LOANS AND LEASES

9 Months Ended

Sep. 30, 2019

NOTE 3 - LOANS AND LEASES

The Company’s loans and leases are disclosed in portfolio segments and classes as reflected below.



(in millions)	September 30, 2019		December 31, 2018
Commercial⁽¹⁾		$41,356		$40,857
Commercial real estate	12,820		13,023
Leases	2,557		2,903
Total commercial loans and leases	56,733		56,783
Residential mortgages	19,699		18,978
Home equity loans	876		1,073
Home equity lines of credit	12,148		12,710
Home equity loans serviced by others	318		399
Home equity lines of credit serviced by others	81		104
Automobile	12,070		12,106
Education	9,729		8,900
Credit cards	2,133		1,991
Other retail	4,093		3,616
Total retail loans⁽²⁾	61,147		59,877
Total loans and leases⁽³⁾		$117,880		$116,660

⁽¹⁾SBA loans we service for others of $27 million are not included above. These loans represent the government guaranteed portion of SBA loans sold to outside investors as of September 30, 2019. There were no SBA loans serviced for others as of December 31, 2018.

⁽²⁾Mortgage loans we service for others of $74.6 billion and $69.6 billion at September 30, 2019 and December 31, 2018, respectively, are not included above.

⁽³⁾ LHFS totaling $2.0 billion and $1.3 billion at September 30, 2019 and December 31, 2018, respectively, are not included above.

The following table shows the composition of LHFS.



	September 30, 2019						December 31, 2018
(in millions)	Residential Mortgages⁽¹⁾		Commercial⁽²⁾		Total		Residential Mortgages⁽¹⁾		Commercial⁽²⁾		Total
Loans held for sale at fair value		$1,824		$169		$1,993		$967		$252		$1,219
Other loans held for sale	—		22		22		—		101		101

⁽¹⁾ Originated for sale.

⁽²⁾LHFS at fair value consist of loans managed by the Company’s commercial secondary loan desk. Other LHFS generally consist 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 $25.3 billion and $25.6 billion at September 30, 2019 and December 31, 2018, respectively. Loans pledged as collateral to support the contingent ability to borrow at the FRB discount window, if necessary, were primarily comprised of auto, commercial and commercial real estate loans, and totaled $18.0 billion and $16.8 billion at September 30, 2019 and December 31, 2018, respectively.

During the three months ended September 30, 2019, the Company purchased $164 million of education loans and $66 million of other retail loans. During the three months ended September 30, 2018, the Company purchased $98 million of education loans. During the nine months ended September 30, 2019, the Company purchased $464 million of education loans and $66 million of other retail loans. During the nine months ended September 30, 2018, the Company purchased $321 million of education loans.

The Company sold $109 million of commercial loans during the three months ended September 30, 2019. During the nine months ended September 30, 2019, the Company sold $291 million of commercial loans and $628 million of retail loans, including $22 million of TDR sales. During the three months ended September 30, 2018, the Company did not have loan portfolio sales. During the nine months ended September 30, 2018 the Company had $553 million of commercial 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 years 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)	September 30, 2019
Total future minimum lease rentals		$1,670
Estimated residual value of leased equipment (non-guaranteed)	1,072
Initial direct costs	10
Unearned income	(232		)
Total leases		$2,520

Interest income on direct financing leases for the three months and nine months ended September 30, 2019 was $18 million and $58 million, respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations.

A maturity analysis of direct financing lease receivables at September 30, 2019 is presented below:



(in millions)
2019		$123
2020	460
2021	343
2022	265
2023	188
Thereafter	291
Total undiscounted future minimum lease rentals		$1,670