Leases

6 Months Ended

Jun. 30, 2019

On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) and 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. As such, 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, such as costs that would qualify for capitalization. The Company also elected the hindsight practical expedient to determine the lease term and to assess 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.

Lessee Arrangements

The Company determines if an arrangement is a lease or contains a lease at inception. As of June 30, 2019, the Company was obligated under a number of non-cancellable leases, predominantly operating leases for certain retail banking branches and office spaces in the U.S. and Greater China. These operating leases expire in the years ranging from 2019 to 2030, exclusive of renewal and termination options. Some of these leases include options to extend the leases for up to 15 years, while certain leases include lessee termination options. 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 the options. A portion of the operating leases includes variable lease payments, 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. The Company also has equipment and air rights finance leases which expire in the years ranging from 2021 to 2047.

The right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company’s incremental borrowing rate based on the information available at the later of the adoption date or the lease commencement date is used to determine the present value of future payments. This approximates a collateralized borrowing rate over a similar term for an amount equal to the lease payments in a similar economic environment.

The following table presents the lease related assets and liabilities recorded on the Consolidated Balance Sheet as of June 30, 2019:




($ in thousands)	Classification on the Consolidated Balance Sheet	June 30, 2019
Assets:
Operating lease assets	Operating lease right-of use assets	$	109,032
Finance lease assets	Premises and equipment	8,144
Total lease assets		$	117,176
Liabilities:
Operating lease liabilities	Operating lease liabilities	$	117,448
Finance lease liabilities	Long-term debt and finance lease liabilities	5,540
Total lease liabilities		$	122,988

The following table presents the components of lease expense for operating and finance leases during the three and six months ended June 30, 2019:




($ in thousands)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost	$	8,770		$	17,750
Finance lease cost:
Amortization of right-of-use assets	280			482
Interest on lease liabilities	41			87
Variable lease cost	32			62
Sublease income	(49		)	(81		)
Net lease cost	$	9,074		$	18,300

The following table presents the supplemental cash flow information related to leases during the three and six months ended June 30, 2019:




($ in thousands)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	8,806	$	17,981
Operating cash flows from finance leases	$	41	$	87
Financing cash flows from finance leases	$	218	$	435
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	11,489	$	15,167
Financing leases	$	226	$	226

The following table presents the weighted average remaining lease terms and discount rates related to leases as of June 30, 2019:




	June 30, 2019
Weighted-average remaining lease term (in years):
Operating leases	4.7
Finance leases	15.9
Weighted-average discount rate:
Operating leases	3.19	%
Finance leases	2.99	%

The following table presents a maturity analysis of the Company’s operating and finance lease liabilities as of June 30, 2019:




($ in thousands)	Operating Leases			Finance Leases
Remainder of 2019	$	17,575		$	519
2020	32,208			1,035
2021	27,642			1,030
2022	17,843			690
2023	10,807			402
Thereafter	20,614			3,462
Total minimum lease payments	$	126,689		$	7,138
Less: imputed interest	(9,241		)	(1,598		)
Present value of lease liabilities	$	117,448		$	5,540

Lessor Arrangements

The Company finances equipment under direct financing and sales-type leases to its commercial customers. As of June 30, 2019, the total net investment in direct financing and sales-type leases was $153.3 million with expiration in the years ranging from 2019 to 2027, exclusive of renewal options. Some of the leases include options to extend the leases for up to one year and some include early buyout options. 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, which is not guaranteed by the lessee or any third party, discounted using the rate implicit in the lease. In certain cases, the Company obtains residual value insurance from third parties and/or guarantees from the lessee to manage the risk associated with the residual value of the leased assets. The carrying amount of guaranteed residual value, which was included in Loans held-for-investment on the Consolidated Balance Sheet, was $31.5 million as of June 30, 2019.

The following table presents the components of the net investment in direct financing and sales-type leases as of June 30, 2019:




($ in thousands)	June 30, 2019
Lease receivables	$	138,752
Unguaranteed residual assets	14,580
Net investment in direct financing and sales-type leases	$	153,332

The lease income for direct financing leases was $1.5 million and $3.0 million for three and six months ended June 30, 2019, respectively.

The following table presents future minimum lease payments that are expected to be received under the direct financing and sales-type leases as of June 30, 2019:




($ in thousands)	Direct Financing and Sales-Type Leases
Remainder of 2019	$	14,038
2020	27,566
2021	25,584
2022	18,190
2023	11,995
Thereafter	20,342
Total minimum lease payments	$	117,715
Less: imputed interest	(11,917		)
Present value of lease receivables	$	105,798