Leases

12 Months Ended

Dec. 31, 2019

On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), as amended. 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 December 31, 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 2020 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 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 December 31, 2019:




($ in thousands)	Classification on the Consolidated Balance Sheet	December 31, 2019
Assets:
Operating lease assets	Operating lease right-of use assets	$	99,973
Finance lease assets	Premises and equipment	7,897
Total lease assets		$	107,870
Liabilities:
Operating lease liabilities	Operating lease liabilities	$	108,083
Finance lease liabilities	Long-term debt and finance lease liabilities	5,169
Total lease liabilities		$	113,252

The following table presents the components of lease expense for operating and finance leases for the year ended December 31, 2019:




($ in thousands)	Year Ended December 31, 2019
Operating lease cost	$	34,850
Finance lease cost:
Amortization of right-of-use assets	807
Interest on lease liabilities	161
Variable lease cost	120
Sublease income	(81		)
Net lease cost	$	35,857

The following table presents the supplemental cash flow information related to leases for the year ended December 31, 2019:




($ in thousands)	Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	35,496
Operating cash flows from finance leases	$	161
Financing cash flows from finance leases	$	883
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	21,716
Financing leases	$	304

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




	December 31, 2019
Weighted-average remaining lease term (in years):
Operating leases	4.6
Finance leases	16.2
Weighted-average discount rate:
Operating leases	3.19	%
Finance leases	2.84	%

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




($ in thousands)	Operating Leases			Finance Leases
2020	$	32,590		$	1,059
2021	28,761			1,053
2022	19,073			698
2023	12,069			403
2024	9,150			157
Thereafter	14,636			3,305
Total minimum lease payments	$	116,279		$	6,675
Less: imputed interest	(8,196		)	(1,506		)
Present value of lease liabilities	$	108,083		$	5,169

Upon adopting the new lease guidance, the Company elected the modified retrospective approach without revising comparative prior periods. Rental expense related to non-cancellable operating lease agreements was $31.9 million and $29.7 million for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, the minimum rental payments under non-cancellable operating leases were $42.0 million, $36.2 million, $30.7 million, $21.4 million and $15.0 million for 2019 through 2023, respectively, and $40.4 million in the aggregate for all years thereafter.

Lessor Arrangements

The Company finances equipment under direct financing and sales-type leases to its commercial customers. As of December 31, 2019, the total net investment in direct financing and sales-type leases was $141.3 million with expiration in the years ranging from 2020 to 2027, exclusive of renewal options. Some of the leases include options to extend the leases, while others 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 $31.6 million as of December 31, 2019.

The following table presents the components of the net investment in direct financing and sales-type leases as of December 31, 2019:




($ in thousands)	December 31, 2019
Lease receivables	$	126,517
Unguaranteed residual assets	14,793
Net investment in direct financing and sales-type leases	$	141,310

The lease income for direct financing and sales-type leases was $5.9 million for the year ended December 31, 2019.

The following table presents future minimum lease payments that are expected to be received under the direct financing and sales-type leases as of December 31, 2019:




($ in thousands)	Direct Financing and Sales-Type Leases
2020	$	27,580
2021	25,548
2022	18,154
2023	11,960
2024	8,512
Thereafter	11,708
Total minimum lease payments	$	103,462
Less: imputed interest	(9,783		)
Present value of lease receivables	$	93,679