Leases

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Leases

LEASES

Lessee

Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between 1 month and 7 years. These operating leases comprise substantially all of Customers' obligations in which Customers is the lessee. Most lease agreements consist of initial lease terms ranging between 1 and 5 years, with options to renew the leases or extend the term up to 15 years at Customers' sole discretion. Some operating leases include variable lease payments that are based on an index or rate, such as the CPI. Variable lease payments are not included in the liability or right of use asset and are recognized in the period in which the obligation for those payments are incurred. Customers' operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. Pursuant to these agreements, Customers does not have any commitments that would meet the definition of a finance lease.

As most of Customers' operating leases do not provide an implicit rate, Customers utilized its incremental borrowing rate based on the information available at either the adoption of ASC 842 or the commencement date of the lease, whichever was later, when determining the present value of lease payments.

The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding balance sheet location:

(amounts in thousands)	Classification	June 30, 2020		December 31, 2019
ASSETS
Operating lease ROU assets	Other assets	$	20,570	$	20,232
LIABILITIES
Operating lease liabilities	Other liabilities	$	21,725	$	21,358

The following table summarizes operating lease cost and its corresponding income statement location for the periods presented:

		Three Months Ended June 30,				Six Months Ended June 30,
(amounts in thousands)	Classification	2020		2019		2020		2019
Operating lease cost (1)	Occupancy expenses	$	1,474	$	1,462	$	2,954	$	2,931

(1) There were no variable lease costs for the three and six months ended June 30, 2020 and 2019, and sublease income for operating leases is immaterial.

Maturities of non-cancelable operating lease liabilities were as follows at June 30, 2020:

(amounts in thousands)	June 30, 2020
2020	$	2,794
2021	5,357
2022	4,744
2023	3,702
2024	2,613
Thereafter	3,001
Total minimum payments	22,211
Less: interest	486
Present value of lease liabilities	$	21,725

Customers does not have leases where it is involved with the construction or design of an underlying asset. Customers has legally binding minimum lease payments of $0.3 million for leases signed but not yet commenced as of June 30, 2020. Cash paid pursuant to the operating lease liability was $1.5 million and $3.0 million for the three and six months ended June 30, 2020, respectively. Cash paid pursuant to the operating lease liability was $1.4 million and $2.8 million for the three and six months ended June 30, 2019, respectively. These payments were reported as cash flows used in operating activities in the statement of cash flows.

The following table summarizes the weighted average remaining lease term and discount rate for Customers' operating leases at June 30, 2020 and December 31, 2019:

(amounts in thousands)	June 30, 2020		December 31, 2019
Weighted average remaining lease term (years)
Operating leases	5.1 years		5.0 years
Weighted average discount rate
Operating leases	2.96	%	2.90	%

Equipment Lessor

CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance Group. CCF is primarily focused on originating equipment operating and direct finance equipment leases for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. Lease terms typically range from 24 months to 120 months. CCF offers the following lease products: Capital Lease, Purchase Upon Termination, TRAC, Split-TRAC, and FMV. Direct finance equipment leases are included in commercial and industrial loans and leases receivable.

The estimated residual values for direct finance and operating leases are established by utilizing internally developed analyses, external studies, and/or third-party appraisals to establish a residual position. For the direct finance leases, only for a Split-TRAC is there a

residual risk and the unguaranteed portions are typically nominal. Expected credit losses on direct financing leases and the related estimated residual values are included in the allowance for credit losses on loans and leases.

Leased assets under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges and are presented in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to the expected residual value. The expected residual value and, accordingly, the monthly depreciation expense, may change throughout the term of the lease. Operating lease rental income for leased assets is recognized in commercial lease income on a straight-line basis over the lease term. Customers periodically reviews its operating leased assets for impairment. An impairment loss is recognized if the carrying amount of the operating leased asset exceeds its fair value and is not recoverable. The carrying amount of operating leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment.

The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location at June 30, 2020 and December 31, 2019:

(amounts in thousands)	Classification	June 30, 2020		December 31, 2019
ASSETS
Direct financing leases
Lease receivables	Loans and leases receivable	$	96,924	$	91,762
Guaranteed residual assets	Loans and leases receivable	7,730		7,435
Unguaranteed residual assets	Loans and leases receivable	3,271		1,260
Deferred initial direct costs	Loans and leases receivable	666		721
Unearned income	Loans and leases receivable	(11,569)		(11,300)
Net investment in direct financing leases		$	97,022	$	89,878
Operating leases
Investment in operating leases	Other assets	$	116,850	$	107,850
Accumulated depreciation	Other assets	(21,310)		(14,251)
Deferred initial direct costs	Other assets	1,148		1,052
Net investment in operating leases		96,688		94,651
Total lease assets		$	193,710	$	184,529

COVID-19 Impact on Leases

Customers granted concessions to lessees as a result of the business impact of the COVID-19 pandemic. At June 30, 2020, the book value of finance and operating leases with payment deferments were $31.7 million and $16.7 million, respectively. The concessions did not have a material impact in interest income from leases for the three months ended June 30, 2020. Additionally, Customers did not receive any concessions on its operating leases in which Customers is the lessee.

Leases

LEASES

Lessee

Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between 1 month and 7 years. These operating leases comprise substantially all of Customers' obligations in which Customers is the lessee. Most lease agreements consist of initial lease terms ranging between 1 and 5 years, with options to renew the leases or extend the term up to 15 years at Customers' sole discretion. Some operating leases include variable lease payments that are based on an index or rate, such as the CPI. Variable lease payments are not included in the liability or right of use asset and are recognized in the period in which the obligation for those payments are incurred. Customers' operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. Pursuant to these agreements, Customers does not have any commitments that would meet the definition of a finance lease.

As most of Customers' operating leases do not provide an implicit rate, Customers utilized its incremental borrowing rate based on the information available at either the adoption of ASC 842 or the commencement date of the lease, whichever was later, when determining the present value of lease payments.

The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding balance sheet location:

(amounts in thousands)	Classification	June 30, 2020		December 31, 2019
ASSETS
Operating lease ROU assets	Other assets	$	20,570	$	20,232
LIABILITIES
Operating lease liabilities	Other liabilities	$	21,725	$	21,358

The following table summarizes operating lease cost and its corresponding income statement location for the periods presented:

		Three Months Ended June 30,				Six Months Ended June 30,
(amounts in thousands)	Classification	2020		2019		2020		2019
Operating lease cost (1)	Occupancy expenses	$	1,474	$	1,462	$	2,954	$	2,931

(1) There were no variable lease costs for the three and six months ended June 30, 2020 and 2019, and sublease income for operating leases is immaterial.

Maturities of non-cancelable operating lease liabilities were as follows at June 30, 2020:

(amounts in thousands)	June 30, 2020
2020	$	2,794
2021	5,357
2022	4,744
2023	3,702
2024	2,613
Thereafter	3,001
Total minimum payments	22,211
Less: interest	486
Present value of lease liabilities	$	21,725

Customers does not have leases where it is involved with the construction or design of an underlying asset. Customers has legally binding minimum lease payments of $0.3 million for leases signed but not yet commenced as of June 30, 2020. Cash paid pursuant to the operating lease liability was $1.5 million and $3.0 million for the three and six months ended June 30, 2020, respectively. Cash paid pursuant to the operating lease liability was $1.4 million and $2.8 million for the three and six months ended June 30, 2019, respectively. These payments were reported as cash flows used in operating activities in the statement of cash flows.

The following table summarizes the weighted average remaining lease term and discount rate for Customers' operating leases at June 30, 2020 and December 31, 2019:

(amounts in thousands)	June 30, 2020		December 31, 2019
Weighted average remaining lease term (years)
Operating leases	5.1 years		5.0 years
Weighted average discount rate
Operating leases	2.96	%	2.90	%

Equipment Lessor

CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance Group. CCF is primarily focused on originating equipment operating and direct finance equipment leases for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. Lease terms typically range from 24 months to 120 months. CCF offers the following lease products: Capital Lease, Purchase Upon Termination, TRAC, Split-TRAC, and FMV. Direct finance equipment leases are included in commercial and industrial loans and leases receivable.

The estimated residual values for direct finance and operating leases are established by utilizing internally developed analyses, external studies, and/or third-party appraisals to establish a residual position. For the direct finance leases, only for a Split-TRAC is there a

residual risk and the unguaranteed portions are typically nominal. Expected credit losses on direct financing leases and the related estimated residual values are included in the allowance for credit losses on loans and leases.

Leased assets under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges and are presented in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to the expected residual value. The expected residual value and, accordingly, the monthly depreciation expense, may change throughout the term of the lease. Operating lease rental income for leased assets is recognized in commercial lease income on a straight-line basis over the lease term. Customers periodically reviews its operating leased assets for impairment. An impairment loss is recognized if the carrying amount of the operating leased asset exceeds its fair value and is not recoverable. The carrying amount of operating leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment.

The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location at June 30, 2020 and December 31, 2019:

(amounts in thousands)	Classification	June 30, 2020		December 31, 2019
ASSETS
Direct financing leases
Lease receivables	Loans and leases receivable	$	96,924	$	91,762
Guaranteed residual assets	Loans and leases receivable	7,730		7,435
Unguaranteed residual assets	Loans and leases receivable	3,271		1,260
Deferred initial direct costs	Loans and leases receivable	666		721
Unearned income	Loans and leases receivable	(11,569)		(11,300)
Net investment in direct financing leases		$	97,022	$	89,878
Operating leases
Investment in operating leases	Other assets	$	116,850	$	107,850
Accumulated depreciation	Other assets	(21,310)		(14,251)
Deferred initial direct costs	Other assets	1,148		1,052
Net investment in operating leases		96,688		94,651
Total lease assets		$	193,710	$	184,529

COVID-19 Impact on Leases

Customers granted concessions to lessees as a result of the business impact of the COVID-19 pandemic. At June 30, 2020, the book value of finance and operating leases with payment deferments were $31.7 million and $16.7 million, respectively. The concessions did not have a material impact in interest income from leases for the three months ended June 30, 2020. Additionally, Customers did not receive any concessions on its operating leases in which Customers is the lessee.

Leases

LEASES

Lessee

Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between 1 month and 7 years. These operating leases comprise substantially all of Customers' obligations in which Customers is the lessee. Most lease agreements consist of initial lease terms ranging between 1 and 5 years, with options to renew the leases or extend the term up to 15 years at Customers' sole discretion. Some operating leases include variable lease payments that are based on an index or rate, such as the CPI. Variable lease payments are not included in the liability or right of use asset and are recognized in the period in which the obligation for those payments are incurred. Customers' operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. Pursuant to these agreements, Customers does not have any commitments that would meet the definition of a finance lease.

As most of Customers' operating leases do not provide an implicit rate, Customers utilized its incremental borrowing rate based on the information available at either the adoption of ASC 842 or the commencement date of the lease, whichever was later, when determining the present value of lease payments.

The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding balance sheet location:

(amounts in thousands)	Classification	June 30, 2020		December 31, 2019
ASSETS
Operating lease ROU assets	Other assets	$	20,570	$	20,232
LIABILITIES
Operating lease liabilities	Other liabilities	$	21,725	$	21,358

The following table summarizes operating lease cost and its corresponding income statement location for the periods presented:

		Three Months Ended June 30,				Six Months Ended June 30,
(amounts in thousands)	Classification	2020		2019		2020		2019
Operating lease cost (1)	Occupancy expenses	$	1,474	$	1,462	$	2,954	$	2,931

(1) There were no variable lease costs for the three and six months ended June 30, 2020 and 2019, and sublease income for operating leases is immaterial.

Maturities of non-cancelable operating lease liabilities were as follows at June 30, 2020:

(amounts in thousands)	June 30, 2020
2020	$	2,794
2021	5,357
2022	4,744
2023	3,702
2024	2,613
Thereafter	3,001
Total minimum payments	22,211
Less: interest	486
Present value of lease liabilities	$	21,725

Customers does not have leases where it is involved with the construction or design of an underlying asset. Customers has legally binding minimum lease payments of $0.3 million for leases signed but not yet commenced as of June 30, 2020. Cash paid pursuant to the operating lease liability was $1.5 million and $3.0 million for the three and six months ended June 30, 2020, respectively. Cash paid pursuant to the operating lease liability was $1.4 million and $2.8 million for the three and six months ended June 30, 2019, respectively. These payments were reported as cash flows used in operating activities in the statement of cash flows.

The following table summarizes the weighted average remaining lease term and discount rate for Customers' operating leases at June 30, 2020 and December 31, 2019:

(amounts in thousands)	June 30, 2020		December 31, 2019
Weighted average remaining lease term (years)
Operating leases	5.1 years		5.0 years
Weighted average discount rate
Operating leases	2.96	%	2.90	%

Equipment Lessor

CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance Group. CCF is primarily focused on originating equipment operating and direct finance equipment leases for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. Lease terms typically range from 24 months to 120 months. CCF offers the following lease products: Capital Lease, Purchase Upon Termination, TRAC, Split-TRAC, and FMV. Direct finance equipment leases are included in commercial and industrial loans and leases receivable.

The estimated residual values for direct finance and operating leases are established by utilizing internally developed analyses, external studies, and/or third-party appraisals to establish a residual position. For the direct finance leases, only for a Split-TRAC is there a

residual risk and the unguaranteed portions are typically nominal. Expected credit losses on direct financing leases and the related estimated residual values are included in the allowance for credit losses on loans and leases.

Leased assets under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges and are presented in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to the expected residual value. The expected residual value and, accordingly, the monthly depreciation expense, may change throughout the term of the lease. Operating lease rental income for leased assets is recognized in commercial lease income on a straight-line basis over the lease term. Customers periodically reviews its operating leased assets for impairment. An impairment loss is recognized if the carrying amount of the operating leased asset exceeds its fair value and is not recoverable. The carrying amount of operating leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment.

The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location at June 30, 2020 and December 31, 2019:

(amounts in thousands)	Classification	June 30, 2020		December 31, 2019
ASSETS
Direct financing leases
Lease receivables	Loans and leases receivable	$	96,924	$	91,762
Guaranteed residual assets	Loans and leases receivable	7,730		7,435
Unguaranteed residual assets	Loans and leases receivable	3,271		1,260
Deferred initial direct costs	Loans and leases receivable	666		721
Unearned income	Loans and leases receivable	(11,569)		(11,300)
Net investment in direct financing leases		$	97,022	$	89,878
Operating leases
Investment in operating leases	Other assets	$	116,850	$	107,850
Accumulated depreciation	Other assets	(21,310)		(14,251)
Deferred initial direct costs	Other assets	1,148		1,052
Net investment in operating leases		96,688		94,651
Total lease assets		$	193,710	$	184,529

COVID-19 Impact on Leases

Customers granted concessions to lessees as a result of the business impact of the COVID-19 pandemic. At June 30, 2020, the book value of finance and operating leases with payment deferments were $31.7 million and $16.7 million, respectively. The concessions did not have a material impact in interest income from leases for the three months ended June 30, 2020. Additionally, Customers did not receive any concessions on its operating leases in which Customers is the lessee.