NOTE 3 - LOANS AND LEASES

The Company’s loans and leases are disclosed in portfolio segments and classes. The Company’s loan and lease portfolio segments are commercial and retail. The classes of loans and leases are: commercial, commercial real estate, leases, residential mortgages, home equity loans, home equity lines of credit, home equity loans serviced by others, home equity lines of credit serviced by others, automobile, education, credit cards and other retail. The Company’s SBO portfolio consists of purchased home equity loans and lines that were originally serviced by others, which the Company services a portion of internally. A summary of the loans and leases portfolio is presented below:



(in millions)	March 31, 2019		December 31, 2018
Commercial⁽¹⁾		$41,497		$40,857
Commercial real estate	13,372		13,023
Leases	2,820		2,903
Total commercial loans and leases	57,689		56,783
Residential mortgages	19,174		18,978
Home equity loans	1,006		1,073
Home equity lines of credit	12,394		12,710
Home equity loans serviced by others	375		399
Home equity lines of credit serviced by others	95		104
Automobile	11,992		12,106
Education	9,274		8,900
Credit cards	1,982		1,991
Other retail	3,634		3,616
Total retail loans⁽²⁾	59,926		59,877
Total loans and leases⁽³⁾		$117,615		$116,660

⁽¹⁾SBA loans serviced for others by our subsidiaries are not included above and amounted to $17 million representing the government guaranteed portion of SBA loans sold to outside investors as of March 31, 2019. There were no SBA loans serviced for others as of December 31, 2018.

⁽²⁾Mortgage loans serviced for others by the Company’s subsidiaries are not included above and amounted to $70.8 billion and $69.6 billion at March 31, 2019 and December 31, 2018, respectively.

⁽³⁾ Excluded from the table above are LHFS totaling $1.3 billion as of March 31, 2019 and December 31, 2018.

LHFS at fair value as of March 31, 2019 totaled $1.2 billion and consisted of residential mortgages originated for sale of $1.0 billion and loans in the commercial trading portfolio of $177 million. LHFS at fair value as of December 31, 2018 totaled $1.2 billion and consisted of residential mortgages originated for sale of $967 million and loans in the commercial trading portfolio of $252 million. Other LHFS totaled $66 million and $101 million as of March 31, 2019 and December 31, 2018, respectively, and consisted of commercial loans associated with the Company’s syndication business.

Loans pledged as collateral for FHLB borrowed funds, primarily residential mortgages and home equity loans, totaled $23.7 billion and $25.6 billion at March 31, 2019 and December 31, 2018, respectively. Loans pledged as collateral to support the contingent ability to borrow at the FRB discount window, if necessary, was primarily comprised of auto, commercial and commercial real estate loans, and totaled $18.7 billion and $16.8 billion at March 31, 2019 and December 31, 2018, respectively.

During the three months ended March 31, 2019, the Company purchased $201 million of education loans. During the three months ended March 31, 2018, the Company purchased $200 million of commercial loans.

During the three months ended March 31, 2019, the Company sold $182 million of commercial loans and $22 million of retail TDRs, including $12 million of home equity loans and $10 million of residential mortgages. During the three months ended March 31, 2018 the company had no loan sales.

Citizens is engaged in the leasing of equipment for commercial use, primarily focused on Fortune 1000 companies for large capital equipment acquisitions including aircraft and railcars, among other equipment. The Company determines if an arrangement is a lease and the related lease classification at inception. Lease terms predominantly range from three to seven years and may include options to terminate the lease early or purchase the leased property prior to the end of the lease term. Certain lease agreements include rental payments based on an index or are adjusted periodically for inflation. The Company does not have lease agreements which contain lease and nonlease components.

A lessee is evaluated from a credit perspective using the same underwriting standards and procedures as for a loan borrower. A lessee is expected to make rental payments based on its cash flows and the viability of its operations. Leases are usually not evaluated as collateral-based transactions, and therefore the lessee’s overall financial strength is the most important credit evaluation factor.

The components of the net investment in direct finance leases, before ALLL, are presented below:



(in millions)	March 31, 2019
Total future minimum lease rentals		$1,955
Estimated residual value of leased equipment (non-guaranteed)	1,082
Initial direct costs	13
Unearned income	(259		)
Total leases		$2,791

Interest income on direct financing leases was $20 million for the three months ended March 31, 2019 and is reported within interest and fees on loans and leases in the Consolidated Statement of Operations.

A maturity analysis of direct financing lease receivables at March 31, 2019 is presented below:



(in millions)
2019		$439
2020	463
2021	344
2022	263
2023	188
Thereafter	258
Total undiscounted future minimum lease rentals		$1,955