Leases

On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) and all subsequent related ASUs using the alternative transition method with a cumulative-effect adjustment to retained earnings without revising comparable prior periods’ financial information. As both a lessee and lessor, the Company elected the package of practical expedients available for leases that commenced before the adoption date where the Company need not reassess: (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) the initial direct costs for any expired or existing leases (i.e., whether those costs qualify for capitalization). The Company also elected the hindsight practical expedient to determine the lease term and in assessing impairment on the Company’s right-of-use assets, and the practical expedient to not separate lease and non-lease components, consistently across all leases.

Leases - Lessee

The Company determines if an arrangement is a lease or contains a lease at inception. The Company leases certain retail banking branches and office spaces in the U.S. and Greater China under operating leases. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As of March 31, 2019, the Company had 128 operating leases with lease expiration in the years ranging from 2019 to 2030, exclusive of renewal options. Certain operating leases include options to extend the leases for up to 15 years, while some of which include options to terminate the leases after four to five years of occupancy. The Company's measurement of the operating lease liability and right-of-use asset does not include payments associated with the options to extend or terminate the lease since it is not reasonably certain that the Company will exercise that option. The Company also has equipment and air rights finance leases. As of March 31, 2019, the Company has four finance leases with lease expiration in the years ranging from 2021 to 2047.

A portion of the operating leases includes variable lease payments that are primarily based on the usage of the asset or the consumer price index ("CPI") as specified in the lease agreements. The Company does not remeasure lease liabilities as a result of changes to variable lease payments. As most of the Company’s operating and financing leases do not provide an implicit rate, the Company’s incremental borrowing rate (“IBR”) based on the information available at the later of adoption date or lease commencement date is used in determining the present value of future payments. The FHLB of San Francisco secured advance rate, effected for the Company’s borrowing capacity ratio, and the rate of interest on the unsecured borrowings are blended in a weighted average calculation to arrive at the Company’s IBR that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Balance Sheet Classification

The following table presents the lease related assets and liabilities recorded on the Consolidated Balance Sheet:




($ in thousands)	Classification on the Consolidated Balance Sheet	March 31, 2019
Assets:
Operating lease assets	Operating lease right-of use assets	$	104,289
Finance lease assets	Premises and equipment	8,199
Total lease assets		$	112,488
Liabilities:
Operating lease liabilities	Operating lease liabilities	$	112,843
Finance lease liabilities	Long-term debt and finance lease liabilities	5,533
Total lease liabilities		$	118,376

Lease Costs

The following table presents the components of lease expense for operating and finance leases during the three months ended March 31, 2019:




($ in thousands)	Three Months Ended March 31, 2019
Operating lease cost	$	8,980
Finance lease cost:
Amortization of right-of-use assets	202
Interest on lease liabilities	46
Variable lease cost	30
Sublease income	(32		)
Net lease cost	$	9,226

Supplemental Lease Information

The following table presents the supplemental cash flow information related to leases during the three months ended March 31, 2019:




($ in thousands)	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9,175
Operating cash flows from finance leases	$	46
Financing cash flows from finance leases	$	217
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	3,678

The following table presents the weighted average remaining lease terms and discount rates related to leases as of March 31, 2019:




($ in thousands)	March 31, 2019
Weighted-average remaining lease term:
Operating leases	5.0 years
Finance leases	16.1 years
Weighted-average discount rate:
Operating leases	3.24	%
Finance leases	3.29	%

Maturity Analysis

The following table presents a maturity analysis of the Company’s operating and finance lease liabilities as March 31, 2019:




($ in thousands)	Operating Leases			Finance Leases
Remainder of 2019	$	23,357		$	782
2020	28,029			997
2021	23,359			977
2022	16,542			638
2023	10,675			349
Thereafter	20,548			3,450
Total minimum lease payments	$	122,510		$	7,193
Less: imputed interest	(9,667		)	(1,660		)
Present value of lease liabilities	$	112,843		$	5,533

In addition, the Company has two operating leases of $22.7 million that had not yet commenced as of March 31, 2019. These leases will commence on April 1, 2019 with lease terms between two to three years.

Leases - Lessor

The Company provides equipment financing leases to its commercial customers. As of March 31, 2019, the Company has 106 direct finance leases with expiration in the years ranging from 2019 to 2027, exclusive of renewal options. Some of the leases include options to extend leases for up to one year, and some include early buy out options for the lessee to purchase the equipment before the end of the contract. All equipment leases include options to purchase the underlying assets. As the Company is not reasonably certain at lease commencement that the purchase options will be exercised by the lessees, the lease terms exclude the purchase option.

The unguaranteed residual value is recorded at the present value of the amount the Company expects to derive from the underlying asset following the end of the lease term that is not guaranteed by the lessee or any third party, discounted using the rate implicit in the lease. The guaranteed residual value is included in Loans held-for-investment on the Consolidated Balance Sheet, measured on a discounted basis. The Company utilizes residual value insurance on equipment as a risk management strategy for residual assets.

Components of Net Investment and Lease Income - Direct Financing Leases

The table below presents certain information related to the components of the net investment in direct financing leases as of March 31, 2019 and the lease income for direct financing leases during the three months ended March 31, 2019:




($ in thousands)	Direct Financing Leases
As of March 31, 2019
Lease receivables	$	140,001
Unguaranteed residual assets	14,486
Net investment in direct financing leases	$	154,487
Three Months Ended March 31, 2019
Interest income	$	1,541

Maturity Analysis

Future minimum rental payments to be received under non-cancellable direct financing leases are estimated as follows:




($ in thousands)	Direct Financing Leases
Remainder of 2019	$	20,374
2020	27,027
2021	25,046
2022	17,651
2023	11,454
Thereafter	18,981
Total minimum lease payments	$	120,533
Less: imputed interest	(12,626		)
Present value of lease receivables	$	107,907