Loans are classified as held for investment when management has both the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. Management’s intent and view of the foreseeable future may change based on changes in business strategies and market conditions.

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 and are reported within letter of credit and loan fees in the Consolidated Statements of Operations.

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 and industrial, commercial real estate, leases, residential mortgages, home equity, automobile, education and other retail.


	December 31,
(in millions)	2022	2021
Commercial and industrial	$51,836	$44,500
Commercial real estate	28,865	14,264
Leases	1,479	1,586
Total commercial	82,180	60,350
Residential mortgages	29,921	22,822
Home equity	14,043	12,015
Automobile	12,292	14,549
Education	12,808	12,997
Other retail	5,418	5,430
Total retail	74,482	67,813
Total loans and leases	$156,662	$128,163

Accrued interest receivable on loans and leases held for investment totaled $820 million and $450 million as of December 31, 2022 and 2021, 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 $38.4 billion and $26.1 billion at December 31, 2022 and 2021, 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 $34.8 billion and $35.8 billion at December 31, 2022 and 2021, respectively.

Loans are classified as held for sale when management does not have the intent and ability to hold the loan for the foreseeable future. LHFS for which the fair value option is not elected are carried at the lower of amortized cost or fair value less costs to sell, with any write-downs or subsequent recoveries recognized in other income in the Consolidated Statements of Operations. Citizens elected to account for residential mortgage LHFS and certain commercial and industrial, and commercial real estate LHFS at fair value. See Note 20 for additional information.


	December 31, 2022			December 31, 2021
(in millions)	Residential Mortgages(1)	Commercial(2)	Total	Residential Mortgages(1)	Commercial(2)	Total
Loans held for sale at fair value	$666	$108	$774	$2,657	$76	$2,733
Other loans held for sale	—	208	208	—	735	735

(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.

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 railcars, trucks and trailers, and 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 ten years and may include options to purchase the leased property prior to the end of the lease term. The Company does not have lease agreements which contain both lease and non-lease 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, 2022	December 31, 2021
Total future minimum lease rentals	$1,193	$1,195
Estimated residual value of leased equipment (non-guaranteed)	413	521
Initial direct costs	5	6
Unearned income	(132)	(136)
Total leases	$1,479	$1,586

Interest income on direct financing and sales-type leases for the years ended December 31, 2022, 2021 and 2020 was $46 million, $49 million and $64 million, respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations.


(in millions)
2023			$334
2024			247
2025			193
2026			144
2027			122
Thereafter			153
Total undiscounted future minimum lease rentals			$1,193