Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS


						Page
Consolidated Balance Sheets (unaudited)						42
Consolidated Statements of Operations (unaudited)						43
Consolidated Statements of Comprehensive Income (unaudited)						44
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)						45
Consolidated Statements of Cash Flows (unaudited)						47
Notes to Consolidated Financial Statements (unaudited)						48
Note 1 - Basis of Presentation						48
Note 2 - Securities						50
Note 3 - Loans and Leases						53
Note 4 - Credit Quality and the Allowance for Credit Losses						53
Note 5 - Mortgage Banking and Other						65
Note 6 - Goodwill						66
Note 7 - Variable Interest Entities						67
Note 8 - Borrowed Funds						69
Note 9 - Derivatives						71
Note 10 - Accumulated Other Comprehensive Income (Loss)						74
Note 11 - Stockholders’ Equity						75
Note 12 - Commitments and Contingencies						76
Note 13 - Fair Value Measurements						77
Note 14 - Noninterest Income						81
Note 15 - Other Operating Expense						82
Note 16 - Earnings Per Share						83
Note 17 - Business Operating Segments						83

Citizens Financial Group, Inc. | 41

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(dollars in millions, except par value)	September 30, 2023	December 31, 2022
ASSETS:
Cash and due from banks(1)	$1,395	$1,489
Interest-bearing cash and due from banks	14,005	9,058
Interest-bearing deposits in banks	324	303
Debt securities available for sale, at fair value (including $402 and $270 pledged to creditors, respectively)(2)	25,069	24,007
Debt securities held to maturity (fair value of $8,054 and $9,042 respectively, and including $225 and $110 pledged to creditors, respectively)(2)	9,320	9,834
Loans held for sale, at fair value	749	774
Other loans held for sale	99	208
Loans and leases	149,746	156,662
Less: Allowance for loan and lease losses	(2,080)	(1,983)
Net loans and leases(1)	147,666	154,679
Derivative assets	522	842
Premises and equipment, net	878	844
Bank-owned life insurance	3,275	3,236
Goodwill	8,188	8,173
Other intangible assets(3)	167	197
Other assets(1)	13,613	13,089
TOTAL ASSETS	$225,270	$226,733
LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing	$38,561	$49,283
Interest-bearing	139,636	131,441
Total deposits	178,197	180,724
Short-term borrowed funds	232	3
Derivative liabilities	2,109	1,909
Long-term borrowed funds(1)	17,354	15,887
Other liabilities(1)	4,500	4,520
TOTAL LIABILITIES	202,392	203,043
Commitments and Contingencies (refer to Note 12)
STOCKHOLDERS’ EQUITY:
Preferred stock:
$25.00 par value,100,000,000 shares authorized; 2,050,000 shares issued and outstanding at September 30, 2023 and December 31, 2022	2,014	2,014
Common stock:
$0.01 par value, 1,000,000,000 shares authorized; 647,632,105 shares issued and 466,221,795 shares outstanding at September 30, 2023 and 645,220,018 shares issued and 492,282,158 shares outstanding at December 31, 2022	6	6
Additional paid-in capital	22,231	22,142
Retained earnings	9,856	9,159
Treasury stock, at cost, 181,410,310 and 152,937,860 shares at September 30, 2023 and December 31, 2022, respectively	(5,986)	(5,071)
Accumulated other comprehensive income (loss)	(5,243)	(4,560)
TOTAL STOCKHOLDERS’ EQUITY	22,878	23,690
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$225,270	$226,733

(1) Includes amounts in consolidated VIEs. See Note 7 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.

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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended September 30,		Nine Months Ended September 30,
(dollars in millions, except per share data)	2023	2022	2023	2022
INTEREST INCOME:
Interest and fees on loans and leases	$2,166	$1,657	$6,345	$4,075
Interest and fees on loans held for sale	20	18	55	51
Interest and fees on other loans held for sale	8	15	25	47
Investment securities	290	243	823	582
Interest-bearing deposits in banks	111	36	280	53
Total interest income	2,595	1,969	7,528	4,808
INTEREST EXPENSE:
Deposits	898	176	2,171	255
Short-term borrowed funds	8	11	36	21
Long-term borrowed funds	167	117	568	215
Total interest expense	1,073	304	2,775	491
Net interest income	1,522	1,665	4,753	4,317
Provision (benefit) for credit losses	172	123	516	342
Net interest income after provision (benefit) for credit losses	1,350	1,542	4,237	3,975
NONINTEREST INCOME:
Service charges and fees	105	109	306	315
Capital markets fees	67	89	232	270
Card fees	74	71	226	202
Mortgage banking fees	69	66	185	207
Trust and investment services fees	63	61	191	188
Foreign exchange and derivative products	48	42	140	153
Letter of credit and loan fees	43	40	126	118
Securities gains, net	5	—	19	5
Other income	18	34	58	46
Total noninterest income	492	512	1,483	1,504
NONINTEREST EXPENSE:
Salaries and employee benefits	659	639	1,932	1,916
Outside services	160	172	513	530
Equipment and software	191	159	541	478
Occupancy	107	106	367	300
Other operating expense	176	165	542	428
Total noninterest expense	1,293	1,241	3,895	3,652
Income before income tax expense	549	813	1,825	1,827
Income tax expense	119	177	406	407
NET INCOME	$430	$636	$1,419	$1,420
Net income available to common stockholders	$400	$611	$1,332	$1,339
Weighted-average common shares outstanding:
Basic	469,481,085	495,651,083	478,073,507	470,118,265
Diluted	471,183,719	497,477,501	479,733,008	471,958,310
Per common share information:
Basic earnings	$0.85	$1.23	$2.79	$2.85
Diluted earnings	0.85	1.23	2.78	2.84

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

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended September 30,		Nine Months Ended September 30,
(dollars in millions)	2023	2022	2023	2022
Net income	$430	$636	$1,419	$1,420
Other comprehensive income (loss):
Net unrealized derivative instruments gains (losses) arising during the periods, net of income taxes of ($78), ($258), ($193) and ($494), respectively	(248)	(738)	(580)	(1,407)
Reclassification adjustment for net derivative (gains) losses included in net income, net of income taxes of $37, $12, $105 and $1, respectively	120	34	315	2
Net unrealized debt securities gains (losses) arising during the periods, net of income taxes of ($189), ($305), ($160) and ($933), respectively	(578)	(903)	(490)	(2,759)
Reclassification of net debt securities (gains) losses to net income, net of income taxes of $7, $0, $21 and ($1), respectively	23	—	63	(4)
Reclassification of actuarial (gain) loss to net income, net of income taxes of $2, $2, $4 and $1, respectively	3	2	9	10
Total other comprehensive income (loss), net of income taxes	(680)	(1,605)	(683)	(4,158)
Total comprehensive income (loss)	($250)	($969)	$736	($2,738)

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

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)


	Preferred Stock		Common Stock		Additional Paid-in Capital	Retained Earnings	Treasury Stock, at Cost	Accumulated Other Comprehensive Income (Loss)	Total
(dollars and shares in millions)	Shares	Amount	Shares	Amount
Balance at July 1, 2022	2	$2,014	496	$6	$22,100	$8,346	($4,920)	($3,218)	$24,328
Dividends to common stockholders	—	—	—	—	—	(209)	—	—	(209)
Dividends to preferred stockholders	—	—	—	—	—	(25)	—	—	(25)





Share-based compensation plans	—	—	—	—	15	—	—	—	15
Employee stock purchase plan	—	—	—	—	6	—	—	—	6

Total comprehensive income (loss):
Net income	—	—	—	—	—	636	—	—	636
Other comprehensive income (loss)	—	—	—	—	—	—	—	(1,605)	(1,605)
Total comprehensive income (loss)	—	—	—	—	—	636	—	(1,605)	(969)
Balance at September 30, 2022	2	$2,014	496	$6	$22,121	$8,748	($4,920)	($4,823)	$23,146
Balance at July 1, 2023	2	$2,014	475	$6	$22,207	$9,655	($5,734)	($4,563)	$23,585
Dividends to common stockholders	—	—	—	—	—	(199)	—	—	(199)
Dividends to preferred stockholders	—	—	—	—	—	(30)	—	—	(30)



Treasury stock purchased	—	—	(9)	—	—	—	(250)	—	(250)
Share repurchase excise tax	—	—	—	—	—	—	(2)	—	(2)
Share-based compensation plans	—	—	—	—	17	—	—	—	17
Employee stock purchase plan	—	—	—	—	7	—	—	—	7

Total comprehensive income (loss):
Net income	—	—	—	—	—	430	—	—	430
Other comprehensive income (loss)	—	—	—	—	—	—	—	(680)	(680)
Total comprehensive income (loss)	—	—	—	—	—	430	—	(680)	(250)
Balance at September 30, 2023	2	$2,014	466	$6	$22,231	$9,856	($5,986)	($5,243)	$22,878

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

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)


	Preferred Stock		Common Stock		Additional Paid-in Capital	Retained Earnings	Treasury Stock, at Cost	Accumulated Other Comprehensive Income (Loss)	Total
(dollars and shares in millions)	Shares	Amount	Shares	Amount
Balance at January 1, 2022	2	$2,014	422	$6	$19,005	$7,978	($4,918)	($665)	$23,420
Dividends to common stockholders	—	—	—	—	—	(569)	—	—	(569)
Dividends to preferred stockholders	—	—	—	—	—	(81)	—	—	(81)
Issuance of common stock - business acquisition	—	—	72	—	3,036	—	—	—	3,036


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

Share-based compensation plans	—	—	2	—	61	—	—	—	61
Employee stock purchase plan	—	—	—	—	19	—	—	—	19

Total comprehensive income (loss):
Net income	—	—	—	—	—	1,420	—	—	1,420
Other comprehensive income (loss)	—	—	—	—	—	—	—	(4,158)	(4,158)
Total comprehensive income (loss)	—	—	—	—	—	1,420	—	(4,158)	(2,738)
Balance at September 30, 2022	2	$2,014	496	$6	$22,121	$8,748	($4,920)	($4,823)	$23,146
Balance at January 1, 2023	2	$2,014	492	$6	$22,142	$9,159	($5,071)	($4,560)	$23,690
Dividends to common stockholders	—	—	—	—	—	(609)	—	—	(609)
Dividends to preferred stockholders	—	—	—	—	—	(87)	—	—	(87)



Treasury stock purchased	—	—	(29)	—	—	—	(906)	—	(906)
Share repurchase excise tax	—	—	—	—	—	—	(9)	—	(9)
Share-based compensation plans	—	—	3	—	68	—	—	—	68
Employee stock purchase plan	—	—	—	—	21	—	—	—	21
Cumulative effect of change in accounting principle	—	—	—	—	—	(26)	—	—	(26)
Total comprehensive income (loss):
Net income	—	—	—	—	—	1,419	—	—	1,419
Other comprehensive income (loss)	—	—	—	—	—	—	—	(683)	(683)
Total comprehensive income (loss)	—	—	—	—	—	1,419	—	(683)	736
Balance at September 30, 2023	2	$2,014	466	$6	$22,231	$9,856	($5,986)	($5,243)	$22,878

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
(dollars in millions)	2023	2022
OPERATING ACTIVITIES
Net income	$1,419	$1,420
Adjustments to reconcile net income to net change in cash due to operating activities:
Provision (benefit) for credit losses	516	342
Net change in loans held for sale, at fair value	25	1,404
Depreciation, amortization and accretion	352	448
Deferred income tax expense (benefit)	(61)	124
Share-based compensation	73	68
Net gain on sales of assets	(19)	(5)
Net (increase) decrease in other assets	(732)	(1,700)
Net increase (decrease) in other liabilities	718	577
Net change due to operating activities	2,291	2,678
INVESTING ACTIVITIES
Investment securities:
Purchases of debt securities available for sale	(5,576)	(9,772)
Proceeds from maturities and paydowns of debt securities available for sale	1,481	2,843
Proceeds from sales of debt securities available for sale	2,429	1,057

Proceeds from maturities and paydowns of debt securities held to maturity	597	772

Net (increase) decrease in interest-bearing deposits in banks	(21)	55

Acquisitions, net of cash acquired(1)	—	(235)
Purchases of loans	—	(1,007)
Sales of loans	2,628	1,718
Net (increase) decrease in loans and leases	3,790	(6,937)
Capital expenditures, net	(124)	(141)
Purchase of bank-owned life insurance	—	(100)
Other	(181)	(732)
Net change due to investing activities	5,023	(12,479)
FINANCING ACTIVITIES
Net increase (decrease) in deposits	(2,527)	3,988
Net increase (decrease) in short-term borrowed funds	229	174
Proceeds from issuance of long-term borrowed funds	21,233	11,516
Repayments of long-term borrowed funds	(19,766)	(6,190)
Treasury stock purchased	(906)	(2)


Dividends paid to common stockholders	(609)	(569)
Dividends paid to preferred stockholders	(89)	(90)

Payments of employee tax withholding for share-based compensation	(26)	(24)
Net change due to financing activities	(2,461)	8,803
Net change in cash and cash equivalents(2)	4,853	(998)
Cash and cash equivalents at beginning of period(2)	10,547	9,158
Cash and cash equivalents at end of period(2)	$15,400	$8,160

Non-cash items:
Transfer of loans from portfolio to LHFS	$2,582	$—
Transfer of securities from available for sale to held to maturity	—	8,563
Investors Acquisition:
Fair value of assets acquired, excluding cash and cash equivalents	—	27,102
Goodwill and other intangible assets	—	996
Fair value of liabilities assumed	—	24,975
Common stock issued	—	3,035
Replacement equity awards	—	19

(1) Primarily 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 nine months ended September 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements and Notes have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes included in annual financial statements prepared in accordance with GAAP. The Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the interim period results presented. These unaudited interim financial statements and notes should be read in conjunction with the audited Consolidated Financial Statements and Notes included in the Company’s 2022 Form 10-K. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year.

The unaudited interim Consolidated Financial Statements include the accounts of Citizens and its subsidiaries, including VIEs in which Citizens is a primary beneficiary. Investments in VIEs in which the Company does not have the ability to exercise significant influence are not consolidated. All intercompany transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change include the determination of the ACL and the evaluation and measurement of goodwill impairment.

During the third quarter of 2023, the Company’s indirect auto and certain purchased consumer loan portfolios were transferred from Consumer Banking into a new Non-Core segment to reflect the manner in which management is currently assessing performance and allocating resources. Prior period results have been revised to conform to the new segment presentation. See Note 17 for additional information.

Significant Accounting Policies

For further information regarding the Company’s significant accounting policies, see Note 1 in the Company’s 2022 Form 10-K. During 2023, the Company adopted new accounting guidance as described below.

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Accounting Pronouncements Adopted in 2023


Pronouncement	Summary of Guidance	Effects on Financial Statements
Troubled Debt Restructurings and Vintage Disclosures Issued March 2022	•Effective date: January 1, 2023. •Eliminates the separate recognition and measurement guidance for TDRs. •Requires evaluation of all modifications to borrowers experiencing financial difficulty (or FDMs) to determine whether the modification results in a new loan or continuation of an existing loan. •Requires expected credit losses measured under a discounted cash flow method to be determined using an effective interest rate based on the modified (not original) contractual terms of the loan. •Enhances disclosures by creditors for modifications of receivables from borrowers experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay or a term extension. •Requires disclosure of current period gross charge-offs by vintage year for loans and net investments in leases. •Transition is prospective, with an option to adopt the recognition and measurement guidance for TDRs on a modified retrospective basis, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.	•The Company adopted the new standard on January 1, 2023, and elected to apply the new measurement and recognition guidance for 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 7 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:


	September 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	$4,025	$—	($251)	$3,774	$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	23,101	1	(2,845)	20,257	21,250	10	(2,198)	19,062
Other/non-agency	279	—	(32)	247	280	—	(29)	251
Total mortgage-backed securities	23,380	1	(2,877)	20,504	21,530	10	(2,227)	19,313
Collateralized loan obligations	797	—	(8)	789	1,248	—	(42)	1,206
Total debt securities available for sale, at fair value	$28,204	$1	($3,136)	$25,069	$26,458	$11	($2,462)	$24,007
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	$8,810	$—	($1,241)	$7,569	$9,253	$4	($751)	$8,506
Total mortgage-backed securities	8,810	—	(1,241)	7,569	9,253	4	(751)	8,506
Asset-backed securities	510	1	(26)	485	581	—	(45)	536
Total debt securities held to maturity	$9,320	$1	($1,267)	$8,054	$9,834	$4	($796)	$9,042
Equity securities, at cost(2)	$995	$—	$—	$995	$1,058	$—	$—	$1,058
Equity securities, at fair value(2)	163	—	—	163	153	—	—	153

(1) Excludes portfolio level basis adjustments of $17 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.

(2) Included in other assets in the Consolidated Balance Sheets.

Accrued interest receivable on debt securities totaled $127 million and $107 million as of September 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 September 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	$—	$2,688	$1,337	$—	$4,025
State and political subdivisions		—	—	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	1,406	2,431	19,264	23,101
Other/non-agency	—	—	—	279	279
Collateralized loan obligations	—	—	25	772	797
Total debt securities available for sale	—	4,094	3,793	20,317	28,204
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	—	—	8,810	8,810
Asset-backed securities	—	510	—	—	510
Total debt securities held to maturity	—	510	—	8,810	9,320
Total amortized cost of debt securities	$—	$4,604	$3,793	$29,127	$37,524

Fair value:
U.S. Treasury and other	$—	$2,513	$1,261	$—	$3,774
State and political subdivisions	—	—	—	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	1,313	2,225	16,719	20,257
Other/non-agency	—	—	—	247	247
Collateralized loan obligations	—	—	25	764	789
Total debt securities available for sale	—	3,826	3,511	17,732	25,069
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	—	—	7,569	7,569
Asset-backed securities	—	485	—	—	485
Total debt securities held to maturity	—	485	—	7,569	8,054
Total fair value of debt securities	$—	$4,311	$3,511	$25,301	$33,123

Taxable interest income from investment securities as presented in the Consolidated Statements of Operations was $290 million and $243 million for the three months ended September 30, 2023 and 2022, respectively, and $823 million and $582 million for the nine months ended September 30, 2023 and 2022, respectively.

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


	Three Months Ended September 30,		Nine Months Ended September 30,
(dollars in millions)	2023	2022	2023	2022
Gains	$9	$—	$27	$9
Losses	(4)	—	(8)	(4)
Securities gains, net	$5	$—	$19	$5

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


	September 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	$5,739	$4,945	$3,966	$3,527
Pledged as collateral for FHLB borrowing capacity	243	213	244	217
Pledged against repurchase agreements	250	248	—	—

Citizens Financial Group, Inc. | 51

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 September 30, 2023 or December 31, 2022.

Securitizations of mortgage loans retained in the investment portfolio were $65 million for the three and nine months ended September 30, 2023. Securitizations of mortgage loans retained in the investment portfolio were $59 million and $99 million for the three and nine months ended September 30, 2022, respectively. These securitizations include a substantive guarantee by a third party. The guarantors were FNMA and FHLMC in 2023 and 2022. The debt securities received from the guarantors are classified as AFS.

Impairment

The Company evaluated its existing HTM portfolio as of September 30, 2023 and concluded that 95% 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 September 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:


	September 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	$583	($12)	$3,142	($239)	$3,725	($251)

Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	3,796	(111)	15,897	(2,734)	19,693	(2,845)
Other/non-agency	—	—	247	(32)	247	(32)
Total mortgage-backed securities	3,796	(111)	16,144	(2,766)	19,940	(2,877)
Collateralized loan obligations	32	—	757	(8)	789	(8)
Total	$4,411	($123)	$20,043	($3,013)	$24,454	($3,136)


	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 September 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. | 52

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)	September 30, 2023	December 31, 2022
Commercial and industrial	$46,753	$51,836
Commercial real estate	29,486	28,865
Leases	1,218	1,479
Total commercial	77,457	82,180
Residential mortgages	30,983	29,921
Home equity	14,729	14,043
Automobile	9,290	12,292
Education	12,134	12,808
Other retail	5,153	5,418
Total retail	72,289	74,482
Total loans and leases	$149,746	$156,662

Accrued interest receivable on loans and leases held for investment totaled $887 million and $820 million as of September 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 $37.1 billion and $38.4 billion at September 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 $31.1 billion and $34.8 billion at September 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 7 for additional information.

Interest income on direct financing and sales-type leases for the three months ended September 30, 2023 and 2022 was $12 million and $13 million, respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations. For the nine months ended September 30, 2023 and 2022, this interest income was $36 million and $34 million, respectively.

The following table presents the composition of LHFS:


	September 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	$739	$10	$749	$666	$108	$774
Other loans held for sale	—	99	99	—	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. | 53

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 nine months ended September 30, 2023.

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


	Three Months Ended September 30, 2023			Nine Months Ended September 30, 2023
(dollars in millions)	Commercial	Retail	Total	Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period	$1,157	$887	$2,044	$1,060	$923	$1,983



Charge-offs	(74)	(117)	(191)	(212)	(339)	(551)
Recoveries	4	34	38	14	99	113
Net charge-offs	(70)	(83)	(153)	(198)	(240)	(438)
Provision expense (benefit) for loans and leases	146	43	189	371	164	535
Allowance for loan and lease losses, end of period	1,233	847	2,080	1,233	847	2,080
Allowance for unfunded lending commitments, beginning of period	213	42	255	207	50	257


Provision expense (benefit) for unfunded lending commitments	(21)	4	(17)	(15)	(4)	(19)

Allowance for unfunded lending commitments, end of period	192	46	238	192	46	238
Total allowance for credit losses, end of period	$1,425	$893	$2,318	$1,425	$893	$2,318

During the nine months ended September 30, 2023, net charge-offs of $438 million and a provision for expected credit losses of $516 million resulted in an increase of $78 million to the ACL.

Our ACL as of September 30, 2023 accounts for an economic forecast over our two-year reasonable and supportable period with implied peak unemployment of approximately 6% and peak-to-trough GDP decline of approximately 1.0%. This forecast reflects a mild recession over the two-year reasonable and supportable period.

Citizens Financial Group, Inc. | 54

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


	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
(dollars in millions)	Commercial	Retail	Total	Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period	$987	$977	$1,964	$821	$937	$1,758


Allowance on PCD loans and leases at acquisition	—	—	—	99	2	101
Charge-offs(1)	(22)	(94)	(116)	(49)	(259)	(308)
Recoveries	7	35	42	13	113	126
Net charge-offs	(15)	(59)	(74)	(36)	(146)	(182)
Provision expense (benefit) for loans and leases(2)	58	32	90	146	157	303
Allowance for loan and lease losses, end of period	1,030	950	1,980	1,030	950	1,980
Allowance for unfunded lending commitments, beginning of period	166	17	183	153	23	176


Provision expense (benefit) for unfunded lending commitments	6	27	33	18	21	39
Allowance on PCD unfunded lending commitments at acquisition	—	—	—	1	—	1
Allowance for unfunded lending commitments, end of period	172	44	216	172	44	216
Total allowance for credit losses, end of period	$1,202	$994	$2,196	$1,202	$994	$2,196

(1) Excludes $33 million of charge-offs previously taken by Investors or recognized upon completion of the Investors acquisition under purchase accounting for the nine months ended September 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 $169 million of initial provision expense related to non-PCD loans and leases acquired from Investors and HSBC for the nine months ended September 30, 2022.

Credit Quality Indicators

The Company presents loan and lease portfolio segments and classes by credit quality indicator and vintage year. Citizens defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. 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.

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 September 30, 2023, and gross charge-offs by vintage date for the nine months ended September 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	$2,539	$6,979	$5,557	$1,459	$1,244	$2,217	$22,929	$52	$42,976
Special Mention	6	172	448	81	72	214	552	—	1,545
Substandard	—	285	320	207	112	314	742	10	1,990
Doubtful	—	26	41	9	4	102	56	4	242
Total commercial and industrial	2,545	7,462	6,366	1,756	1,432	2,847	24,279	66	46,753
Gross charge-offs	—	1	32	4	1	24	35	—	97
Commercial real estate
Pass	1,366	5,516	6,193	2,823	2,300	4,334	1,833	9	24,374
Special Mention	—	640	528	158	500	235	84	—	2,145
Substandard	—	244	157	540	468	947	141	—	2,497
Doubtful	—	92	2	9	147	217	3	—	470
Total commercial real estate	1,366	6,492	6,880	3,530	3,415	5,733	2,061	9	29,486
Gross charge-offs	—	—	—	51	11	53	—	—	115
Leases
Pass	67	182	295	202	69	323	—	—	1,138
Special Mention	—	28	1	1	2	—	—	—	32
Substandard	3	15	13	6	5	3	—	—	45
Doubtful	—	—	3	—	—	—	—	—	3
Total leases	70	225	312	209	76	326	—	—	1,218
Gross charge-offs	—	—	—	—	—	—	—	—	—
Total commercial
Pass	3,972	12,677	12,045	4,484	3,613	6,874	24,762	61	68,488
Special Mention	6	840	977	240	574	449	636	—	3,722
Substandard	3	544	490	753	585	1,264	883	10	4,532
Doubtful	—	118	46	18	151	319	59	4	715
Total commercial	$3,981	$14,179	$13,558	$5,495	$4,923	$8,906	$26,340	$75	$77,457
Gross charge-offs	$—	$1	$32	$55	$12	$77	$35	$—	$212

Citizens Financial Group, Inc. | 56

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. | 57

The following table presents the amortized cost basis of retail loans by vintage date and current FICO score as of September 30, 2023, and gross charge-offs by vintage date for the nine months ended September 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+	$620	$2,988	$5,167	$3,115	$1,141	$3,233	$—	$—	$16,264
740-799	987	1,990	2,645	1,487	618	1,699	—	—	9,426
680-739	272	652	771	458	277	855	—	—	3,285
620-679	44	133	164	96	108	459	—	—	1,004
<620	4	38	103	94	166	578	—	—	983
No FICO available(1)	—	—	2	1	3	15	—	—	21
Total residential mortgages	1,927	5,801	8,852	5,251	2,313	6,839	—	—	30,983
Gross charge-offs	—	—	—	—	1	2	—	—	3
Home equity
800+	—	4	4	2	5	95	5,084	236	5,430
740-799	—	2	2	1	4	89	4,539	249	4,886
680-739	—	—	1	2	4	98	2,569	207	2,881
620-679	—	1	1	2	9	83	688	134	918
<620	—	1	1	2	10	85	303	212	614

Total home equity	—	8	9	9	32	450	13,183	1,038	14,729
Gross charge-offs	—	—	—	—	—	2	6	—	8
Automobile
800+	85	573	1,165	421	198	68	—	—	2,510
740-799	146	740	1,164	433	203	74	—	—	2,760
680-739	163	647	808	295	145	57	—	—	2,115
620-679	107	362	389	130	78	37	—	—	1,103
<620	40	232	302	110	76	42	—	—	802

Total automobile	541	2,554	3,828	1,389	700	278	—	—	9,290
Gross charge-offs	—	24	31	11	9	7	—	—	82
Education
800+	254	674	1,670	1,460	625	1,247	—	—	5,930
740-799	304	717	1,108	908	389	717	—	—	4,143
680-739	123	308	350	282	137	314	—	—	1,514
620-679	21	64	68	57	34	111	—	—	355
<620	3	16	24	24	15	55	—	—	137
No FICO available(1)	18	—	—	—	—	37	—	—	55
Total education	723	1,779	3,220	2,731	1,200	2,481	—	—	12,134
Gross charge-offs	—	3	12	16	10	35	—	—	76
Other retail
800+	125	116	49	45	22	24	500	—	881
740-799	169	131	59	60	29	25	998	1	1,472
680-739	146	101	50	50	25	15	1,020	2	1,409
620-679	82	61	29	25	8	5	441	2	653
<620	15	38	20	16	5	3	246	3	346
No FICO available(1)	20	3	—	2	—	—	367	—	392
Total other retail	557	450	207	198	89	72	3,572	8	5,153
Gross charge-offs	36	22	7	6	8	7	84	—	170
Total retail
800+	1,084	4,355	8,055	5,043	1,991	4,667	5,584	236	31,015
740-799	1,606	3,580	4,978	2,889	1,243	2,604	5,537	250	22,687
680-739	704	1,708	1,980	1,087	588	1,339	3,589	209	11,204
620-679	254	621	651	310	237	695	1,129	136	4,033
<620	62	325	450	246	272	763	549	215	2,882
No FICO available(1)	38	3	2	3	3	52	367	—	468
Total retail	$3,748	$10,592	$16,116	$9,578	$4,334	$10,120	$16,755	$1,046	$72,289
Gross charge-offs	$36	$49	$50	$33	$28	$53	$90	$—	$339

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

Citizens Financial Group, Inc. | 58

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. | 59

Nonaccrual and Past Due Assets

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


	September 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	$46,475	$23	$9	$4	$242	$46,753	$43
Commercial real estate	28,896	75	42	3	470	29,486	48
Leases	1,215	—	—	—	3	1,218	—
Total commercial	76,586	98	51	7	715	77,457	91
Residential mortgages(1)	30,416	110	50	217	190	30,983	149
Home equity	14,351	82	28	—	268	14,729	179
Automobile	9,031	147	50	—	62	9,290	7
Education	12,035	47	26	3	23	12,134	2
Other retail	5,014	49	31	21	38	5,153	—
Total retail	70,847	435	185	241	581	72,289	337
Total	$147,433	$533	$236	$248	$1,296	$149,746	$428


	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 $216 million and $316 million of loans fully or partially guaranteed by the FHA, VA, and USDA at September 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 September 30, 2023 and December 31, 2022, the Company had collateral-dependent residential mortgage and home equity loans totaling $542 million and $561 million, respectively. At September 30, 2023 and December 31, 2022, the Company had collateral-dependent commercial loans totaling $293 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 $321 million and $250 million as of September 30, 2023 and December 31, 2022, respectively.

Citizens Financial Group, Inc. | 60

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 nine months ended September 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 September 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	$—	$148	$47	$—	$—	$1	$196	0.42	%
Commercial real estate	—	131	—	—	37	1	169	0.57
Total commercial	—	279	47	—	37	2	365	0.47
Residential mortgages	2	25	—	—	6	—	33	0.11
Home equity	1	1	—	—	1	—	3	0.02
Automobile	—	—	—	—	—	—	—	—
Education	3	—	1	—	—	—	4	0.03
Other retail	3	—	—	—	—	—	3	0.06
Total retail	9	26	1	—	7	—	43	0.06
Total(2)	$9	$305	$48	$—	$44	$2	$408	0.27	%

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	Nine Months Ended September 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	$—	$263	$78	$—	$1	$2	$344	0.74	%
Commercial real estate	—	454	—	—	37	1	492	1.67
Total commercial	—	717	78	—	38	3	836	1.08
Residential mortgages	6	59	—	—	16	—	81	0.26
Home equity	1	4	—	—	5	—	10	0.07
Automobile	—	—	—	—	—	—	—	—
Education	7	—	2	—	—	—	9	0.07
Other retail	8	—	—	—	—	—	8	0.16
Total retail	22	63	2	—	21	—	108	0.15
Total(2)	$22	$780	$80	$—	$59	$3	$944	0.63	%

(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 nine months ended September 30, 2023, disaggregated by class of financing receivable.


	Three Months Ended September 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	2.32	%	17	$427,833	$—
Commercial real estate	1.25		7	77,482	—
Residential mortgages	0.98		47	—	—
Home equity	2.51		133	—	—
Automobile	—		—	—	—
Education	4.95		—	4,972	—
Other retail	18.86		—	—	1


	Nine Months Ended September 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	2.95	%	14	$562,909	$—
Commercial real estate	1.25		8	47,172	—
Residential mortgages	1.55		48	—	—
Home equity	2.24		127	2,343	—
Automobile	3.47		20	1,253	—
Education	4.97		—	4,171	—
Other retail	18.45		—	—	4

(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. | 62

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 nine months ended September 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.


	September 30, 2023
		Days Past Due and Accruing
(dollars in millions)	Current	30-59	60-89	90+	Nonaccrual	Total
Commercial and industrial	$262	$—	$—	$—	$82	$344
Commercial real estate	262	55	—	—	175	492
Total commercial	524	55	—	—	257	836
Residential mortgages	52	—	5	13	11	81
Home equity	3	—	—	—	7	10
Automobile	—	—	—	—	—	—
Education	8	—	—	—	1	9
Other retail	6	1	—	—	1	8
Total retail	69	1	5	13	20	108
Total	$593	$56	$5	$13	$277	$944

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 nine months ended September 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 September 30, 2023
(dollars in millions)	Interest Rate Reduction	Term Extension	Payment Delay	Interest Rate Reduction and Term Extension	Total
Commercial and industrial	$—	$—	$—	$—	$—
Commercial real estate	—	41	—	—	41
Total commercial	—	41	—	—	41
Residential mortgages	1	6	—	5	12
Home equity	—	1	—	2	3
Automobile	—	—	—	—	—
Education	—	—	1	—	1
Other retail	—	—	—	—	—
Total retail	1	7	1	7	16
Total	$1	$48	$1	$7	$57


	Nine Months Ended September 30, 2023
(dollars in millions)	Interest Rate Reduction	Term Extension	Payment Delay	Interest Rate Reduction and Term Extension	Total
Commercial and industrial	$—	$3	$—	$—	$3
Commercial real estate	—	67	—	—	67
Total commercial	—	70	—	—	70
Residential mortgages	1	6	—	5	12
Home equity	—	1	—	2	3
Automobile	—	—	—	—	—
Education	—	—	1	—	1
Other retail	—	—	—	—	—
Total retail	1	7	1	7	16
Total	$1	$77	$1	$7	$86

Unfunded commitments related to loans modified during the nine months ended September 30, 2023 were $146 million at September 30, 2023.

Citizens Financial Group, Inc. | 63

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

The following tables summarize loans modified during the three and nine months ended September 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 September 30, 2022
		Amortized Cost Basis
(dollars in millions)	Number of Contracts	Interest Rate Reduction(1)	Maturity Extension(2)	Other(3)	Total
Commercial and industrial	6	$—	$2	$46	$48

Total commercial	6	—	2	46	48
Residential mortgages	185	6	21	13	40
Home equity	68	2	—	2	4
Automobile	135	—	—	1	1
Education	245	—	—	8	8
Other retail	590	2	—	—	2
Total retail	1,223	10	21	24	55
Total	1,229	$10	$23	$70	$103


		Nine Months Ended September 30, 2022
		Amortized Cost Basis
(dollars in millions)	Number of Contracts	Interest Rate Reduction(1)	Maturity Extension(2)	Other(3)	Total
Commercial and industrial	25	$—	$26	$80	$106

Total commercial	25	—	26	80	106
Residential mortgages	1,656	44	74	248	366
Home equity	318	4	1	16	21
Automobile	447	1	—	3	4
Education	481	—	—	19	19
Other retail	1,678	7	—	1	8
Total retail	4,580	56	75	287	418
Total	4,605	$56	$101	$367	$524

(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 $2 million for the nine months ended September 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	Nine Months Ended
(dollars in millions)	September 30, 2022
Commercial TDRs	$—	$—
Retail TDRs(1)	28	224
Total	$28	$224

(1) Includes $18 million and $174 million of loans fully or partially government guaranteed by the FHA, VA, and USDA for the three and nine months ended September 30, 2022, respectively.

Citizens Financial Group, Inc. | 64

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 September 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 September 30,		Nine Months Ended September 30,
(dollars in millions)	2023	2022	2023	2022
Cash proceeds from residential mortgage loans sold with servicing retained	$3,270	$3,518	$7,358	$14,676
Repurchased residential mortgages(1)	—	—	—	87
Gain on sales(2)	19	21	60	74
Contractually specified servicing, late and other ancillary fees(2)	76	75	230	213

(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 $97.6 billion and $96.7 billion at September 30, 2023 and December 31, 2022, respectively. The Company manages the risk associated with changes in the value of the MSRs with an active economic 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 September 30,		As of and for the Nine Months Ended September 30,
(dollars in millions)	2023	2022	2023	2022
Fair value as of beginning of the period	$1,524	$1,411	$1,530	$1,029


Amounts capitalized	47	70	104	244
Servicing rights acquired	—	—	—	16
Changes in unpaid principal balance during the period(1)	(42)	(31)	(124)	(102)
Changes in fair value during the period(2)	91	74	110	337
Fair value at end of the period	$1,620	$1,524	$1,620	$1,524

(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. | 65

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)	September 30, 2023	December 31, 2022
Fair value	$1,620	$1,530
Weighted average life (years)	9.1	9.1
Weighted average constant prepayment rate	6.4%	6.8%
Decline in fair value from 10% adverse change	$35	$34
Decline in fair value from 20% adverse change	$67	$66
Weighted average option adjusted spread	630 bps	629 bps
Decline in fair value from 10% adverse change	$44	$43
Decline in fair value from 20% adverse change	$89	$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 9 for additional information.

Other Serviced Loans

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


(dollars in millions)	September 30, 2023	December 31, 2022
Education	$517	$602
Commercial and industrial(1)	94	91

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

NOTE 6 - GOODWILL

Goodwill is the purchase premium associated with the acquisition of a business and is assigned to the Company’s reporting units at the acquisition date. A reporting unit is a business operating segment or a component of a business operating segment. The Company has identified and assigned goodwill to two reporting units, Consumer Banking and Commercial Banking, based upon reviews of the structure of the Company’s executive team and supporting functions, resource allocations and financial reporting processes. Goodwill no longer retains its association with a particular acquisition once assigned to a reporting unit, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill.

Goodwill is subject to an annual impairment test and not amortized. Goodwill is reviewed for impairment annually as of October 31st and in interim periods when events or changes indicate the carrying value of one or more reporting units may not be recoverable. The Company has the option of performing a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of each reporting unit is less than the carrying value. If it is more likely than not that the fair value exceeds the carrying value, then no further testing is necessary; otherwise, a quantitative assessment of goodwill must be performed.

The Company may elect to bypass the qualitative assessment and perform a quantitative assessment, which is used to identify potential impairment and involves comparing each reporting unit’s fair value to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value inclusive of goodwill, applicable goodwill is deemed not to be impaired. If the carrying value of the reporting unit inclusive of goodwill exceeds fair value, an impairment loss is recognized for the excess, establishing a new basis in the goodwill, and cannot exceed the amount of goodwill assigned to the reporting unit. Subsequent reversal of goodwill impairment losses is not permitted.

Citizens Financial Group, Inc. | 66

The fair value of the Company’s reporting units is determined using a combination of income and market-based approaches. The Company relies on several assumptions to estimate the fair value of its reporting units under the income-based approach including discount rate, projected loan losses, income tax and capital retention rates.

In response to stress in the banking sector and associated market conditions, the Company performed a quantitative goodwill impairment assessment in the third quarter of 2023. Based on this quantitative assessment, the Company concluded that the estimated fair value of the Consumer Banking and Commercial Banking reporting units exceeded their carrying value. Therefore, the Company determined that there was no impairment to the carrying value of its goodwill as of September 30, 2023.

Changes in the carrying value of goodwill for the nine months ended September 30, 2023 are presented below.


(dollars in millions)	Consumer Banking	Commercial Banking	Total
Balance at December 31, 2022	$2,673	$5,500	$8,173
Business acquisitions	5	10	15

Balance at September 30, 2023	$2,678	$5,510	$8,188

Accumulated impairment losses related to the Consumer Banking and Commercial Banking reporting units totaled $5.9 billion and $50 million, respectively, at September 30, 2023 and December 31, 2022. No impairment was recorded for the three and nine months ended September 30, 2023 and 2022.

For additional information on goodwill see Note 10 and Note 26 in the Company’s 2022 Form 10-K.

NOTE 7 - 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. | 67

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)			September 30, 2023
Assets:
Cash and due from banks			$196
Net loans and leases			3,647

Other assets			15
Total assets			$3,858
Liabilities:
Long-term borrowed funds			$3,245
Other liabilities			10
Total liabilities			$3,255

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)	September 30, 2023	December 31, 2022
Lending to special purpose entities included in loans and leases	$4,860	$4,578
LIHTC investments included in other assets	2,395	2,230
LIHTC unfunded commitments included in other liabilities	1,045	1,046
Asset-backed investments included in HTM securities	510	581
Renewable energy investments included in other assets	243	374
NMTC investments included in other assets	3	4

Lending to Special Purpose Entities

Citizens provides lending facilities to third-party sponsored special purpose entities. As of September 30, 2023 and December 31, 2022, the lending facilities had undrawn commitments to extend credit of $2.8 billion and $2.4 billion, respectively. For more information on commitments to extend credit see Note 12.

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. | 68

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 September 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 September 30,		Nine Months Ended September 30,
(dollars in millions)	2023	2022	2023	2022
Tax credits recognized	$76	$59	$250	$180
Other tax benefits recognized	17	15	55	46
Amortization	(71)	(61)	(237)	(190)
Net benefit (expense) included in income tax expense	22	13	68	36
Other income	1	—	4	—
Allocated income (loss) on investments	(1)	—	(7)	—
Net benefit (expense) included in noninterest income	—	—	(3)	—
Net benefit (expense) included in the Consolidated Statements of Operations(1)	$22	$13	$65	$36

(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 nine months ended September 30, 2023 and 2022.

NOTE 8 - BORROWED FUNDS

Short-term borrowed funds

Short-term borrowed funds were $232 million and $3 million as of September 30, 2023 and December 31, 2022, respectively.

Citizens Financial Group, Inc. | 69

Long-term borrowed funds

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


(dollars in millions)	September 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	561	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	798	797
Additional Borrowings by CBNA and Other Subsidiaries:
Federal Home Loan Bank advances, 5.594% weighted average rate, due through 2041(3)	7,036	8,519
Secured borrowings, 5.955% weighted average rate, due through 2030(3)(4)	3,245	—
Other	16	19
Total long-term borrowed funds	$17,354	$15,887

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

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

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

(4) Collateralized by auto loans. See Note 7 for additional information.

At September 30, 2023, the Company’s long-term borrowed funds includes principal balances of $17.5 billion, unamortized debt issuance costs and discounts of $77 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 9 for further information about the Company’s hedging of certain long-term borrowed funds.

Advances, lines of credit and letters of credit from the FHLB are collateralized primarily by residential mortgages and home equity products sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized FHLB borrowing capacity, primarily for advances and letters of credit, was $13.0 billion and $15.7 billion at September 30, 2023 and December 31, 2022, respectively. The Company’s available FHLB borrowing capacity was $12.7 billion and $11.5 billion at September 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 September 30, 2023, the Company’s unused secured borrowing capacity was approximately $61.3 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.

Citizens Financial Group, Inc. | 70

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


(dollars in millions)	Parent Company	CBNA and Other Subsidiaries	Consolidated
Year
2023	$—	$1	$1
2024	107	892	999
2025	469	9,020	9,489
2026	498	2,133	2,631
2027	—	2	2
2028 and thereafter	2,267	1,965	4,232
Total	$3,341	$14,013	$17,354

NOTE 9 - 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:


	September 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	$89,502	$179	$57	$42,250	$16	$53
Derivatives not designated as hedging instruments:
Interest rate contracts	200,389	260	1,785	174,384	331	1,579
Foreign exchange contracts	30,168	530	432	29,475	527	519
Commodities contracts	1,273	707	666	1,103	953	942
TBA contracts	3,561	17	5	2,370	7	14
Other contracts	887	5	3	913	5	4
Total derivatives not designated as hedging instruments	236,278	1,519	2,891	208,245	1,823	3,058
Total gross derivatives	325,780	1,698	2,948	250,495	1,839	3,111
Less: Gross amounts offset in the Consolidated Balance Sheets(1)		(609)	(609)		(623)	(623)
Less: Cash collateral applied(1)		(567)	(230)		(374)	(579)
Total net derivatives presented in the Consolidated Balance Sheets		$522	$2,109		$842	$1,909

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

Citizens Financial Group, Inc. | 71

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 2023, the Company entered into fair value hedges to manage interest rate risk within 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 September 30,		Nine Months Ended September 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	($1)	($19)	$—	($71)	Interest expense - long-term borrowed funds
Hedged long-term borrowed funds attributable to the risk being hedged	1	19	—	70	Interest expense - long-term borrowed funds
Interest rate swaps hedging LHFS	—	18	—	15	Interest and fees on other loans held for sale
Hedged loans held for sale attributable to the risk being hedged	—	(19)	—	(15)	Interest and fees on other loans held for sale
Interest rate swaps hedging debt securities available for sale	16	—	28	29	Interest income - investment securities
Hedged debt securities available for sale attributable to the risk being hedged	(16)	—	(28)	(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)	September 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	$445	$—		$—	$—
Carrying amount of hedged liabilities	—	473		—	972
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	(17)	(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. | 72

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 September 30,		Nine Months Ended September 30,
(dollars in millions)	2023	2022	2023	2022
Amount of pre-tax net gains (losses) recognized in OCI	($326)	($996)	($773)	($1,901)
Amount of pre-tax net gains (losses) reclassified from AOCI into interest income	(156)	(48)	(420)	1
Amount of pre-tax net gains (losses) reclassified from AOCI into interest expense	(1)	2	—	(4)

Using the interest rate curve at September 30, 2023 with respect to cash flow hedge strategies, the Company estimates that approximately $904 million in pre-tax net losses will be reclassified from AOCI to net interest income over the next 12 months, including $462 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 September 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 September 30,		Nine Months Ended September 30,		Affected Line Item in the Consolidated Statements of Operations
(dollars in millions)	2023	2022	2023	2022
Economic hedge type:
Customer interest rate contracts	($448)	($840)	($1,028)	($2,015)	Foreign exchange and derivative products
Derivatives hedging interest rate risk	460	852	1,068	2,073	Foreign exchange and derivative products
Customer foreign exchange contracts	(77)	(174)	(72)	(297)	Foreign exchange and derivative products
Derivatives hedging foreign exchange risk	141	271	121	520	Foreign exchange and derivative products
Customer commodity contracts	168	(71)	(401)	1,453	Foreign exchange and derivative products
Derivatives hedging commodity price risk	(158)	77	430	(1,436)	Foreign exchange and derivative products
Residential loan commitments	(21)	(66)	(39)	(289)	Mortgage banking fees
Derivatives hedging residential loan commitments and mortgage LHFS, at fair value	30	105	45	502	Mortgage banking fees
Derivative contracts used to hedge residential MSRs	(76)	(68)	(91)	(310)	Mortgage banking fees
Total	$19	$86	$33	$201

Citizens Financial Group, Inc. | 73

NOTE 10 - 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 September 30,
(dollars in millions)	Net Unrealized Gains (Losses) on Derivatives	Net Unrealized Gains (Losses) on Debt Securities	Employee Benefit Plans	Total AOCI
Balance at July 1, 2022	($862)	($2,016)	($340)	($3,218)
Other comprehensive income (loss) before reclassifications	(738)	(903)	—	(1,641)
Amounts reclassified to the Consolidated Statements of Operations	34	—	2	36
Net other comprehensive income (loss)	(704)	(903)	2	(1,605)
Balance at September 30, 2022	($1,566)	($2,919)	($338)	($4,823)
Balance at July 1, 2023	($1,553)	($2,643)	($367)	($4,563)
Other comprehensive income (loss) before reclassifications	(248)	(578)	—	(826)
Amounts reclassified to the Consolidated Statements of Operations	120	23	3	146
Net other comprehensive income (loss)	(128)	(555)	3	(680)
Balance at September 30, 2023	($1,681)	($3,198)	($364)	($5,243)
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 Nine Months Ended September 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	(1,407)	(2,759)	—	(4,166)

Amounts reclassified to the Consolidated Statements of Operations	2	(4)	10	8
Net other comprehensive income (loss)	(1,405)	(2,763)	10	(4,158)

Balance at September 30, 2022	($1,566)	($2,919)	($338)	($4,823)
Balance at January 1, 2023	($1,416)	($2,771)	($373)	($4,560)
Other comprehensive income (loss) before reclassifications	(580)	(490)	—	(1,070)
Amounts reclassified to the Consolidated Statements of Operations	315	63	9	387
Net other comprehensive income (loss)	(265)	(427)	9	(683)

Balance at September 30, 2023	($1,681)	($3,198)	($364)	($5,243)
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. | 74

NOTE 11 - STOCKHOLDERS’ EQUITY

Preferred Stock

The following table summarizes the Company’s preferred stock:


			September 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 nine months ended September 30, 2023 and 2022.


	Three Months Ended September 30, 2023			Three Months Ended September 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	$199	$199	$0.42	$209	$209
Preferred stock
Series B	$21.81	$7	$9	$—	$—	$9
Series C	15.93	4	4	15.93	5	5
Series D	15.88	4	4	15.88	5	5
Series E	12.50	6	6	12.50	6	6
Series F	14.13	6	6	14.13	6	6
Series G	10.00	3	3	10.00	3	3
Total preferred stock		$30	$32		$25	$34


	Nine Months Ended September 30, 2023			Nine Months Ended September 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	$1.26	$609	$609	$1.20	$569	$569
Preferred stock
Series B	$51.81	$16	$18	$30.00	$9	$18
Series C	47.81	14	14	47.81	15	15
Series D	47.63	14	14	47.63	14	14
Series E	37.50	17	17	37.50	17	17
Series F	42.38	17	17	42.38	17	17
Series G	30.00	9	9	30.00	9	9
Total preferred stock		$87	$89		$81	$90

Treasury Stock

During the nine months ended September 30, 2023, the Company repurchased $906 million, or 28,472,450 shares, of its outstanding common stock, which are held in treasury stock.

Citizens Financial Group, Inc. | 75

NOTE 12 - COMMITMENTS AND CONTINGENCIES

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


(dollars in millions)	September 30, 2023	December 31, 2022
Commitments to extend credit	$94,432	$96,076
Letters of credit	2,036	2,119
Loans sold with recourse	95	92
Marketing rights	18	23
Risk participation agreements	1	4
Total	$96,582	$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 September 30, 2023, the remaining terms on these RPAs ranged from less than one year to seven years.

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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 13 - FAIR VALUE MEASUREMENTS

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

Fair Value Option

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


	September 30, 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	$739	$734	$5	$666	$656	$10
Commercial and industrial, and commercial real estate loans held for sale, at fair value	10	12	(2)	108	127	(19)

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

Citizens Financial Group, Inc. | 77

Recurring Fair Value Measurements

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

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


(dollars in millions)	Total	Level 1	Level 2	Level 3
Debt securities available for sale:
Mortgage-backed securities	$20,504	$—	$20,504	$—

Collateralized loan obligations	789	—	789	—
State and political subdivisions	2	—	2	—
U.S. Treasury and other	3,774	3,774	—	—
Total debt securities available for sale	25,069	3,774	21,295	—
Loans held for sale, at fair value:
Residential loans held for sale	739	—	739	—
Commercial loans held for sale	10	—	10	—
Total loans held for sale, at fair value	749	—	749	—
Mortgage servicing rights	1,620	—	—	1,620
Derivative assets:
Interest rate contracts	439	—	439	—
Foreign exchange contracts	530	—	530	—
Commodities contracts	707	—	707	—
TBA contracts	17	—	17	—
Other contracts	5	—	—	5
Total derivative assets	1,698	—	1,693	5
Equity securities, at fair value(1)	106	106	—	—
Total assets	$29,242	$3,880	$23,737	$1,625
Derivative liabilities:
Interest rate contracts	$1,842	$—	$1,842	$—
Foreign exchange contracts	432	—	432	—
Commodities contracts	666	—	666	—
TBA contracts	5	—	5	—
Other contracts	3	—	1	2
Total derivative liabilities	2,948	—	2,946	2
Total liabilities	$2,948	$—	$2,946	$2

(1) Excludes investments of $57 million included in other assets in the Consolidated Balance Sheets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient. These investments include capital contributions to private investment funds and have unfunded capital commitments of $24 million at September 30, 2023, which may be called at any time during prescribed time periods. The credit exposure is generally limited to the carrying amount of investments made and unfunded capital commitments.

Citizens Financial Group, Inc. | 78

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. | 79

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


	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
(dollars in millions)	Mortgage Servicing Rights	Other Derivative Contracts	Mortgage Servicing Rights	Other Derivative Contracts
Beginning balance	$1,524	$6	$1,530	$1
Issuances	47	17	104	52

Settlements(2)	(42)	1	(124)	(11)
Changes in fair value during the period recognized in earnings(3)	91	(21)	110	(39)
Ending balance	$1,620	$3	$1,620	$3


	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
(dollars in millions)	Mortgage Servicing Rights	Other Derivative Contracts	Mortgage Servicing Rights	Other Derivative Contracts
Beginning balance	$1,411	$11	$1,029	$38



Issuances	70	20	244	84
Acquisitions(1)	—	—	16	—
Settlements(2)	(31)	2	(102)	134
Changes in fair value during the period recognized in earnings(3)	74	(66)	337	(289)
Ending balance	$1,524	($33)	$1,524	($33)

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

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

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

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


	As of September 30, 2023
	Valuation Technique	Unobservable Input	Range (Weighted Average)
Mortgage servicing rights	Discounted Cash Flow	Constant prepayment rate	5.81-14.26% CPR (6.40% CPR)
Option adjusted spread	398-1,058 bps (630 bps)
Other derivative contracts	Internal Model	Pull through rate	17.14-99.70% (82.27%)
MSR value	4.25-153.04 bps (96.79 bps)

Nonrecurring Fair Value Measurements

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

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


	Three Months Ended September 30,		Nine Months Ended September 30,
(dollars in millions)	2023	2022	2023	2022
Collateral-dependent loans	($40)	$—	($108)	($3)

Citizens Financial Group, Inc. | 80

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


	September 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:


	September 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	$9,320	$8,054	$—	$—	$8,810	$7,569	$510	$485
Other loans held for sale	99	99	—	—	—	—	99	99
Net loans and leases	147,666	141,041	—	—	835	835	146,831	140,206
Other assets	995	995	—	—	977	977	18	18
Financial liabilities:
Deposits	178,197	178,077	—	—	178,197	178,077	—	—
Short-term borrowed funds	232	232	—	—	232	232	—	—
Long-term borrowed funds	17,354	16,656	—	—	17,354	16,656	—	—


	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	—	—

NOTE 14 - 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 September 30, 2023
(dollars in millions)	Consumer Banking	Commercial Banking	Non-Core	Other	Consolidated
Service charges and fees	$73	$31	$—	$1	$105
Card fees	62	12	—	—	74
Capital markets fees	—	64	—	—	64
Trust and investment services fees	62	1	—	—	63
Other banking fees	1	3	—	—	4
Total revenue from contracts with customers	$198	$111	$—	$1	$310
Total revenue from other sources(1)	80	69	—	33	182
Total noninterest income	$278	$180	$—	$34	$492

Citizens Financial Group, Inc. | 81


	Three Months Ended September 30, 2022
(dollars in millions)	Consumer Banking	Commercial Banking	Non-Core	Other	Consolidated
Service charges and fees	$74	$33	$—	$1	$108
Card fees	59	11	—	—	70
Capital markets fees	—	76	—	—	76
Trust and investment services fees	61	—	—	—	61
Other banking fees	—	7	—	—	7
Total revenue from contracts with customers	$194	$127	$—	$1	$322
Total revenue from other sources(1)	76	86	—	28	190
Total noninterest income	$270	$213	$—	$29	$512


	Nine Months Ended September 30, 2023
(dollars in millions)	Consumer Banking	Commercial Banking	Non-Core	Other	Consolidated
Service charges and fees	$206	$98	$—	$1	$305
Card fees	188	35	—	—	223
Capital markets fees	—	211	—	—	211
Trust and investment services fees	190	1	—	—	191
Other banking fees	2	10	—	—	12
Total revenue from contracts with customers	$586	$355	$—	$1	$942
Total revenue from other sources(1)	216	233	—	92	541
Total noninterest income	$802	$588	$—	$93	$1,483


	Nine Months Ended September 30, 2022
(dollars in millions)	Consumer Banking	Commercial Banking	Non-Core	Other	Consolidated
Service charges and fees	$217	$94	$—	$3	$314
Card fees	169	31	—	—	200
Capital markets fees	—	244	—	—	244
Trust and investment services fees	188	—	—	—	188
Other banking fees	—	14	—	1	15
Total revenue from contracts with customers	$574	$383	$—	$4	$961
Total revenue from other sources(1)	233	264	—	46	543
Total noninterest income	$807	$647	$—	$50	$1,504

(1) Includes bank-owned life insurance income of $24 million and $22 million for the three months ended September 30, 2023 and 2022, respectively, and $70 million and $64 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company recognized trailing commissions of $4 million for the three months ended September 30, 2023 and 2022, and $11 million and $12 million, respectively, for the nine months ended September 30, 2023 and 2022 related to ongoing commissions from previous investment sales.

NOTE 15 - OTHER OPERATING EXPENSE

The following table presents the details of other operating expense:


	Three Months Ended September 30,		Nine Months Ended September 30,
(dollars in millions)	2023	2022	2023	2022
Marketing	$48	$54	$142	$119
Deposit insurance	42	28	121	74
Other	86	83	279	235
Other operating expense	$176	$165	$542	$428

Citizens Financial Group, Inc. | 82

NOTE 16 - EARNINGS PER SHARE


	Three Months Ended September 30,		Nine Months Ended September 30,
(dollars in millions, except per share data)	2023	2022	2023	2022
Numerator (basic and diluted):
Net income	$430	$636	$1,419	$1,420
Less: Preferred stock dividends	30	25	87	81
Net income available to common stockholders	$400	$611	$1,332	$1,339
Denominator:
Weighted-average common shares outstanding - basic	469,481,085	495,651,083	478,073,507	470,118,265
Dilutive common shares: share-based awards	1,702,634	1,826,418	1,659,501	1,840,045
Weighted-average common shares outstanding - diluted	471,183,719	497,477,501	479,733,008	471,958,310
Earnings per common share:
Basic	$0.85	$1.23	$2.79	$2.85
Diluted(1)	0.85	1.23	2.78	2.84

(1) Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. Excluded from the computation of diluted EPS were weighted average antidilutive shares totaling 2,566,762 and 2,310,242 for the three months ended September 30, 2023 and 2022, respectively, and 2,391,244 and 903,782 for the nine months ended September 30, 2023 and 2022, respectively.

NOTE 17 - BUSINESS OPERATING SEGMENTS

Citizens is managed by its Chief Executive Officer on a segment basis. The Company’s three business operating segments are Consumer Banking, Commercial Banking, and Non-Core. 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, who 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.

Developing and applying methodologies used to allocate items among the business operating segments is a dynamic process. Accordingly, financial results may be revised periodically as management systems are enhanced, methods of evaluating performance or product lines are updated, or our organizational structure changes.

See Note 1 for a description of segment changes made during the third quarter of 2023. Prior period results have been revised to conform to the new segment presentation. 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.


	Three Months Ended September 30, 2023
(dollars in millions)	Consumer Banking	Commercial Banking	Non-Core	Other	Consolidated
Net interest income	$1,067	$560	($41)	($64)	$1,522
Noninterest income	278	180	—	34	492
Total revenue	1,345	740	(41)	(30)	2,014
Noninterest expense	905	325	30	33	1,293
Profit (loss) before provision (benefit) for credit losses	440	415	(71)	(63)	721
Provision (benefit) for credit losses	67	67	20	18	172
Income (loss) before income tax expense (benefit)	373	348	(91)	(81)	549
Income tax expense (benefit)	97	88	(24)	(42)	119
Net income (loss)	$276	$260	($67)	($39)	$430
Total average assets	$72,964	$74,997	$13,113	$59,088	$220,162

Citizens Financial Group, Inc. | 83


	Three Months Ended September 30, 2022
(dollars in millions)	Consumer Banking	Commercial Banking	Non-Core	Other	Consolidated
Net interest income	$989	$558	$70	$48	$1,665
Noninterest income	270	213	—	29	512
Total revenue	1,259	771	70	77	2,177
Noninterest expense	828	325	36	52	1,241
Profit (loss) before provision (benefit) for credit losses	431	446	34	25	936
Provision (benefit) for credit losses	47	12	14	50	123
Income (loss) before income tax expense (benefit)	384	434	20	(25)	813
Income tax expense (benefit)	98	100	4	(25)	177
Net income (loss)	$286	$334	$16	$—	$636
Total average assets	$71,631	$80,067	$17,929	$55,846	$225,473


	Nine Months Ended September 30, 2023
(dollars in millions)	Consumer Banking	Commercial Banking	Non-Core	Other	Consolidated
Net interest income	$3,101	$1,741	($84)	($5)	$4,753
Noninterest income	802	588	—	93	1,483
Total revenue	3,903	2,329	(84)	88	6,236
Noninterest expense	2,637	971	95	192	3,895
Profit (loss) before provision (benefit) for credit losses	1,266	1,358	(179)	(104)	2,341
Provision (benefit) for credit losses	198	185	54	79	516
Income (loss) before income tax expense (benefit)	1,068	1,173	(233)	(183)	1,825
Income tax expense (benefit)	278	289	(61)	(100)	406
Net income (loss)	$790	$884	($172)	($83)	$1,419
Total average assets	$72,477	$77,130	$14,409	$57,723	$221,739


	Nine Months Ended September 30, 2022
(dollars in millions)	Consumer Banking	Commercial Banking	Non-Core	Other	Consolidated
Net interest income	$2,635	$1,508	$359	($185)	$4,317
Noninterest income	807	647	—	50	1,504
Total revenue	3,442	2,155	359	(135)	5,821
Noninterest expense	2,424	905	105	218	3,652
Profit (loss) before provision (benefit) for credit losses	1,018	1,250	254	(353)	2,169
Provision (benefit) for credit losses	117	34	33	158	342
Income (loss) before income tax expense (benefit)	901	1,216	221	(511)	1,827
Income tax expense (benefit)	230	270	56	(149)	407
Net income (loss)	$671	$946	$165	($362)	$1,420
Total average assets	$66,793	$73,344	$18,582	$53,003	$211,722

In connection with business segment changes made during the quarter the Company revised one of its management accounting practices utilized to measure the performance and compile the results of its segments as outlined below.

Funds Transfer Pricing

The Company’s FTP, a component of net interest income, ensures consistent business segment pricing behavior by removing interest rate risk from business performance. This risk is centrally managed within the Treasury function and reported in Other non-segment operations. Segments are provided an interest credit for funding it generates and an interest charge for assets it holds. The sum of interest income/expense and FTP charges/credits for each segment is its designated net interest income. The offset to FTP charges and credits is recorded in Other non-segment operations.

Citizens Financial Group, Inc. | 84

The Company continues to employ a matched maturity FTP methodology for the Consumer Banking and Commercial Banking business segments with rates based on a product’s repricing frequency and interest sensitivity, as well as other factors. The FTP charge for the Non-Core segment is based on an implied reference pool of high-cost funding sources. This method applies a waterfall marginal funding approach referencing the Company’s secured borrowings collateralized by auto loans, FHLB advances, and various other higher-cost deposit sources as are needed to fully debt-fund the assets.

There have been no other significant changes in the management accounting practices utilized by the Company to measure the performance and compile the results of its segments as discussed in Note 26 in the Company’s 2022 Form 10-K.

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