Leases

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

Leases

LEASES

Lessee

BancShares leases primarily include administrative offices and bank locations. Substantially all of our lease liabilities relate to United States real estate leases under operating lease arrangements. Our lessee finance leases are not significant. Our real estate leases have remaining lease terms of up to 17 years. Our lease terms may include options to extend or terminate the lease. The options are included in the lease term when it is determined that it is reasonably certain the option will be exercised.

The following table presents supplemental balance sheet information and remaining weighted average lease terms and discount rates.

Supplemental Lease Information

dollars in millions	Classification	March 31, 2022			December 31, 2021
ROU assets:
Operating leases	Other assets	$	384		$	64
Finance leases	Premises and equipment	4			4
Total ROU assets		$	388		$	68
Lease liabilities:
Operating leases	Other liabilities	$	385		$	65
Finance leases	Other borrowings	4			4
Total lease liabilities		$	389		$	69
Weighted-average remaining lease terms
Operating leases		9.9 Years			8.9 Years
Finance leases		3.4 Years			3.5 Years
Weighted-average discount rate
Operating leases		2.07		%	3.00		%
Finance leases		3.11		%	3.12		%

The following table presents components of operating lease expense, which are included in operating expenses:

Components of Operating Lease Expense

		Three months ended March 31,
dollars in millions	Classification	2022		2021
Lease cost
Operating lease cost(1)	Occupancy Expense	$	16	$	4
Finance lease cost
Amortization of leased assets	Equipment expense	1		1
Interest on lease liabilities	Interest expense - Other borrowings	—		—
Variable lease cost	Occupancy Expense	3		1
Sublease income	Occupancy Expense	(1)		—
Net lease cost		$	19	$	6

(1)Includes short-term lease cost, which is not significant.

Variable lease cost includes common area maintenance, property taxes, utilities, and other operating expenses related to leased premises recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments adjusted periodically for inflation. While lease liabilities are not remeasured as a result of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred. Sublease income results from leasing excess building space that BancShares is no longer utilizing under operating leases, which have remaining lease terms of up to 14 years.

The following table presents supplemental cash flow information related to leases:

Supplemental Cash Flow Information

	Three months ended March 31,
dollars in millions	2022		2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	14	$	3
Operating cash flows from finance leases	—		—
Financing cash flows from finance leases	—		—
ROU assets obtained in exchange for new lease liabilities	8		3

The following table presents lease liability maturities in the next five years and thereafter at March 31, 2022:

Maturity of Lease Liabilities

dollars in millions
Twelve months ended March 31,	Operating Leases		Finance Leases		Total
2023	$	52	$	2	$	54
2024	52		1		53
2025	49		1		50
2026	44		—		44
2027	42		—		42
Thereafter	189		—		189
Total undiscounted lease payments	$	428	$	4	$	432
Difference between undiscounted cash flows and discounted cash flows	43		—		43
Lease liabilities, at present value	$	385	$	4	$	389

Lessor

BancShares leases equipment to commercial end-users under operating lease and finance lease arrangements. The majority of operating lease equipment is long-lived rail equipment which is typically leased several times over its life. We also lease technology and office equipment and large and small industrial, medical, and transportation equipment under both operating leases and finance leases.

Our Rail operating leases typically do not include purchase options. Many of our finance leases, and other equipment operating leases, offer the lessee the option to purchase the equipment at fair market value or for a nominal fixed purchase option; and many of the leases that do not have a nominal purchase option include renewal provisions resulting in some leases continuing beyond the initial contractual term. Our leases typically do not include early termination options; and continued rent payments are due if leased equipment is not returned at the end of the lease.

The following table provides the net book value of operating lease equipment (net of accumulated depreciation of $67 million at March 31, 2022 by equipment type.

Operating Lease Equipment

dollars in millions	March 31, 2022
Railcars and locomotives	$	7,251
Other equipment	721
Total(1)	$	7,972

(1)Includes off-lease rail equipment of $504 million at March 31, 2022.

The following table presents the components of the finance lease net investment on a discounted basis:

Components of Net Investment in Finance Leases

dollars in millions	March 31, 2022		December 31, 2021
Lease receivables	$	1,882	$	246
Unguaranteed residual assets	283		25
Total net investment in finance leases	2,165		271
Leveraged lease net investment(1)	55		—
Total	$	2,220	$	271

(1)Leveraged leases are reported net of non-recourse debt of $24 million at March 31, 2022. Our leveraged lease arrangements commenced before the Accounting Standards Codification (“ASC”) 842 effective date and continue to be reported under the leveraged lease accounting model. ASC 842 eliminated leveraged lease accounting for new leases and for existing leases modified on or after the standard’s effective date.

The table that follows presents lease income related to BancShares’ operating and finance leases:

Lease Income

	Three months ended March 31,
dollars in millions	2022		2021
Lease income – Operating leases	$	195	$	—
Variable lease income – Operating leases (1)	13		—
Rental income on operating leases	208		—
Interest income - Sales type and direct financing leases	42		5
Variable lease income included in Other noninterest income (2)	11		—
Leveraged lease income	5		—
Total lease income	$	266	$	5

(1)Primarily includes per diem railcar operating lease rental income earned on a time or mileage usage basis.

(2)Includes leased equipment property tax reimbursements due from customers of $3.2 million for the three months ended March 31, 2022 and an insignificant amount for the three months ended March 31, 2021. Also includes revenue related to insurance coverage on leased equipment of $7.5 million for the three months ended March 31, 2022. There was no revenue related to insurance coverage on leased equipment for the three months ended March 31, 2021.

The following tables present lease payments due on non-cancellable operating leases and lease receivables due on finance leases at March 31, 2022. Excluded from these tables are variable lease payments, including rentals calculated based on asset usage levels, rentals from future renewal and re-leasing activity, and expected sales proceeds from remarketing equipment at lease expiration, all of which are components of lease profitability.

Maturity Analysis of Operating Lease Payments

dollars in millions
Twelve months ended March 31,
2023	$	636
2024	479
2025	323
2026	196
2027	118
Thereafter	262
Total	$	2,014

Maturity Analysis of Lease Receivable Payments - Sales Type and Direct Financing Leases

dollars in millions
Twelve months ended March 31,
2023	$	899
2024	588
2025	346
2026	179
2027	75
Thereafter	12
Total undiscounted lease receivables	$	2,099
Difference between undiscounted cash flows and discounted cash flows	217
Lease receivables, at present value	$	1,882

Leases

LEASES

Lessee

BancShares leases primarily include administrative offices and bank locations. Substantially all of our lease liabilities relate to United States real estate leases under operating lease arrangements. Our lessee finance leases are not significant. Our real estate leases have remaining lease terms of up to 17 years. Our lease terms may include options to extend or terminate the lease. The options are included in the lease term when it is determined that it is reasonably certain the option will be exercised.

The following table presents supplemental balance sheet information and remaining weighted average lease terms and discount rates.

Supplemental Lease Information

dollars in millions	Classification	March 31, 2022			December 31, 2021
ROU assets:
Operating leases	Other assets	$	384		$	64
Finance leases	Premises and equipment	4			4
Total ROU assets		$	388		$	68
Lease liabilities:
Operating leases	Other liabilities	$	385		$	65
Finance leases	Other borrowings	4			4
Total lease liabilities		$	389		$	69
Weighted-average remaining lease terms
Operating leases		9.9 Years			8.9 Years
Finance leases		3.4 Years			3.5 Years
Weighted-average discount rate
Operating leases		2.07		%	3.00		%
Finance leases		3.11		%	3.12		%

The following table presents components of operating lease expense, which are included in operating expenses:

Components of Operating Lease Expense

		Three months ended March 31,
dollars in millions	Classification	2022		2021
Lease cost
Operating lease cost(1)	Occupancy Expense	$	16	$	4
Finance lease cost
Amortization of leased assets	Equipment expense	1		1
Interest on lease liabilities	Interest expense - Other borrowings	—		—
Variable lease cost	Occupancy Expense	3		1
Sublease income	Occupancy Expense	(1)		—
Net lease cost		$	19	$	6

(1)Includes short-term lease cost, which is not significant.

Variable lease cost includes common area maintenance, property taxes, utilities, and other operating expenses related to leased premises recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments adjusted periodically for inflation. While lease liabilities are not remeasured as a result of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred. Sublease income results from leasing excess building space that BancShares is no longer utilizing under operating leases, which have remaining lease terms of up to 14 years.

The following table presents supplemental cash flow information related to leases:

Supplemental Cash Flow Information

	Three months ended March 31,
dollars in millions	2022		2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	14	$	3
Operating cash flows from finance leases	—		—
Financing cash flows from finance leases	—		—
ROU assets obtained in exchange for new lease liabilities	8		3

The following table presents lease liability maturities in the next five years and thereafter at March 31, 2022:

Maturity of Lease Liabilities

dollars in millions
Twelve months ended March 31,	Operating Leases		Finance Leases		Total
2023	$	52	$	2	$	54
2024	52		1		53
2025	49		1		50
2026	44		—		44
2027	42		—		42
Thereafter	189		—		189
Total undiscounted lease payments	$	428	$	4	$	432
Difference between undiscounted cash flows and discounted cash flows	43		—		43
Lease liabilities, at present value	$	385	$	4	$	389

Lessor

BancShares leases equipment to commercial end-users under operating lease and finance lease arrangements. The majority of operating lease equipment is long-lived rail equipment which is typically leased several times over its life. We also lease technology and office equipment and large and small industrial, medical, and transportation equipment under both operating leases and finance leases.

Our Rail operating leases typically do not include purchase options. Many of our finance leases, and other equipment operating leases, offer the lessee the option to purchase the equipment at fair market value or for a nominal fixed purchase option; and many of the leases that do not have a nominal purchase option include renewal provisions resulting in some leases continuing beyond the initial contractual term. Our leases typically do not include early termination options; and continued rent payments are due if leased equipment is not returned at the end of the lease.

The following table provides the net book value of operating lease equipment (net of accumulated depreciation of $67 million at March 31, 2022 by equipment type.

Operating Lease Equipment

dollars in millions	March 31, 2022
Railcars and locomotives	$	7,251
Other equipment	721
Total(1)	$	7,972

(1)Includes off-lease rail equipment of $504 million at March 31, 2022.

The following table presents the components of the finance lease net investment on a discounted basis:

Components of Net Investment in Finance Leases

dollars in millions	March 31, 2022		December 31, 2021
Lease receivables	$	1,882	$	246
Unguaranteed residual assets	283		25
Total net investment in finance leases	2,165		271
Leveraged lease net investment(1)	55		—
Total	$	2,220	$	271

(1)Leveraged leases are reported net of non-recourse debt of $24 million at March 31, 2022. Our leveraged lease arrangements commenced before the Accounting Standards Codification (“ASC”) 842 effective date and continue to be reported under the leveraged lease accounting model. ASC 842 eliminated leveraged lease accounting for new leases and for existing leases modified on or after the standard’s effective date.

The table that follows presents lease income related to BancShares’ operating and finance leases:

Lease Income

	Three months ended March 31,
dollars in millions	2022		2021
Lease income – Operating leases	$	195	$	—
Variable lease income – Operating leases (1)	13		—
Rental income on operating leases	208		—
Interest income - Sales type and direct financing leases	42		5
Variable lease income included in Other noninterest income (2)	11		—
Leveraged lease income	5		—
Total lease income	$	266	$	5

(1)Primarily includes per diem railcar operating lease rental income earned on a time or mileage usage basis.

(2)Includes leased equipment property tax reimbursements due from customers of $3.2 million for the three months ended March 31, 2022 and an insignificant amount for the three months ended March 31, 2021. Also includes revenue related to insurance coverage on leased equipment of $7.5 million for the three months ended March 31, 2022. There was no revenue related to insurance coverage on leased equipment for the three months ended March 31, 2021.

The following tables present lease payments due on non-cancellable operating leases and lease receivables due on finance leases at March 31, 2022. Excluded from these tables are variable lease payments, including rentals calculated based on asset usage levels, rentals from future renewal and re-leasing activity, and expected sales proceeds from remarketing equipment at lease expiration, all of which are components of lease profitability.

Maturity Analysis of Operating Lease Payments

dollars in millions
Twelve months ended March 31,
2023	$	636
2024	479
2025	323
2026	196
2027	118
Thereafter	262
Total	$	2,014

Maturity Analysis of Lease Receivable Payments - Sales Type and Direct Financing Leases

dollars in millions
Twelve months ended March 31,
2023	$	899
2024	588
2025	346
2026	179
2027	75
Thereafter	12
Total undiscounted lease receivables	$	2,099
Difference between undiscounted cash flows and discounted cash flows	217
Lease receivables, at present value	$	1,882