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. Deferred loan origination fees and costs and purchase premiums and discounts are amortized as an adjustment of yield over the life of the loan, using the effective interest method. Unamortized amounts remaining upon prepayment or sale are recorded as interest income or gain (loss) on sale, respectively. Credit card receivables include billed and uncollected interest and fees.

Interest income on loans is determined using the effective interest method. This method calculates periodic interest income at a constant effective yield on the net investment in the loan, to provide a constant rate of return over the term. Loans accounted for using the fair value option are measured at fair value with corresponding changes recognized in noninterest income.

Loan commitment fees for loans that are likely to be drawn down, and other credit related fees, are deferred (together with any incremental costs) and recognized as an adjustment to the effective interest rate over the loan term. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognized over the commitment period on a straight-line basis.

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.



	December 31,
(in millions)	2019		2018
Commercial⁽¹⁾		$41,479		$40,857
Commercial real estate	13,522		13,023
Leases	2,537		2,903
Total commercial loans and leases	57,538		56,783
Residential mortgages⁽²⁾	19,083		18,978
Home equity loans	812		1,073
Home equity lines of credit	11,979		12,710
Home equity loans serviced by others	289		399
Home equity lines of credit serviced by others	74		104
Automobile	12,120		12,106
Education	10,347		8,900
Credit cards	2,198		1,991
Other retail	4,648		3,616
Total retail loans	61,550		59,877
Total loans and leases ⁽³⁾		$119,088		$116,660

⁽¹⁾ SBA loans the Company services for others of $33 million are not included above. These loans represent the government guaranteed portion of SBA loans sold to outside investors as of December 31, 2019. There were no SBA loans serviced for others as of December 31, 2018.

⁽²⁾ Mortgage loans the Company services for others of $77.5 billion and $69.6 billion at December 31, 2019 and 2018, respectively, are not included above.

⁽³⁾LHFS totaling $3.3 billion and $1.3 billion at December 31, 2019 and 2018, respectively, are not included above.



	December 31, 2019						December 31, 2018
(in millions)	Residential Mortgages		Commercial		Total		Residential Mortgages		Commercial		Total
Loans held for sale at fair value⁽¹⁾		$1,778		$168		$1,946		$967		$252		$1,219
Other loans held for sale⁽²⁾	1,101		283		1,384		—		101		101

⁽¹⁾ Residential mortgage LHFS at fair value are originated for sale. Commercial LHFS at fair value consist of loans managed by the Company’s commercial secondary loan desk.

⁽²⁾Residential mortgages other LHFS of $1.1 billion as of December 31, 2019 comprised of two loan portfolio pools of $524 million and $575 million representing loan sales expected to settle in first quarter 2020. Commercial other LHFS generally consist of commercial loans associated with the Company’s syndication business.

During the year ended December 31, 2019 the Company purchased $1.1 billion of education loans and $530 million of other loans. During the year ended December 31, 2018, the Company purchased $457 million of education loans.

During the year ended December 31, 2019, the Company sold $454 million of commercial loans and $628 million of retail loans, including $22 million of TDR sales. During the year ended December 31, 2018, the Company sold $553 million of commercial loans.

Loans pledged as collateral for FHLB borrowed funds, primarily residential mortgages and home equity loans, totaled $25.3 billion and $25.6 billion at December 31, 2019 and 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 $17.4 billion and $16.8 billion at December 31, 2019 and 2018, respectively.

Citizens is engaged in the leasing of equipment for commercial use, primarily focused on middle market and mid-corporate clients 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. 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.



(in millions)	December 31, 2019
Total future minimum lease rentals		$1,739
Estimated residual value of leased equipment (non-guaranteed)	1,013
Initial direct costs	10
Unearned income	(225		)
Total leases		$2,537

Interest income on direct financing and sales-type leases for the year ended December 31, 2019 was $77 million and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations.



(in millions)
2020		$496
2021	385
2022	288
2023	220
2024	145
Thereafter	205
Total undiscounted future minimum lease rentals		$1,739