CITIZENS FINANCIAL GROUP INC/RICFG
CITIZENS FINANCIAL GROUP INC/RI Fair Value Disclosure
NOTE 18 - FAIR VALUE MEASUREMENTS
The Company 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. Fair value is also 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. Fair value measurement guidance is also applied to disclosures in this Note related to assets and liabilities that are not required to be reported at fair value in the financial statements.
Fair Value Option
The Company has elected to account for residential mortgage LHFS and certain commercial LHFS at fair value. The election of the fair value option for financial assets and liabilities is optional and irrevocable. Applying fair value accounting to residential mortgage LHFS better aligns the reported results of the economic changes in the value of these loans and their related economic hedge instruments. Certain commercial LHFS are managed by a commercial secondary loan desk that provides liquidity to banks, finance companies, and institutional investors. Fair value accounting is applied to these loans since the Company’s intent is to sell them in the near-term.
The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of LHFS measured at fair value:
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||
| (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 | $895 | $872 | $23 | $633 | $625 | $8 | |||||||||||||||||
Commercial loans held for sale | 170 | 185 | (15) | 192 | 199 | (7) | |||||||||||||||||
Residential Mortgage Loans Held for Sale
The fair value of residential mortgage LHFS is derived from observable mortgage security prices and includes adjustments for loan servicing value, agency guarantee fees, and other loan level attributes which are observable in the marketplace. Credit risk does not have a significant impact on the valuation of these loans as they are sold shortly after origination. Residential mortgage LHFS are classified as Level 2 in the fair value hierarchy given the observable market inputs utilized to value these loans.
Residential mortgage loans accounted for under the fair value option are initially measured at fair value when the financial asset is originated or purchased. Subsequent changes in fair value are recognized in Mortgage banking fees in the Consolidated Statements of Operations.
Interest income on residential mortgage LHFS is calculated based on the contractual interest rate of the loan and is recorded in Interest income in the Consolidated Statements of Operations.
Commercial Loans Held for Sale
The fair value of commercial LHFS is estimated using observable prices of similar loans that transact in the marketplace. External pricing services that provide fair value estimates based on quotes from various dealers transacting in the market, sector curves, or benchmarking techniques are also utilized. Commercial loans managed by the commercial secondary loan desk are classified as Level 2 in the fair value hierarchy given the observable market inputs utilized to value these loans.
These commercial loans accounted for under the fair value option are initially measured at fair value when the financial asset is recognized. Subsequent changes in fair value are recognized in Capital markets fees in the Consolidated Statements of Operations. Interest income on commercial LHFS is calculated based on the contractual interest rate of the loan and is recorded in Interest income in the Consolidated Statements of Operations.
Recurring Fair Value Measurements
Fair value is measured using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based upon quoted market prices in an active market, if available, otherwise observable market-based inputs or independently sourced parameters are utilized. Inputs may include prices for similar assets or liabilities, yield curves, interest rates, prepayment speeds, and foreign exchange rates.
The Company carries certain assets and liabilities at fair value and has elected to account for its residential mortgage LHFS and loans managed by the commercial secondary loan trading desk at fair value. Assets and liabilities carried at fair value are classified in accordance with the following three-level valuation hierarchy:
•Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities;
•Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by market data for substantially the full term of the asset or liability; and
•Level 3. Unobservable inputs that are supported by little or no market information and are significant to the fair value measurement.
Classification in the hierarchy is based upon the lowest level input that is significant to the fair value measurement of the asset or liability. There is less judgment applied in arriving at the fair value for instruments classified in Levels 1 and 2 since the inputs are primarily based upon observable market data, whereas management judgment is more significant for instruments classified in Level 3 due to the lack of observable market data.
Fair value hierarchy classifications are reviewed and updated on a quarterly basis. Changes related to the observability of inputs in fair value measurements may result in a reclassification between the fair value hierarchy levels and are recognized based on period-end balances.
The Company utilizes a variety of valuation techniques to measure its assets and liabilities at fair value on a recurring basis, with those utilized for significant assets and liabilities presented below:
Debt Securities Available for Sale
AFS debt securities are classified as Level 1 in the fair value hierarchy if quoted prices in active markets are available and include debt securities issued by the U.S. Treasury. The fair value of a security is estimated under the market or income approach using pricing models if quoted market prices are not available. These securities are classified as Level 2 since they trade in active markets and the inputs to their valuations are observable. The pricing models used to value securities generally commence with market prices, or rates, for similar instruments, with adjustments made based on the characteristics of the instrument being valued. These adjustments reflect assumptions made regarding the sensitivity of each security’s value to changes in interest rates and prepayment speeds. Security classes that are valued using this market approach include mortgage-backed securities, collateralized loan obligations, and other debt securities issued by U.S. GSEs and state and political subdivisions. The pricing models used to value securities under the income approach generally commence with the contractual cash flows of each security, with adjustments made based on forecasted prepayment speeds, default rates, and other market-observable information. The adjusted cash flows are then discounted at a rate derived from observed rates of return for comparable assets or liabilities that are traded in the market. Security classes that are valued using this income approach include residential and commercial collateralized mortgage obligations.
A majority of the Company’s Level 1 and 2 debt securities are priced using an external pricing service. The pricing accuracy of this service is verified on a quarterly basis and involves the use of a secondary external vendor to provide valuations for the Company’s securities portfolio for comparison purposes. Any valuation discrepancies exceeding a certain threshold are researched and, if necessary, corroborated by an independent outside broker.
In certain cases where there is limited activity or less transparency around inputs to the valuation model, securities are classified as Level 3.
Mortgage Servicing Rights
MSRs do not trade in an active market with readily observable prices and, therefore, are classified as Level 3 since their valuation utilizes significant unobservable inputs. The fair value is determined using a discounted cash flow model, which includes assumptions associated with weighted-average life, prepayment speed, and weighted-average option adjusted spread. The underlying assumptions and estimated values are corroborated by values received from independent third parties based on their review of the servicing portfolio and comparisons to market transactions. Refer to Note 6 for more information.
Derivatives
The Company’s interest rate derivatives are traded in OTC markets where quoted market prices are not readily available. Fair value is determined through models that primarily use market observable inputs, such as swap rates and yield curves. These pricing models determine the sum of each instrument’s fixed and variable cash flows, which are then discounted using an appropriate yield curve to arrive at the fair value of each derivative instrument. The pricing models do not contain a high level of subjectivity as the methodologies used do not require significant judgment. Certain adjustments that market participants would make to the modeled price when pricing each instrument are also considered, including a credit valuation adjustment that reflects the credit quality of the derivative counterparty. The effect of exposure to a particular counterparty’s credit is incorporated by netting their derivative contracts with the available collateral and calculating a credit valuation adjustment on the basis of the net position with the counterparty where permitted. This adjustment requires judgment on behalf of Company management but is not material to the total fair value of the interest rate derivative portfolio. Therefore, interest rate derivatives are classified as Level 2 in the fair value hierarchy.
The fair value of commodity derivatives uses the mid-point of market observable quoted prices as an input into the fair value model. These observed market prices, combined with other market observed inputs to derive the fair value of the instrument, classifies the commodity derivative as a Level 2 instrument.
The fair value of foreign exchange derivatives uses the mid-point of daily quoted currency spot prices. The valuation model estimates fair value based on these quoted prices along with interest rate yield curves and forward currency rates. Foreign exchange derivatives are classified as Level 2 in the fair value hierarchy since all of these inputs are observable in the market.
The fair value of TBA contracts is estimated using observable prices of similar loan pools that transact in the marketplace, as well as sector curves and benchmarking techniques. Therefore, TBA contracts are classified as Level 2 in the fair value hierarchy given the observable market inputs.
Other contracts consist primarily of interest rate lock commitments, which are valued utilizing loan closing rate assumptions that are internally generated. These assumptions are considered a significant unobservable input and, therefore, interest rate lock commitments are classified as Level 3 in the fair value hierarchy.
Equity Securities, at fair value
The fair value of money market mutual fund investments is determined based on unadjusted quoted market prices and is considered a Level 1 fair value measurement.
Short-Term Investments
Short-term investments include corporate bonds and U.S. Treasury securities managed by the Company’s trading desks. U.S. Treasury securities are classified as Level 1 in the fair value hierarchy as quoted prices in active markets are readily available. The fair value of corporate bonds is estimated using a combination of direct market quotes for a particular bond, or a comparable bond if recent market data is not available, and a discounted cash flow model that incorporates certain credit attributes of the bond issuer. External pricing services are utilized to corroborate the fair value of corporate bonds, which may result in an adjustment to the underlying bond’s valuation if price differences exceed certain thresholds. Corporate bonds are classified as Level 2 in the fair value hierarchy given the observable market inputs utilized to value these instruments. Short-term investments are included in Interest-bearing deposits in banks in the Consolidated Balance Sheets.
Short-Term Borrowed Funds
Short-term borrowed funds include short positions in corporate bonds and equity securities held by the Company’s trading desks. Equity securities are classified as Level 1 in the fair value hierarchy as quoted prices in active markets are readily available. Corporate bonds are classified as Level 2 in the fair value hierarchy. See “Short-term investments” above for more information regarding the valuation techniques utilized to value corporate bonds.
Other Liabilities
Other liabilities include short positions in commercial LHFS managed by the Company’s commercial secondary loan desk and are classified as Level 2 in the fair value hierarchy. See “Commercial Loans Held for Sale” above for more information regarding the valuation techniques utilized to value commercial LHFS.
The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at December 31, 2025:
| (dollars in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||
| Debt securities available for sale: | ||||||||||||||
| Mortgage-backed securities | $32,484 | $— | $32,484 | $— | ||||||||||
| Collateralized loan obligations | 89 | — | 89 | — | ||||||||||
| State and political subdivisions | 1 | — | 1 | — | ||||||||||
| U.S. Treasury and other | 3,123 | 3,123 | — | — | ||||||||||
| Total debt securities available for sale | 35,697 | 3,123 | 32,574 | — | ||||||||||
Loans held for sale: | ||||||||||||||
| Residential loans held for sale | 895 | — | 895 | — | ||||||||||
| Commercial loans held for sale | 170 | — | 170 | — | ||||||||||
| Total loans held for sale, at fair value | 1,065 | — | 1,065 | — | ||||||||||
| Mortgage servicing rights | 1,455 | — | — | 1,455 | ||||||||||
| Derivative assets: | ||||||||||||||
| Interest rate contracts | 553 | — | 553 | — | ||||||||||
| Foreign exchange contracts | 510 | — | 510 | — | ||||||||||
| Commodities contracts | 458 | — | 458 | — | ||||||||||
| TBA contracts | 2 | — | 2 | — | ||||||||||
| Other contracts | 9 | — | 1 | 8 | ||||||||||
| Total derivative assets | 1,532 | — | 1,524 | 8 | ||||||||||
Equity securities, at fair value(1) | 251 | 251 | — | — | ||||||||||
Short-term investments | 72 | 40 | 32 | — | ||||||||||
| Total assets | $40,072 | $3,414 | $35,195 | $1,463 | ||||||||||
| Derivative liabilities: | ||||||||||||||
| Interest rate contracts | $471 | $— | $471 | $— | ||||||||||
| Foreign exchange contracts | 373 | — | 373 | — | ||||||||||
| Commodities contracts | 405 | — | 405 | — | ||||||||||
| TBA contracts | 6 | — | 6 | — | ||||||||||
| Other contracts | 3 | — | — | 3 | ||||||||||
| Total derivative liabilities | 1,258 | — | 1,255 | 3 | ||||||||||
Short-term borrowed funds | 52 | 40 | 12 | — | ||||||||||
Other liabilities | 157 | — | 157 | — | ||||||||||
| Total liabilities | $1,467 | $40 | $1,424 | $3 | ||||||||||
(1) Excludes investments of $66 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 $14 million at December 31, 2025, 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.
The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at December 31, 2024:
| (dollars in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||
| Debt securities available for sale: | ||||||||||||||
| Mortgage-backed securities | $29,055 | $— | $29,055 | $— | ||||||||||
| Collateralized loan obligations | 184 | — | 184 | — | ||||||||||
| State and political subdivisions | 1 | — | 1 | — | ||||||||||
| U.S. Treasury and other | 3,525 | 3,525 | — | — | ||||||||||
| Total debt securities available for sale | 32,765 | 3,525 | 29,240 | — | ||||||||||
Loans held for sale: | ||||||||||||||
| Residential loans held for sale | 633 | — | 633 | — | ||||||||||
| Commercial loans held for sale | 192 | — | 192 | — | ||||||||||
| Total loans held for sale, at fair value | 825 | — | 825 | — | ||||||||||
| Mortgage servicing rights | 1,491 | — | — | 1,491 | ||||||||||
| Derivative assets: | ||||||||||||||
| Interest rate contracts | 562 | — | 562 | — | ||||||||||
| Foreign exchange contracts | 472 | — | 472 | — | ||||||||||
| Commodities contracts | 429 | — | 429 | — | ||||||||||
| TBA contracts | 10 | — | 10 | — | ||||||||||
| Other contracts | 3 | — | — | 3 | ||||||||||
| Total derivative assets | 1,476 | — | 1,473 | 3 | ||||||||||
Equity securities, at fair value(1) | 162 | 162 | — | — | ||||||||||
Short-term investments | 53 | 40 | 13 | — | ||||||||||
| Total assets | $36,772 | $3,727 | $31,551 | $1,494 | ||||||||||
| Derivative liabilities: | ||||||||||||||
| Interest rate contracts | $910 | $— | $910 | $— | ||||||||||
| Foreign exchange contracts | 411 | — | 411 | — | ||||||||||
| Commodities contracts | 379 | — | 379 | — | ||||||||||
| TBA contracts | 8 | — | 8 | — | ||||||||||
| Other contracts | 2 | — | — | 2 | ||||||||||
| Total derivative liabilities | 1,710 | — | 1,708 | 2 | ||||||||||
Short-term borrowed funds | — | — | — | — | ||||||||||
Other liabilities | 101 | — | 101 | — | ||||||||||
| Total liabilities | $1,811 | $— | $1,809 | $2 | ||||||||||
(1) Excludes investments of $58 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 December 31, 2024, 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.
The following table presents a roll forward of assets and liabilities measured at fair value on a recurring basis and classified as Level 3:
| For the Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (dollars in millions) | Mortgage Servicing Rights | Other Derivative Contracts | Mortgage Servicing Rights | Other Derivative Contracts | |||||||||||||||||||
| Beginning balance | $1,491 | $1 | $1,552 | $7 | |||||||||||||||||||
| Issuances | 159 | 70 | 106 | 60 | |||||||||||||||||||
Sales(1) | (72) | — | (99) | — | |||||||||||||||||||
Settlements(2) | (168) | (77) | (176) | (41) | |||||||||||||||||||
Changes in fair value recognized in earnings(3) | 45 | 11 | 108 | (25) | |||||||||||||||||||
| Ending balance | $1,455 | $5 | $1,491 | $1 | |||||||||||||||||||
(1) For MSRs, represents the sale of the excess servicing yield on MSRs.
(2) For MSRs, represents changes in value of the MSRs due to i) the 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 and other cash payments.
(3) Represents changes in fair value primarily driven by market conditions. These changes are recorded in Mortgage banking fees and Other income in the Consolidated Statements of Operations.
The following table presents quantitative information about significant unobservable inputs utilized to measure the fair of Level 3 assets and liabilities:
| December 31, 2025 | December 31, 2024 | ||||||||||||||||
Financial Instrument(1) | Valuation Technique | Unobservable Input | Range (Weighted Average) | Range (Weighted Average) | |||||||||||||
| Mortgage servicing rights | Discounted Cash Flow | Constant prepayment rate | 5.51-14.62% CPR (7.00% CPR) | 5.08-16.32% CPR (6.70% CPR) | |||||||||||||
| Option adjusted spread | 398-1,038 bps (588 bps) | 398-1,058 bps (632 bps) | |||||||||||||||
| Other derivative contracts | Internal Model | Pull through rate | 8.10-99.88% (84.71%) | 5.09-99.90% (83.06%) | |||||||||||||
| MSR value | 24.53-177.00 bps (134.25 bps) | 23.91-171.64 bps (121.23 bps) | |||||||||||||||
(1) Disclosures related to the fair value measurement of financial instruments deemed immaterial are not included.
Nonrecurring Fair Value Measurements
Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. The following valuation techniques are utilized to measure significant assets for which the Company utilizes fair value on a nonrecurring basis:
Collateral-Dependent Loans
The fair value of retail collateral-dependent loans is estimated using the appraised value of the collateral less costs to dispose. Retail collateral-dependent loans are classified as Level 2 in the fair value hierarchy given the observable market inputs utilized to value these loans. The fair value of commercial collateral-dependent loans is estimated using a variety of valuation techniques including appraisals, broker opinions, or other valuation techniques dependent on collateral type. Commercial collateral-dependent loans are classified as Level 3 in the fair value hierarchy since these valuation techniques utilize significant unobservable inputs. Any excess of the carrying amount of a collateral-dependent loan over its fair value is charged to the ALLL.
The following table presents losses recorded in earnings on assets measured at fair value on a nonrecurring basis, regardless of whether the asset is still held at period end:
| Year Ended December 31, | |||||||||||||||||
| (dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Collateral-dependent loans | ($136) | ($200) | ($138) | ||||||||||||||
The following table presents the carrying amount and fair value hierarchy of assets that were held as of period end and for which a nonrecurring fair value adjustment was recorded in earnings during the year. Carrying amount represents the fair value of the asset as of its measurement date, or date on which a nonrecurring fair value adjustment was recorded.
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||
| (dollars in millions) | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||
| Collateral-dependent loans | $135 | $— | $24 | $111 | $979 | $— | $979 | $— | |||||||||||||||||||||
Fair Value of Financial Instruments
The following tables present the estimated fair value for financial instruments not recorded at fair value in the Consolidated Financial Statements. The carrying amounts are recorded in the Consolidated Balance Sheets under the indicated captions.
| December 31, 2025 | |||||||||||||||||||||||||||||||||||
| 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(1): | |||||||||||||||||||||||||||||||||||
| Debt securities held to maturity | $7,933 | $7,150 | $— | $— | $7,595 | $6,812 | $338 | $338 | |||||||||||||||||||||||||||
Loans held for sale | 133 | 133 | — | — | — | — | 133 | 133 | |||||||||||||||||||||||||||
Net loans and leases | 140,749 | 140,131 | — | — | 437 | 437 | 140,312 | 139,694 | |||||||||||||||||||||||||||
| Other assets | 807 | 807 | — | — | 768 | 768 | 39 | 39 | |||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||||||||
| Deposits | 183,313 | 183,277 | — | — | 183,313 | 183,277 | — | — | |||||||||||||||||||||||||||
| Short-term borrowed funds | 6 | 6 | — | — | 6 | 6 | — | — | |||||||||||||||||||||||||||
| Long-term borrowed funds | 11,224 | 11,472 | — | — | 11,224 | 11,472 | — | — | |||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| 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(1): | |||||||||||||||||||||||||||||||||||
| Debt securities held to maturity | $8,599 | $7,540 | $— | $— | $8,187 | $7,136 | $412 | $404 | |||||||||||||||||||||||||||
Loans held for sale | 33 | 33 | — | — | — | — | 33 | 33 | |||||||||||||||||||||||||||
Net loans and leases | 137,142 | 136,293 | — | — | 979 | 979 | 136,163 | 135,314 | |||||||||||||||||||||||||||
| Other assets | 710 | 710 | — | — | 689 | 689 | 21 | 21 | |||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||||||||
| Deposits | 174,776 | 174,651 | — | — | 174,776 | 174,651 | — | — | |||||||||||||||||||||||||||
| Long-term borrowed funds | 12,401 | 12,247 | — | — | 12,401 | 12,247 | — | — | |||||||||||||||||||||||||||
(1) Excludes cash-related financial instruments not recorded at fair value in the Consolidated Balance Sheets with a carrying value and estimated fair value of $13.6 billion and $11.2 billion at December 31, 2025 and 2024, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 16, 2024 | |
| 2020 | Feb 23, 2021 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.