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Leases

6 Months Ended

Jun. 30, 2019

On January 1, 2019, the Corporation adopted ASU 2016-02-Leases (Topic 842) and all subsequent ASUs that modified Topic 842. Refer to Note 1, Basis of Presentation and Significant Accounting Policies, for further details regarding the adoption.

Lessee Leases

Operating leases in which the Corporation is the lessee are recorded as operating lease right-of-use ("ROU") assets and operating lease liabilities, included in "Interest receivable and other assets" and "Interest payable and other liabilities," respectively, in the Consolidated Statements of Financial Position.

Operating lease ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the future minimum lease payments over the lease term. The Corporation has lease agreements with lease and non-lease components, which are accounted for separately. Where an implicit rate is not provided or determinable in the lease, the Corporation uses its incremental borrowing rate as a discount rate, on a collateralized basis, over a similar term. The lease term considers options to extend or terminate the lease when it is reasonably certain that the Corporation will exercise that option.

The Corporation's leases relate primarily to real estate property consisting of branches, office space, storage and operation centers with remaining lease terms of generally 1 to 15 years. Certain lease arrangements contain extension options which typically range from 3 to 5 years. During the three and six months ended June 30, 2019, the Corporation obtained $877 thousand and $6.7 million of ROU assets in exchange for new lease liabilities. Cash paid for amounts included in the measurement of lease liabilities from operating leases were $2.0 million and $4.0 million for the three and six months ended June 30, 2019. As of June 30, 2019, operating lease ROU assets and liabilities were $40.5 million and $41.4 million, respectively.

The following table presents balances and assumptions utilized in determining the right to use asset and lease liability for operating leases as of June 30, 2019:



	June 30, 2019

Weighted-average remaining lease terms (in years)	7.85
Weighted-average discount rate	3.1	%

The components of net operating lease cost were as follows:



	Three Months Ended June 30,			Six Months Ended June 30,
(Dollars in thousands)	2019			2019
Operating lease cost	$	2,050		3,964
Variable lease cost⁽¹⁾	247			454
Sublease income	(56		)	(111		)
Total lease cost⁽²⁾	$	2,241		$	4,307


⁽¹⁾	Represents non-lease components such as common area maintenance, taxes, insurance and utilities.


⁽²⁾	Included within "Occupancy" expense in the Consolidated Statements of Income.

Maturities of operating lease liability due under these lease arrangements as of June 30, 2019 are as follows:



(Dollars in thousands)	Operating Leases
Remainder of 2019	$	4,081
2020	7,490
2021	7,083
2022	6,149
2023	5,017
Thereafter	17,041
Total	$	46,861
Less: Present value discount	5,458
Lease liability	$	41,403

As of June 30, 2019, the Corporation has approximately $247.4 million in additional leases for real property that have not yet commenced and are excluded from the lessee maturity table above. Of the aforementioned amount, $231.6 million is related to a lease agreement for the new headquarters building in Detroit, Michigan signed on May 31, 2019, with an organization 50% owned by indirect related parties. The new headquarter lease will have a term of 22.5 years and a rent commencement date of January 1, 2022 with renewal options.

At December 31, 2018, operating lease commitments under lessee arrangements were $7.3 million, $6.2 million, $5.1 million, $4.8 million and $4.4 million for 2019 through 2023, respectively, and $12.1 million in aggregate for all years thereafter. These amounts include variable lease payments under leases that have not yet commenced, which are excluded from the lessee maturity analysis presented in the table above.

Lessor Leases

The Corporation is the lessor in certain arrangements, primarily for the use of real estate property. Lease agreements may include options to renew, but do not offer the right to purchase the underlying asset at the end of the lease term. Of the $123.7 million of net premises and equipment, $15.1 million represents underlying assets under operating leases as of June 30, 2019.

The components of operating lease income were as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
(Dollars in thousands)	2019		2019
Lease income - operating leases	$	169	363
Total lease income⁽¹⁾	$	169	$	363

⁽¹⁾

Included within "Other" noninterest income in the Consolidated Statements of Income.

Leases