benefit) for credit losses	1,412	1,289	2,887	2,433
NONINTEREST INCOME:
Service charges and fees	101	108	201	206
Capital markets fees	82	88	165	181
Card fees	80	71	152	131
Mortgage banking fees	59	72	116	141
Trust and investment services fees	65	66	128	127
Foreign exchange and derivative products	44	60	92	111
Letter of credit and loan fees	43	40	83	78
Securities gains, net	9	1	14	5
Other income	23	(12)	40	12
Total noninterest income	506	494	991	992
NONINTEREST EXPENSE:
Salaries and employee benefits	615	683	1,273	1,277
Outside services	177	189	353	358
Equipment and software	181	169	350	319
Occupancy	136	111	260	194
Other operating expense	197	153	366	263
Total noninterest expense	1,306	1,305	2,602	2,411
Income before income tax expense	612	478	1,276	1,014
Income tax expense	134	114	287	230
NET INCOME	$478	$364	$989	$784
Net income available to common stockholders	$444	$332	$932	$728
Weighted-average common shares outstanding:
Basic	479,470,543	491,497,026	482,440,926	457,140,258
Diluted	480,975,281	493,296,114	484,252,103	459,167,747
Per common share information:
Basic earnings	$0.93	$0.68	$1.93	$1.59
Diluted earnings	0.92	0.67	1.92	1.58

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

Citizens Financial Group, Inc. | 42

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended June 30,		Six Months Ended June 30,
(dollars in millions)	2023	2022	2023	2022
Net income	$478	$364	$989	$784
Other comprehensive income (loss):
Net unrealized derivative instruments gains (losses) arising during the periods, net of income taxes of ($175), ($66), ($115) and ($236), respectively	(505)	(178)	(332)	(669)
Reclassification adjustment for net derivative (gains) losses included in net income, net of income taxes of $35, ($3), $68 and ($11), respectively	101	(8)	195	(32)
Net unrealized debt securities gains (losses) arising during the periods, net of income taxes of ($80), ($271), $29 and ($628), respectively	(239)	(779)	88	(1,856)
Reclassification of net debt securities (gains) losses to net income, net of income taxes of $7, $0, $14 and ($1), respectively	20	(1)	40	(4)
Reclassification of actuarial (gain) loss to net income, net of income taxes of $1, ($2), $2 and ($1), respectively	3	6	6	8
Total other comprehensive income (loss), net of income taxes	(620)	(960)	(3)	(2,553)
Total comprehensive income (loss)	($142)	($596)	$986	($1,769)

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

Citizens Financial Group, Inc. | 43

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 April 1, 2022	2	$2,014	423	$6	$19,021	$8,209	($4,918)	($2,258)	$22,074
Dividends to common stockholders	—	—	—	—	—	(195)	—	—	(195)
Dividends to preferred stockholders	—	—	—	—	—	(32)	—	—	(32)
Issuance of common stock - business acquisition	—	—	72	—	3,036	—	—	—	3,036


Treasury stock purchased	—	—	—	—	—	—	(2)	—	(2)

Share-based compensation plans	—	—	1	—	36	—	—	—	36
Employee stock purchase plan	—	—	—	—	7	—	—	—	7

Total comprehensive income (loss):
Net income	—	—	—	—	—	364	—	—	364
Other comprehensive income (loss)	—	—	—	—	—	—	—	(960)	(960)
Total comprehensive income (loss)	—	—	—	—	—	364	—	(960)	(596)
Balance at June 30, 2022	2	$2,014	496	$6	$22,100	$8,346	($4,920)	($3,218)	$24,328
Balance at April 1, 2023	2	$2,014	484	$6	$22,183	$9,416	($5,475)	($3,943)	$24,201
Dividends to common stockholders	—	—	—	—	—	(205)	—	—	(205)
Dividends to preferred stockholders	—	—	—	—	—	(34)	—	—	(34)



Treasury stock purchased	—	—	(10)	—	—	—	(256)	—	(256)
Share repurchase excise tax	—	—	—	—	—	—	(3)	—	(3)
Share-based compensation plans	—	—	1	—	18	—	—	—	18
Employee stock purchase plan	—	—	—	—	6	—	—	—	6

Total comprehensive income (loss):
Net income	—	—	—	—	—	478	—	—	478
Other comprehensive income (loss)	—	—	—	—	—	—	—	(620)	(620)
Total comprehensive income (loss)	—	—	—	—	—	478	—	(620)	(142)
Balance at June 30, 2023	2	$2,014	475	$6	$22,207	$9,655	($5,734)	($4,563)	$23,585

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

Citizens Financial Group, Inc. | 44

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	—	—	—	—	—	(360)	—	—	(360)
Dividends to preferred stockholders	—	—	—	—	—	(56)	—	—	(56)
Issuance of common stock - business acquisition	—	—	72	—	3,036	—	—	—	3,036


Treasury stock purchased	—	—	—	—	—	—	(2)	—	(2)

Share-based compensation plans	—	—	2	—	46	—	—	—	46
Employee stock purchase plan	—	—	—	—	13	—	—	—	13

Total comprehensive income (loss):
Net income	—	—	—	—	—	784	—	—	784
Other comprehensive income (loss)	—	—	—	—	—	—	—	(2,553)	(2,553)
Total comprehensive income (loss)	—	—	—	—	—	784	—	(2,553)	(1,769)
Balance at June 30, 2022	2	$2,014	496	$6	$22,100	$8,346	($4,920)	($3,218)	$24,328
Balance at January 1, 2023	2	$2,014	492	$6	$22,142	$9,159	($5,071)	($4,560)	$23,690
Dividends to common stockholders	—	—	—	—	—	(410)	—	—	(410)
Dividends to preferred stockholders	—	—	—	—	—	(57)	—	—	(57)



Treasury stock purchased	—	—	(20)	—	—	—	(656)	—	(656)
Share repurchase excise tax	—	—	—	—	—	—	(7)	—	(7)
Share-based compensation plans	—	—	3	—	51	—	—	—	51
Employee stock purchase plan	—	—	—	—	14	—	—	—	14
Cumulative effect of change in accounting principle	—	—	—	—	—	(26)	—	—	(26)
Total comprehensive income (loss):
Net income	—	—	—	—	—	989	—	—	989
Other comprehensive income (loss)	—	—	—	—	—	—	—	(3)	(3)
Total comprehensive income (loss)	—	—	—	—	—	989	—	(3)	986
Balance at June 30, 2023	2	$2,014	475	$6	$22,207	$9,655	($5,734)	($4,563)	$23,585

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

Citizens Financial Group, Inc. | 45

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended June 30,
(dollars in millions)	2023	2022
OPERATING ACTIVITIES
Net income	$989	$784
Adjustments to reconcile net income to net change in cash due to operating activities:
Provision (benefit) for credit losses	344	219
Net change in loans held for sale	(451)	1,220
Depreciation, amortization and accretion	230	327
Deferred income tax expense (benefit)	(40)	78
Share-based compensation	55	52
Net gain on sales of assets	(14)	(5)
Net (increase) decrease in other assets	(827)	(3,345)
Net increase (decrease) in other liabilities	997	348
Net change due to operating activities	1,283	(322)
INVESTING ACTIVITIES
Investment securities:
Purchases of debt securities available for sale	(3,206)	(8,638)
Proceeds from maturities and paydowns of debt securities available for sale	929	2,164
Proceeds from sales of debt securities available for sale	1,632	1,057

Proceeds from maturities and paydowns of debt securities held to maturity	369	502

Net (increase) decrease in interest-bearing deposits in banks	19	(153)

Acquisitions, net of cash acquired(1)	—	(234)
Purchases of loans	—	(979)
Sales of loans	2,335	417
Net (increase) decrease in loans and leases	2,659	(6,615)
Capital expenditures, net	(91)	(56)
Purchase of bank-owned life insurance	—	(100)
Other	(5)	(727)
Net change due to investing activities	4,641	(13,362)
FINANCING ACTIVITIES
Net increase (decrease) in deposits	(3,057)	4,347
Net increase (decrease) in short-term borrowed funds	1,096	3,674
Proceeds from issuance of long-term borrowed funds	12,217	5,217
Repayments of long-term borrowed funds	(14,004)	(1,756)
Treasury stock purchased, including excise tax	(663)	(2)


Dividends paid to common stockholders	(410)	(360)
Dividends paid to preferred stockholders	(57)	(56)

Payments of employee tax withholding for share-based compensation	(26)	(24)
Net change due to financing activities	(4,904)	11,040
Net change in cash and cash equivalents(2)	1,020	(2,644)
Cash and cash equivalents at beginning of period(2)	10,547	9,158
Cash and cash equivalents at end of period(2)	$11,567	$6,514

Non-cash items:
Transfer of loans from portfolio to LHFS	$2,401	$—
Transfer of securities from available for sale to held to maturity	—	7,810
Investors Acquisition:
Fair value of assets acquired, excluding cash and cash equivalents	—	27,171
Goodwill and other intangible assets	—	918
Fair value of liabilities assumed	—	24,966
Common stock issued	—	3,035
Replacement equity awards	—	19

(1) Includes cash paid of $355 million to acquire Investors less $287 million in cash acquired, and $143 million and $23 million of cash paid for the HSBC transaction and acquisition of DH Capital, respectively, for the six months ended June 30, 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.

Citizens Financial Group, Inc. | 46

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 its subsidiaries, and VIEs in which Citizens has been determined to be the primary beneficiary. All intercompany transactions and balances have been eliminated. 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.

Citizens Financial Group, Inc. | 47

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 legacy 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 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 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:


	June 30, 2023				December 31, 2022
(dollars in millions)	Amortized Cost(1)	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
U.S. Treasury and other	$3,429	$—	($193)	$3,236	$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	22,154	4	(2,116)	20,042	21,250	10	(2,198)	19,062
Other/non-agency	279	—	(32)	247	280	—	(29)	251
Total mortgage-backed securities	22,433	4	(2,148)	20,289	21,530	10	(2,227)	19,313
Collateralized loan obligations	1,248	—	(20)	1,228	1,248	—	(42)	1,206
Total debt securities available for sale, at fair value	$27,112	$4	($2,361)	$24,755	$26,458	$11	($2,462)	$24,007
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	$8,990	$4	($769)	$8,225	$9,253	$4	($751)	$8,506
Total mortgage-backed securities	8,990	4	(769)	8,225	9,253	4	(751)	8,506
Asset-backed securities	530	2	(29)	503	581	—	(45)	536
Total debt securities held to maturity	$9,520	$6	($798)	$8,728	$9,834	$4	($796)	$9,042
Equity securities, at cost	$917	$—	$—	$917	$1,058	$—	$—	$1,058
Equity securities, at fair value	147	—	—	147	153	—	—	153

(1) Excludes portfolio level basis adjustments of $9 million for securities designated in active fair value hedge relationships. The basis adjustments represent a reduction to the amortized cost of the securities being hedged.

Accrued interest receivable on debt securities totaled $109 million and $107 million as of June 30, 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 June 30, 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	$—	$2,489	$940	$—	$3,429
State and political subdivisions		—	—	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	1,295	2,530	18,329	22,154
Other/non-agency	—	—	—	279	279
Collateralized loan obligations	—	—	24	1,224	1,248
Total debt securities available for sale	—	3,784	3,494	19,834	27,112
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	—	—	8,990	8,990
Asset-backed securities	—	530	—	—	530
Total debt securities held to maturity	—	530	—	8,990	9,520
Total amortized cost of debt securities	$—	$4,314	$3,494	$28,824	$36,632

Fair value:
U.S. Treasury and other	$—	$2,351	$885	$—	$3,236
State and political subdivisions	—	—	—	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	1,229	2,361	16,452	20,042
Other/non-agency	—	—	—	247	247
Collateralized loan obligations	—	—	24	1,204	1,228
Total debt securities available for sale	—	3,580	3,270	17,905	24,755
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	—	—	8,225	8,225
Asset-backed securities	—	503	—	—	503
Total debt securities held to maturity	—	503	—	8,225	8,728
Total fair value of debt securities	$—	$4,083	$3,270	$26,130	$33,483

Taxable interest income from investment securities as presented in the Consolidated Statements of Operations was $267 million and $201 million for the three months ended June 30, 2023 and 2022, respectively, and $533 million and $339 million for the six months ended June 30, 2023 and 2022, respectively.

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


	Three Months Ended June 30,		Six Months Ended June 30,
(dollars in millions)	2023	2022	2023	2022
Gains	$9	$2	$18	$9
Losses	—	(1)	(4)	(4)
Securities gains, net	$9	$1	$14	$5

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


	June 30, 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	$5,336	$4,762	$3,966	$3,527
Pledged as collateral for FHLB borrowing capacity	243	214	244	217
Pledged against repurchase agreements	1,248	1,228	—	—

Citizens Financial Group, Inc. | 50

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 June 30, 2023 or December 31, 2022.

There were no securitizations of mortgage loans retained in the investment portfolio for the three and six months ended June 30, 2023. Securitizations of mortgage loans retained in the investment portfolio were $40 million for the three and six months ended June 30, 2022. These securitizations include a substantive guarantee by a third party. The guarantors were FNMA and FHLMC in 2022. The debt securities received from the guarantors are classified as AFS.

Impairment

The Company evaluated its existing HTM portfolio as of June 30, 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 June 30, 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:


	June 30, 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	$2,983	($173)	$253	($20)	$3,236	($193)
State and political subdivisions	2	—	—	—	2	—
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	7,552	(351)	11,771	(1,765)	19,323	(2,116)
Other/non-agency	—	—	247	(32)	247	(32)
Total mortgage-backed securities	7,552	(351)	12,018	(1,797)	19,570	(2,148)
Collateralized loan obligations	—	—	1,228	(20)	1,228	(20)
Total	$10,537	($524)	$13,499	($1,837)	$24,036	($2,361)


	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 June 30, 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.

Citizens Financial Group, Inc. | 51

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)	June 30, 2023	December 31, 2022
Commercial and industrial	$48,038	$51,836
Commercial real estate	28,947	28,865
Leases	1,294	1,479
Total commercial	78,279	82,180
Residential mortgages	30,769	29,921
Home equity	14,487	14,043
Automobile	10,428	12,292
Education	12,246	12,808
Other retail	5,111	5,418
Total retail	73,041	74,482
Total loans and leases	$151,320	$156,662

Accrued interest receivable on loans and leases held for investment totaled $845 million and $820 million as of June 30, 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 $36.1 billion and $38.4 billion at June 30, 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 $42.4 billion and $34.8 billion at June 30, 2023 and December 31, 2022, respectively.

In addition to loans pledged as collateral to secure borrowing capacity, the Company has secured borrowing arrangements collateralized by auto loans. See Note 6 for additional information.

Interest income on direct financing and sales-type leases for the three months ended June 30, 2023 and 2022 was $12 million and $10 million, respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations. For the six months ended June 30, 2023 and 2022, this interest income was $24 million and $21 million, respectively.

The following table presents the composition of LHFS:


	June 30, 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	$1,163	$62	$1,225	$666	$108	$774
Other loans held for sale	—	196	196	—	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.

NOTE 4 - CREDIT QUALITY AND THE ALLOWANCE FOR CREDIT LOSSES

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.

Citizens Financial Group, Inc. | 52

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.

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 six months ended June 30, 2023.

The following table presents a summary of changes in the ACL for the three and six months ended June 30, 2023:


	Three Months Ended June 30, 2023			Six Months Ended June 30, 2023
(dollars in millions)	Commercial	Retail	Total	Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period	$1,111	$906	$2,017	$1,060	$923	$1,983



Charge-offs	(79)	(110)	(189)	(138)	(222)	(360)
Recoveries	3	34	37	10	65	75
Net charge-offs	(76)	(76)	(152)	(128)	(157)	(285)
Provision expense (benefit) for loans and leases	122	57	179	225	121	346
Allowance for loan and lease losses, end of period	1,157	887	2,044	1,157	887	2,044
Allowance for unfunded lending commitments, beginning of period	215	43	258	207	50	257


Provision expense (benefit) for unfunded lending commitments	(2)	(1)	(3)	6	(8)	(2)

Allowance for unfunded lending commitments, end of period	213	42	255	213	42	255
Total allowance for credit losses, end of period	$1,370	$929	$2,299	$1,370	$929	$2,299

During the six months ended June 30, 2023, net charge-offs of $285 million and a credit provision of $344 million resulted in an increase of $59 million to the ACL.

Our ACL as of June 30, 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.

Citizens Financial Group, Inc. | 53

The following table presents a summary of changes in the ACL for the three and six months ended June 30, 2022:


	Three Months Ended June 30, 2022			Six Months Ended June 30, 2022
(dollars in millions)	Commercial	Retail	Total	Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period	$778	$942	$1,720	$821	$937	$1,758


Allowance on PCD loans and leases at acquisition	99	2	101	99	2	101
Charge-offs(1)	(13)	(78)	(91)	(27)	(165)	(192)
Recoveries	3	39	42	6	78	84
Net charge-offs	(10)	(39)	(49)	(21)	(87)	(108)
Provision expense (benefit) for loans and leases(2)	120	72	192	88	125	213
Allowance for loan and lease losses, end of period	987	977	1,964	987	977	1,964
Allowance for unfunded lending commitments, beginning of period	147	11	158	153	23	176


Provision expense (benefit) for unfunded lending commitments	18	6	24	12	(6)	6
Allowance on PCD unfunded lending commitments at acquisition	1	—	1	1	—	1
Allowance for unfunded lending commitments, end of period	166	17	183	166	17	183
Total allowance for credit losses, end of period	$1,153	$994	$2,147	$1,153	$994	$2,147

(1) Excludes $33 million of charge-offs previously taken by Investors or recognized upon completion of the Investors acquisition under purchase accounting for the three and six months ended June 30, 2022. The initial allowance for loan and lease losses on PCD assets included these amounts and, after charging these amounts off upon acquisition, the net impact for PCD assets was $101 million of additional allowance for loan and lease losses.

(2) Includes $145 million and $169 million of initial provision expense related to non-PCD loans and leases acquired from Investors and HSBC for the three and six months ended June 30, 2022, respectively.

Citizens Financial Group, Inc. | 54

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. Renewals are categorized as new credit decisions and reflect the renewal date as the vintage date, except for renewals of loans modified for borrowers experiencing financial difficulty, or FDMs, which are presented in the original vintage.

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.

The following table presents the amortized cost basis of commercial loans and leases by vintage date and regulatory classification rating as of June 30, 2023, and gross charge-offs by vintage date for the six months ended June 30, 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	$1,946	$7,317	$6,579	$1,502	$1,382	$2,553	$22,996	$157	$44,432
Special Mention	8	145	256	137	64	186	493	1	1,290
Substandard	—	287	331	232	134	363	685	4	2,036
Doubtful	—	31	28	4	6	110	97	4	280
Total commercial and industrial	1,954	7,780	7,194	1,875	1,586	3,212	24,271	166	48,038
Gross charge-offs	—	1	32	4	1	5	29	—	72
Commercial real estate
Pass	958	5,314	6,361	3,098	2,474	4,633	1,830	4	24,672
Special Mention	—	489	378	205	467	173	205	—	1,917
Substandard	—	215	78	323	455	917	20	—	2,008
Doubtful	—	91	1	6	103	148	1	—	350
Total commercial real estate	958	6,109	6,818	3,632	3,499	5,871	2,056	4	28,947
Gross charge-offs	—	—	—	22	6	38	—	—	66
Leases
Pass	63	190	306	210	76	358	—	—	1,203
Special Mention	—	33	6	3	2	1	—	—	45
Substandard	3	13	10	7	7	3	—	—	43
Doubtful	—	—	3	—	—	—	—	—	3
Total leases	66	236	325	220	85	362	—	—	1,294
Gross charge-offs	—	—	—	—	—	—	—	—	—
Total commercial
Pass	2,967	12,821	13,246	4,810	3,932	7,544	24,826	161	70,307
Special Mention	8	667	640	345	533	360	698	1	3,252
Substandard	3	515	419	562	596	1,283	705	4	4,087
Doubtful	—	122	32	10	109	258	98	4	633
Total commercial	$2,978	$14,125	$14,337	$5,727	$5,170	$9,445	$26,327	$170	$78,279
Gross charge-offs	$—	$1	$32	$26	$7	$43	$29	$—	$138

Citizens Financial Group, Inc. | 55

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. | 56

The following table presents the amortized cost basis of retail loans by vintage date and current FICO score as of June 30, 2023, and gross charge-offs by vintage date for the six months ended June 30, 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+	$381	$2,785	$5,168	$3,187	$1,173	$3,305	$—	$—	$15,999
740-799	696	2,137	2,715	1,510	609	1,759	—	—	9,426
680-739	198	656	835	472	292	919	—	—	3,372
620-679	27	120	151	107	120	495	—	—	1,020
<620	2	34	86	86	157	564	—	—	929
No FICO available(1)	—	—	2	1	3	17	—	—	23
Total residential mortgages	1,304	5,732	8,957	5,363	2,354	7,059	—	—	30,769
Gross charge-offs	—	—	—	—	1	1	—	—	2
Home equity
800+	—	4	5	2	5	100	5,005	250	5,371
740-799	—	2	2	1	4	94	4,514	251	4,868
680-739	—	—	1	1	6	109	2,490	223	2,830
620-679	—	1	—	2	9	92	648	140	892
<620	—	—	—	1	10	90	251	174	526

Total home equity	—	7	8	7	34	485	12,908	1,038	14,487
Gross charge-offs	—	—	—	—	—	2	3	—	5
Automobile
800+	92	606	1,274	478	238	97	—	—	2,785
740-799	162	810	1,306	502	246	104	—	—	3,130
680-739	186	737	922	343	178	81	—	—	2,447
620-679	122	418	445	152	95	50	—	—	1,282
<620	30	214	293	112	81	53	—	—	783
No FICO available(1)	1	—	—	—	—	—	—	—	1
Total automobile	593	2,785	4,240	1,587	838	385	—	—	10,428
Gross charge-offs	—	15	21	7	6	5	—	—	54
Education
800+	109	665	1,702	1,495	649	1,326	—	—	5,946
740-799	166	758	1,176	982	413	755	—	—	4,250
680-739	64	326	367	300	148	338	—	—	1,543
620-679	10	62	66	55	34	116	—	—	343
<620	1	13	21	21	14	51	—	—	121
No FICO available(1)	4	—	—	—	—	39	—	—	43
Total education	354	1,824	3,332	2,853	1,258	2,625	—	—	12,246
Gross charge-offs	—	3	6	10	7	23	—	—	49
Other retail
800+	32	144	65	58	30	32	522	—	883
740-799	48	166	79	75	40	33	1,042	1	1,484
680-739	42	125	66	63	31	20	1,060	3	1,410
620-679	25	75	38	31	11	7	450	3	640
<620	5	37	23	18	6	3	212	3	307
No FICO available(1)	2	4	—	2	—	—	378	1	387
Total other retail	154	551	271	247	118	95	3,664	11	5,111
Gross charge-offs	19	20	7	5	7	5	49	—	112
Total retail
800+	614	4,204	8,214	5,220	2,095	4,860	5,527	250	30,984
740-799	1,072	3,873	5,278	3,070	1,312	2,745	5,556	252	23,158
680-739	490	1,844	2,191	1,179	655	1,467	3,550	226	11,602
620-679	184	676	700	347	269	760	1,098	143	4,177
<620	38	298	423	238	268	761	463	177	2,666
No FICO available(1)	7	4	2	3	3	56	378	1	454
Total retail	$2,405	$10,899	$16,808	$10,057	$4,602	$10,649	$16,572	$1,049	$73,041
Gross charge-offs	$19	$38	$34	$22	$21	$36	$52	$—	$222

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

Citizens Financial Group, Inc. | 57

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. | 58

Nonaccrual and Past Due Assets

The following tables present an aging analysis of accruing loans and leases, and nonaccrual loans and leases as of June 30, 2023 and December 31, 2022:


	June 30, 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	$47,727	$18	$11	$2	$280	$48,038	$72
Commercial real estate	28,514	24	57	—	352	28,947	23
Leases	1,291	—	—	—	3	1,294	—
Total commercial	77,532	42	68	2	635	78,279	95
Residential mortgages(1)	30,189	90	32	257	201	30,769	145
Home equity	14,157	55	24	—	251	14,487	155
Automobile	10,207	130	40	—	51	10,428	6
Education	12,169	33	19	3	22	12,246	3
Other retail	4,992	41	27	20	31	5,111	1
Total retail	71,714	349	142	280	556	73,041	310
Total	$149,246	$391	$210	$282	$1,191	$151,320	$405


	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 $256 million and $316 million of loans fully or partially guaranteed by the FHA, VA, and USDA at June 30, 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 June 30, 2023 and December 31, 2022, the Company had collateral-dependent residential mortgage and home equity loans totaling $547 million and $561 million, respectively. At June 30, 2023 and December 31, 2022, the Company had collateral-dependent commercial loans totaling $288 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 $307 million and $250 million as of June 30, 2023 and December 31, 2022, respectively.

Citizens Financial Group, Inc. | 59

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 as a result of its loss mitigation activities that may result in a payment delay, interest rate reduction, term extension, principal forgiveness, or combination thereof. Payment delays consist of modifications that result in a delay of contractual amounts due greater than three months over a rolling 12-month period.

Commercial loan modifications are offered on a case-by-case basis and generally include a payment delay, term extension and/or interest rate reduction. The Company does not typically offer principal forgiveness for commercial loans. Retail loan modifications are offered through structured loan modification programs, which are summarized below.

Forbearance programs provide borrowers experiencing some form of hardship a period of time during which their contractual payment obligations are suspended, resulting in a payment delay and/or term extension.
Other repayment plans are offered due to hardship and include an interest rate reduction and/or term extension designed to enable the borrower to return the loan to current status in an expeditious manner.
Settlement agreements may be executed with borrowers experiencing a long-term hardship or who are delinquent, resulting in principal forgiveness. Upon fulfillment of the terms of the settlement agreement, the unpaid principal amount is forgiven resulting in a charge-off of the outstanding principal balance.
Certain reorganization bankruptcy judgments may result in any one of the four modification types or some combination thereof.

The following tables present the period-end amortized cost of loans to borrowers experiencing financial difficulty that were modified during the three and six months ended June 30, 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 June 30, 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	$—	$123	$—	$—	$1	$1	$125	0.26	%
Commercial real estate	—	298	—	—	—	1	299	1.03
Total commercial	—	421	—	—	1	2	424	0.54
Residential mortgages	2	17	—	—	8	—	27	0.09
Home equity	—	2	—	—	2	—	4	0.03
Automobile	—	—	—	—	—	—	—	—
Education	2	—	1	—	—	—	3	0.02
Other retail	3	—	—	—	—	—	3	0.06
Total retail	7	19	1	—	10	—	37	0.05
Total(2)	$7	$440	$1	$—	$11	$2	$461	0.30	%

Citizens Financial Group, Inc. | 60


	Six Months Ended June 30, 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	$—	$160	$32	$—	$1	$21	$214	0.45	%
Commercial real estate	—	335	—	—	—	1	336	1.16
Total commercial	—	495	32	—	1	22	550	0.70
Residential mortgages	4	35	—	—	10	—	49	0.16
Home equity	—	3	—	—	4	—	7	0.05
Automobile	—	—	—	—	—	—	—	—
Education	4	—	1	—	—	—	5	0.04
Other retail	6	—	—	—	—	—	6	0.12
Total retail	14	38	1	—	14	—	67	0.09
Total(2)	$14	$533	$33	$—	$15	$22	$617	0.41	%

(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 borrowers that had their debt discharged by means of a Chapter 7 bankruptcy filing.

The following tables present the financial effect of loans to borrowers experiencing financial difficulty that were modified during the three and six months ended June 30, 2023, disaggregated by class of financing receivable.


	Three Months Ended June 30, 2023
	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	2.87	%	9	$46,369	$—
Commercial real estate	—		7	10,229	—
Residential mortgages	2.04		52	—	—
Home equity	2.20		115	1,062	—
Automobile	2.40		19	1,342	—
Education	4.90		—	4,728	—
Other retail	18.76		—	—	1


	Six Months Ended June 30, 2023
	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	3.06	%	9	$471,296	$—
Commercial real estate	—		8	10,229	—
Residential mortgages	1.86		48	—	—
Home equity	2.12		125	1,917	—
Automobile	2.59		21	1,248	—
Education	5.00		—	3,610	—
Other retail	18.28		22	—	2

(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. Amounts are reported in whole dollars.

(4) Amounts are recorded as charge-offs and are reported in millions.

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

Citizens Financial Group, Inc. | 61

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 six months ended June 30, 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.


	June 30, 2023
		Days Past Due and Accruing
(dollars in millions)	Current	30-59	60-89	90+	Nonaccrual	Total
Commercial and industrial	$151	$7	$—	$—	$56	$214
Commercial real estate	256	24	—	—	56	336
Total commercial	407	31	—	—	112	550
Residential mortgages	33	—	2	4	10	49
Home equity	1	—	—	—	6	7
Automobile	—	—	—	—	—	—
Education	4	—	—	—	1	5
Other retail	4	1	—	—	1	6
Total retail	42	1	2	4	18	67
Total	$449	$32	$2	$4	$130	$617

The following tables present the period-end amortized cost of loans to borrowers experiencing financial difficulty that were modified on or after January 1, 2023 that subsequently defaulted during the three and six months ended June 30, 2023, disaggregated by class of financing receivable and modification type. The modification type reflects the cumulative effect of all FDMs at the time of default. 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.


	Three Months Ended June 30, 2023
(dollars in millions)	Term Extension	Interest Rate Reduction and Term Extension	Total

Commercial real estate	$38	$—	$38
Total commercial	38	—	38

Residential mortgages	2	2	4




Total retail	2	2	4
Total	$40	$2	$42


	Six Months Ended June 30, 2023
(dollars in millions)	Term Extension	Interest Rate Reduction and Term Extension	Term Extension and Payment Delay	Total
Commercial and industrial	$3	$—	$20	$23
Commercial real estate	38	—	—	38
Total commercial	41	—	20	61

Residential mortgages	2	2	—	4




Total retail	2	2	—	4
Total	$43	$2	$20	$65

Unfunded commitments related to loans modified during the six months ended June 30, 2023 were $76 million at June 30, 2023.

Citizens Financial Group, Inc. | 62

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

The following tables summarize loans modified during the three and six months ended June 30, 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 June 30, 2022
		Amortized Cost Basis
(dollars in millions)	Number of Contracts	Interest Rate Reduction(1)	Maturity Extension(2)	Other(3)	Total
Commercial and industrial	9	$—	$—	$27	$27

Total commercial	9	—	—	27	27
Residential mortgages	290	16	39	21	76
Home equity	72	—	1	5	6
Automobile	147	—	—	1	1
Education	93	—	—	5	5
Other retail	567	3	—	1	4
Total retail	1,169	19	40	33	92
Total	1,178	$19	$40	$60	$119


		Six Months Ended June 30, 2022
		Amortized Cost Basis
(dollars in millions)	Number of Contracts	Interest Rate Reduction(1)	Maturity Extension(2)	Other(3)	Total
Commercial and industrial	19	$—	$24	$34	$58

Total commercial	19	—	24	34	58
Residential mortgages	1,471	38	53	235	326
Home equity	250	2	1	14	17
Automobile	312	1	—	2	3
Education	236	—	—	11	11
Other retail	1,088	5	—	1	6
Total retail	3,357	46	54	263	363
Total	3,376	$46	$78	$297	$421

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

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

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

Modified TDRs resulted in charge-offs of $1 million and $2 million, respectively, for the three and six months ended June 30, 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	Six Months Ended
(dollars in millions)	June 30, 2022
Commercial TDRs	$—	$—
Retail TDRs(1)	181	196
Total	$181	$196

(1) Includes $146 million and $156 million of loans fully or partially government guaranteed by the FHA, VA, and USDA for the three and six months ended June 30, 2022, respectively.

Citizens Financial Group, Inc. | 63

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 June 30, 2023 and December 31, 2022, there were no material 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.

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


	Three Months Ended June 30,		Six Months Ended June 30,
(dollars in millions)	2023	2022	2023	2022
Cash proceeds from residential mortgage loans sold with servicing retained	$2,513	$4,576	$4,088	$11,158
Repurchased residential mortgages(1)	—	—	—	87
Gain on sales(2)	22	23	41	53
Contractually specified servicing, late and other ancillary fees(2)	76	71	154	138

(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 $96.6 billion and $96.7 billion at June 30, 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 June 30,		As of and for the Six Months Ended June 30,
(dollars in millions)	2023	2022	2023	2022
Fair value as of beginning of the period	$1,496	$1,241	$1,530	$1,029


Amounts capitalized	36	79	57	174
Servicing rights acquired	—	16	—	16
Changes in unpaid principal balance during the period(1)	(41)	(32)	(82)	(71)
Changes in fair value during the period(2)	33	107	19	263
Fair value at end of the period	$1,524	$1,411	$1,524	$1,411

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

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

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

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

Citizens Financial Group, Inc. | 64

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. 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)	June 30, 2023	December 31, 2022
Fair value	$1,524	$1,530
Weighted average life (years)	9.0	9.1
Weighted average constant prepayment rate	6.9%	6.8%
Decline in fair value from 10% adverse change	$35	$34
Decline in fair value from 20% adverse change	$68	$66
Weighted average option adjusted spread	628 bps	629 bps
Decline in fair value from 10% adverse change	$42	$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.

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)	June 30, 2023	December 31, 2022
Education	$546	$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, in the normal course of business, engages in a variety of activities with entities that are considered VIEs, as defined by GAAP, with its variable interest arising from contractual, ownership or other monetary interests in the entity. A VIE typically does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. Citizens is the primary beneficiary of a VIE, and must consolidate it, if its variable interest provides it with the power to direct the activities that significantly impact the VIE and it has the right to receive benefits, or the obligation to absorb losses, that could potentially be significant to the VIE. Citizens considers both qualitative and quantitative factors regarding the nature, size and form of its involvement with the VIE to determine whether or not a variable interest held is significant to the VIE. Citizens assesses whether or not it is the primary beneficiary of a VIE on an ongoing basis.

Transfers of financial assets in which the Company has not surrendered control over the transferred assets are accounted for as a secured borrowing with a pledge of collateral. Control is generally considered surrendered when 1) the transferred assets are legally isolated from the Company and its creditors, even in bankruptcy, 2) the transferee has the right to pledge or exchange the transferred assets it received, with no condition that constrains the transferee from taking advantage of this right or that provides more than a trivial benefit to the Company, and 3) the Company does not maintain effective control over the transferred financial assets. Judgment is required to assess whether the Company maintains effective control over transferred financial assets.

For more details regarding the Company’s involvement with VIEs see Note 11 in the Company’s 2022 Form 10-K.

Citizens Financial Group, Inc. | 65

Consolidated VIEs

The Company has consolidated VIEs related to secured borrowings collateralized by auto loans. The following table summarizes the carrying amount of assets and liabilities for the Company’s consolidated VIEs:


(dollars in millions)			June 30, 2023
Assets:
Cash and due from banks			$149
Loans and leases			2,207

Other assets			6
Total assets			$2,362
Liabilities:
Long-term borrowed funds			$2,000
Other liabilities			2
Total liabilities			$2,002

Secured Borrowings

Citizens utilizes a portion of its auto loan portfolio to support certain secured borrowing arrangements, which provide a source of funding for the Company and involves the transfer of auto loans to bankruptcy remote special purpose entities (“SPEs”). These SPEs then issue asset-backed notes to third-parties collateralized by the transferred loans. Citizens holds certain residual interests in the loans and, therefore, has a right to receive benefits or the obligation to absorb losses that could potentially be significant to the SPEs. In addition, the Company retains servicing for the transferred loans and, therefore, holds the power to direct the most significant activities that impact the economic performance of the SPEs. As a result, the Company concluded that it is the primary beneficiary of these SPEs and, accordingly, consolidates these VIEs.

The assets of a particular VIE are the primary source of funds to settle its obligations. Creditors of these VIEs do not have recourse to the general credit of the Company. The performance of the loans transferred to the SPEs is the most significant driver impacting the economic performance of the VIEs.

Unconsolidated VIEs

Citizens is involved with various VIEs that are not consolidated, 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.

A summary of these investments is presented below:


(dollars in millions)	June 30, 2023	December 31, 2022
Lending to special purpose entities included in loans and leases	$4,849	$4,578
LIHTC investments included in other assets	2,399	2,230
LIHTC unfunded commitments included in other liabilities	1,115	1,046
Asset-backed investments included in HTM securities	530	581
Renewable energy investments included in other assets	249	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 June 30, 2023 and December 31, 2022, the lending facilities had undrawn commitments to extend credit of $2.4 billion. 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.

Citizens Financial Group, Inc. | 66

Renewable Energy Entities

The Company’s investments in certain renewable energy entities provide benefits from government incentives and other tax attributes (e.g., tax depreciation).

Effective January 1, 2023, the Company made an election to account for its renewable energy 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 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 investments were $7 million at June 30, 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 renewable energy entity relative to its targeted threshold and changes in the production tax credit rates set by the Internal Revenue Service.

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 June 30,		Six Months Ended June 30,
(dollars in millions)	2023	2022	2023	2022
Tax credits recognized	$87	$60	$174	$121
Other tax benefits recognized	20	16	38	31
Amortization	(85)	(65)	(166)	(129)
Net benefit (expense) included in income tax expense	22	11	46	23
Other income	2	—	3	—
Allocated income (loss) on investments	(3)	—	(6)	—
Net benefit (expense) included in noninterest income	(1)	—	(3)	—
Net benefit (expense) included in the Consolidated Statements of Operations(1)	$21	$11	$43	$23

(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 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 and six months ended June 30, 2023 and 2022.

NOTE 7 - BORROWED FUNDS

Short-term borrowed funds

Short-term borrowed funds were $1.1 billion and $3 million as of June 30, 2023 and December 31, 2022, respectively.

Citizens Financial Group, Inc. | 67

Long-term borrowed funds

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


(dollars in millions)	June 30, 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	560	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	649	648
6.064% fixed/floating-rate senior unsecured notes, due October 2025	599	598
5.284% fixed/floating-rate senior unsecured notes, due January 2026	449	—
3.750% senior unsecured notes, due February 2026	473	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, 5.314% weighted average rate, due through 2041(3)	5,029	8,519
Secured borrowings, 5.953% weighted average rate, due through 2030(3)(4)	2,000	—
Other	16	19
Total long-term borrowed funds	$14,100	$15,887

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

(2) Rate disclosed reflects the floating rate as of June 30, 2023, or final floating rate as applicable.

(3) Rate disclosed reflects the weighted average rate as of June 30, 2023.

(4) Collateralized by auto loans. See Note 6 for additional information.

At June 30, 2023, the Company’s long-term borrowed funds includes principal balances of $14.2 billion, unamortized debt issuance costs and discounts of $80 million, and hedging basis adjustments of ($26) million. At December 31, 2022, the Company’s long-term borrowed funds includes principal balances of $16.0 billion, unamortized debt issuance costs and discounts of $85 million, and hedging basis adjustments of ($27) million. 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 sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized FHLB borrowing capacity, primarily for advances and letters of credit, was $11.1 billion and $15.7 billion at June 30, 2023 and December 31, 2022, respectively. The Company’s available FHLB borrowing capacity was $14.2 billion and $11.5 billion at June 30, 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 June 30, 2023, the Company’s unused secured borrowing capacity was approximately $69.0 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.

Citizens Financial Group, Inc. | 68

The following table presents a summary of maturities for the Company’s long-term borrowed funds at June 30, 2023:


(dollars in millions)	Parent Company	CBNA and Other Subsidiaries	Consolidated
Year
2023	$—	$1	$1
2024	107	5,829	5,936
2025	469	2,020	2,489
2026	498	1,516	2,014
2027	—	2	2
2028 and thereafter	2,266	1,392	3,658
Total	$3,340	$10,760	$14,100

NOTE 8 - DERIVATIVES

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

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


	June 30, 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(1)	$76,463	$70	$65	$42,250	$16	$53
Derivatives not designated as hedging instruments:
Interest rate contracts(1)	350,913	519	1,832	174,384	331	1,579
Foreign exchange contracts	34,072	440	383	29,475	527	519
Commodities contracts	1,059	699	662	1,103	953	942
TBA contracts	3,985	14	3	2,370	7	14
Other contracts	1,357	8	5	913	5	4
Total derivatives not designated as hedging instruments	391,386	1,680	2,885	208,245	1,823	3,058
Total gross derivatives	467,849	1,750	2,950	250,495	1,839	3,111
Less: Gross amounts offset in the Consolidated Balance Sheets(2)		(519)	(519)		(623)	(623)
Less: Cash collateral applied(2)		(512)	(161)		(374)	(579)
Total net derivatives presented in the Consolidated Balance Sheets		$719	$2,270		$842	$1,909

(1) Includes approximately $150 billion in notional created as a result of the industry’s operational transition from LIBOR to SOFR.

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

Citizens Financial Group, Inc. | 69

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. During the quarter the Company entered into fair value hedges to manage interest rate risk on the AFS securities portfolio.

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 June 30,		Six Months Ended June 30,
(dollars in millions)	2023	2022	2023	2022	Affected Line Item in the Consolidated Statements of Operations
Interest rate swaps hedging long-term borrowed funds	($7)	($15)	$1	($52)	Interest expense - long-term borrowed funds
Hedged long-term borrowed funds attributable to the risk being hedged	7	14	(1)	51	Interest expense - long-term borrowed funds
Interest rate swaps hedging LHFS	—	(3)	—	(3)	Interest and fees on other loans held for sale
Hedged loans held for sale attributable to the risk being hedged	—	4	—	4	Interest and fees on other loans held for sale
Interest rate swaps hedging debt securities available for sale	12	—	12	29	Interest income - investment securities
Hedged debt securities available for sale attributable to the risk being hedged	(12)	—	(12)	(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:


(dollars in millions)	June 30, 2023		December 31, 2022
	Debt securities available for sale	Long-term borrowed funds		Debt securities available for sale	Long-term borrowed funds
Carrying amount of hedged assets	$410	$—		$—	$—
Carrying amount of hedged liabilities	—	473		—	972
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	(9)	(26)		—	(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 Financial Group, Inc. | 70

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.

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 June 30,		Six Months Ended June 30,
(dollars in millions)	2023	2022	2023	2022
Amount of pre-tax net gains (losses) recognized in OCI	($680)	($244)	($447)	($905)
Amount of pre-tax net gains (losses) reclassified from AOCI into interest income	(137)	12	(264)	49
Amount of pre-tax net gains (losses) reclassified from AOCI into interest expense	1	(1)	1	(6)

Using the interest rate curve at June 30, 2023 with respect to cash flow hedge strategies, the Company estimates that approximately $728 million in pre-tax net losses will be reclassified from AOCI to net interest income over the next 12 months, including $466 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 June 30, 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 into 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 June 30,		Six Months Ended June 30,		Affected Line Item in the Consolidated Statements of Operations
(dollars in millions)	2023	2022	2023	2022
Economic hedge type:
Customer interest rate contracts	($614)	($408)	($580)	($1,175)	Foreign exchange and derivative products
Derivatives hedging interest rate risk	627	428	608	1,221	Foreign exchange and derivative products
Customer foreign exchange contracts	9	(149)	5	(123)	Foreign exchange and derivative products
Derivatives hedging foreign exchange risk	(18)	246	(20)	249	Foreign exchange and derivative products
Customer commodity contracts	(94)	372	(569)	1,524	Foreign exchange and derivative products
Derivatives hedging commodity price risk	102	(365)	588	(1,513)	Foreign exchange and derivative products
Residential loan commitments	(20)	(62)	(18)	(223)	Mortgage banking fees
Derivatives hedging residential loan commitments and mortgage LHFS, at fair value	26	126	15	397	Mortgage banking fees
Derivative contracts used to hedge residential MSRs	(31)	(96)	(15)	(242)	Mortgage banking fees
Total	($13)	$92	$14	$115

Citizens Financial Group, Inc. | 71

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 June 30,
(dollars in millions)	Net Unrealized Gains (Losses) on Derivatives	Net Unrealized Gains (Losses) on Debt Securities	Employee Benefit Plans	Total AOCI
Balance at April 1, 2022	($676)	($1,236)	($346)	($2,258)
Other comprehensive income (loss) before reclassifications	(178)	(779)	—	(957)
Amounts reclassified to the Consolidated Statements of Operations	(8)	(1)	6	(3)
Net other comprehensive income (loss)	(186)	(780)	6	(960)
Balance at June 30, 2022	($862)	($2,016)	($340)	($3,218)
Balance at April 1, 2023	($1,149)	($2,424)	($370)	($3,943)
Other comprehensive income (loss) before reclassifications	(505)	(239)	—	(744)
Amounts reclassified to the Consolidated Statements of Operations	101	20	3	124
Net other comprehensive income (loss)	(404)	(219)	3	(620)
Balance at June 30, 2023	($1,553)	($2,643)	($367)	($4,563)
Primary location in the Consolidated Statements of Operations of amounts reclassified from AOCI	Net interest income	Securities gains, net	Other operating expense


	As of and for the Six Months Ended June 30,
(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	(669)	(1,856)	—	(2,525)

Amounts reclassified to the Consolidated Statements of Operations	(32)	(4)	8	(28)
Net other comprehensive income (loss)	(701)	(1,860)	8	(2,553)

Balance at June 30, 2022	($862)	($2,016)	($340)	($3,218)
Balance at January 1, 2023	($1,416)	($2,771)	($373)	($4,560)
Other comprehensive income (loss) before reclassifications	(332)	88	—	(244)
Amounts reclassified to the Consolidated Statements of Operations	195	40	6	241
Net other comprehensive income (loss)	(137)	128	6	(3)

Balance at June 30, 2023	($1,553)	($2,643)	($367)	($4,563)
Primary location in the Consolidated Statements of Operations of amounts reclassified from AOCI	Net interest income	Securities gains, net	Other operating expense

Citizens Financial Group, Inc. | 72

NOTE 10 - STOCKHOLDERS’ EQUITY

Preferred Stock

The following table summarizes the Company’s preferred stock:


			June 30, 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.

Dividends

The following tables summarize the Company’s dividend activity for the three and six months ended June 30, 2023 and 2022.


	Three Months Ended June 30, 2023			Three Months Ended June 30, 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	$195	$195
Preferred stock
Series B	$30.00	$9	$—	$30.00	$9	$—
Series C	15.94	5	5	15.94	5	5
Series D	15.87	5	5	15.87	4	4
Series E	12.50	6	6	12.50	6	6
Series F	14.12	6	5	14.12	5	5
Series G	10.00	3	3	10.00	3	3
Total preferred stock		$34	$24		$32	$23


	Six Months Ended June 30, 2023			Six Months Ended June 30, 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	$0.84	$410	$410	$0.78	$360	$360
Preferred stock
Series B	$30.00	$9	$9	$30.00	$9	$9
Series C	31.88	10	10	31.88	10	10
Series D	31.75	10	10	31.75	9	9
Series E	25.00	11	11	25.00	11	11
Series F	28.25	11	11	28.25	11	11
Series G	20.00	6	6	20.00	6	6
Total preferred stock		$57	$57		$56	$56

Treasury Stock

During the six months ended June 30, 2023, the Company repurchased $656 million, or 19,736,783 shares, of its outstanding common stock, which are held in treasury stock.

Citizens Financial Group, Inc. | 73

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)	June 30, 2023	December 31, 2022
Commitments to extend credit	$95,665	$96,076
Letters of credit	2,177	2,119
Loans sold with recourse	97	92
Marketing rights	18	23
Risk participation agreements	2	4
Total	$97,959	$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.
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 June 30, 2023, the remaining terms on these RPAs ranged from less than one year to seven years.

Citizens Financial Group, Inc. | 74

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.

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:


	June 30, 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	$1,163	$1,151	$12	$666	$656	$10
Commercial and industrial, and commercial real estate loans held for sale, at fair value	62	74	(12)	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.

Citizens Financial Group, Inc. | 75

Recurring Fair Value Measurements

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

The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at June 30, 2023:


(dollars in millions)	Total	Level 1	Level 2	Level 3
Debt securities available for sale:
Mortgage-backed securities	$20,289	$—	$20,289	$—

Collateralized loan obligations	1,228	—	1,228	—
State and political subdivisions	2	—	2	—
U.S. Treasury and other	3,236	3,236	—	—
Total debt securities available for sale	24,755	3,236	21,519	—
Loans held for sale, at fair value:
Residential loans held for sale	1,163	—	1,163	—
Commercial loans held for sale	62	—	62	—
Total loans held for sale, at fair value	1,225	—	1,225	—
Mortgage servicing rights	1,524	—	—	1,524
Derivative assets:
Interest rate contracts	589	—	589	—
Foreign exchange contracts	440	—	440	—
Commodities contracts	699	—	699	—
TBA contracts	14	—	14	—
Other contracts	8	—	—	8
Total derivative assets	1,750	—	1,742	8
Equity securities, at fair value(1)	99	99	—	—
Total assets	$29,353	$3,335	$24,486	$1,532
Derivative liabilities:
Interest rate contracts	$1,897	$—	$1,897	$—
Foreign exchange contracts	383	—	383	—
Commodities contracts	662	—	662	—
TBA contracts	3	—	3	—
Other contracts	5	—	3	2
Total derivative liabilities	2,950	—	2,948	2
Total liabilities	$2,950	$—	$2,948	$2

(1) Excludes investments of $48 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 $34 million at June 30, 2023, which may be called at any time during prescribed time periods. The credit exposure is generally limited to the carrying amount of investments made and unfunded capital commitments.

Citizens Financial Group, Inc. | 76

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.

Citizens Financial Group, Inc. | 77

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 June 30, 2023		Six Months Ended June 30, 2023
(dollars in millions)	Mortgage Servicing Rights	Other Derivative Contracts	Mortgage Servicing Rights	Other Derivative Contracts
Beginning balance	$1,496	$13	$1,530	$1
Issuances	36	20	57	35

Settlements(2)	(41)	(7)	(82)	(12)
Changes in fair value during the period recognized in earnings(3)	33	(20)	19	(18)
Ending balance	$1,524	$6	$1,524	$6


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
(dollars in millions)	Mortgage Servicing Rights	Other Derivative Contracts	Mortgage Servicing Rights	Other Derivative Contracts
Beginning balance	$1,241	($21)	$1,029	$38



Issuances	79	23	174	64
Acquisitions(1)	16	—	16	—
Settlements(2)	(32)	71	(71)	132
Changes in fair value during the period recognized in earnings(3)	107	(62)	263	(223)
Ending balance	$1,411	$11	$1,411	$11

(1) Represents MSRs acquired as part of the Investors acquisition.

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

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

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


	As of June 30, 2023
	Valuation Technique	Unobservable Input	Range (Weighted Average)
Mortgage servicing rights	Discounted Cash Flow	Constant prepayment rate	6.20-17.14% CPR (6.90% CPR)
Option adjusted spread	398-1,058 bps (628 bps)
Other derivative contracts	Internal Model	Pull through rate	24.90-99.70% (81.79%)
MSR value	(7.54)-137.38 bps (91.13 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 June 30,		Six Months Ended June 30,
(dollars in millions)	2023	2022	2023	2022
Collateral-dependent loans	($64)	($1)	($68)	($3)

Citizens Financial Group, Inc. | 78

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


	June 30, 2023				December 31, 2022
(dollars in millions)	Total	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3
Collateral-dependent loans	$835	$—	$835	$—	$582	$—	$582	$—

Fair Value of Financial Instruments

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


	June 30, 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	$9,520	$8,728	$—	$—	$8,990	$8,225	$530	$503
Other loans held for sale	196	196	—	—	—	—	196	196
Net loans and leases	149,276	144,200	—	—	835	835	148,441	143,365
Other assets	917	917	—	—	897	897	20	20
Financial liabilities:
Deposits	177,667	177,536	—	—	177,667	177,536	—	—
Short-term borrowed funds	1,099	1,099	—	—	1,099	1,099	—	—
Long-term borrowed funds	14,100	13,357	—	—	14,100	13,357	—	—


	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
Net loans and leases	154,679	151,601	—	—	582	582	154,097	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	—	—

Citizens Financial Group, Inc. | 79

NOTE 13 - NONINTEREST INCOME

Revenues from Contracts with Customers

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


	Three Months Ended June 30, 2023				Three Months Ended June 30, 2022
(dollars in millions)	Consumer Banking	Commercial Banking	Other	Consolidated	Consumer Banking	Commercial Banking	Other	Consolidated
Service charges and fees	$66	$35	$—	$101	$73	$34	$1	$108
Card fees	67	11	—	78	60	10	—	70
Capital markets fees	—	76	—	76	—	90	—	90
Trust and investment services fees	65	—	—	65	66	—	—	66
Other banking fees	—	3	—	3	—	5	—	5
Total revenue from contracts with customers	$198	$125	$—	$323	$199	$139	$1	$339
Total revenue from other sources(1)	70	82	31	183	81	82	(8)	155
Total noninterest income	$268	$207	$31	$506	$280	$221	($7)	$494


	Six Months Ended June 30, 2023				Six Months Ended June 30, 2022
(dollars in millions)	Consumer Banking	Commercial Banking	Other	Consolidated	Consumer Banking	Commercial Banking	Other	Consolidated
Service charges and fees	$133	$67	$—	$200	$142	$61	$2	$205
Card fees	126	23	—	149	110	20	—	130
Capital markets fees	—	147	—	147	—	168	—	168
Trust and investment services fees	128	—	—	128	127	—	—	127
Other banking fees	1	7	—	8	1	7	1	9
Total revenue from contracts with customers	$388	$244	$—	$632	$380	$256	$3	$639
Total revenue from other sources(1)	136	164	59	359	157	178	18	353
Total noninterest income	$524	$408	$59	$991	$537	$434	$21	$992

(1) Includes bank-owned life insurance income of $23 million and $21 million for the three months ended June 30, 2023 and 2022, respectively, and $46 million and $42 million for the six months ended June 30, 2023 and 2022, respectively.

The Company recognized trailing commissions of $3 million and $4 million, respectively, for the three months ended June 30, 2023 and 2022, and $7 million and $8 million, respectively, for the six months ended June 30, 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 June 30,		Six Months Ended June 30,
(dollars in millions)	2023	2022	2023	2022
Marketing	$56	$39	$94	$65
Deposit insurance	43	26	79	46
Other	98	88	193	152
Other operating expense	$197	$153	$366	$263

Citizens Financial Group, Inc. | 80

NOTE 15 - EARNINGS PER SHARE


	Three Months Ended June 30,		Six Months Ended June 30,
(dollars in millions, except per share data)	2023	2022	2023	2022
Numerator (basic and diluted):
Net income	$478	$364	$989	$784
Less: Preferred stock dividends	34	32	57	56
Net income available to common stockholders	$444	$332	$932	$728
Denominator:
Weighted-average common shares outstanding - basic	479,470,543	491,497,026	482,440,926	457,140,258
Dilutive common shares: share-based awards	1,504,738	1,799,088	1,811,177	2,027,489
Weighted-average common shares outstanding - diluted	480,975,281	493,296,114	484,252,103	459,167,747
Earnings per common share:
Basic	$0.93	$0.68	$1.93	$1.59
Diluted(1)	0.92	0.67	1.92	1.58

(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 3,249,834 and 1,647,051 for the three months ended June 30, 2023 and 2022, respectively, and 2,305,895 and 784,372 for the six months ended June 30, 2023 and 2022, respectively.

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 June 30, 2023
(dollars in millions)	Consumer Banking	Commercial Banking	Other	Consolidated
Net interest income	$1,104	$584	($100)	$1,588
Noninterest income	268	207	31	506
Total revenue	1,372	791	(69)	2,094
Noninterest expense	908	315	83	1,306
Profit (loss) before provision (benefit) for credit losses	464	476	(152)	788
Provision (benefit) for credit losses	82	71	23	176
Income (loss) before income tax expense (benefit)	382	405	(175)	612
Income tax expense (benefit)	100	100	(66)	134
Net income (loss)	$282	$305	($109)	$478
Total average assets	$87,040	$77,546	$57,787	$222,373


	As of and for the Three Months Ended June 30, 2022
(dollars in millions)	Consumer Banking	Commercial Banking	Other	Consolidated
Net interest income	$995	$534	($24)	$1,505
Noninterest income	280	221	(7)	494
Total revenue	1,275	755	(31)	1,999
Noninterest expense	881	308	116	1,305
Profit (loss) before provision (benefit) for credit losses	394	447	(147)	694
Provision (benefit) for credit losses	39	10	167	216
Income (loss) before income tax expense (benefit)	355	437	(314)	478
Income tax expense (benefit)	90	96	(72)	114
Net income (loss)	$265	$341	($242)	$364
Total average assets	$88,881	$78,638	$53,448	$220,967

Citizens Financial Group, Inc. | 81


	As of and for the Six Months Ended June 30, 2023
(dollars in millions)	Consumer Banking	Commercial Banking	Other	Consolidated
Net interest income	$2,200	$1,181	($150)	$3,231
Noninterest income	524	408	59	991
Total revenue	2,724	1,589	(91)	4,222
Noninterest expense	1,797	646	159	2,602
Profit (loss) before provision (benefit) for credit losses	927	943	(250)	1,620
Provision (benefit) for credit losses	165	118	61	344
Income (loss) before income tax expense (benefit)	762	825	(311)	1,276
Income tax expense (benefit)	199	201	(113)	287
Net income (loss)	$563	$624	($198)	$989
Total average assets	$87,298	$78,215	$57,028	$222,541


	As of and for the Six Months Ended June 30, 2022
(dollars in millions)	Consumer Banking	Commercial Banking	Other	Consolidated
Net interest income	$1,852	$950	($150)	$2,652
Noninterest income	537	434	21	992
Total revenue	2,389	1,384	(129)	3,644
Noninterest expense	1,665	580	166	2,411
Profit (loss) before provision (benefit) for credit losses	724	804	(295)	1,233
Provision (benefit) for credit losses	88	22	109	219
Income (loss) before income tax expense (benefit)	636	782	(404)	1,014
Income tax expense (benefit)	162	170	(102)	230
Net income (loss)	$474	$612	($302)	$784
Total average assets	$83,247	$69,927	$51,558	$204,732

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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