Occupancy Expense and Information Systems and Communications Expense

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Occupancy Expense and Information Systems and Communications Expense

Occupancy Expense and Information Systems and Communications Expense

Upon adoption of Topic 842 on January 1, 2019, we recognized right-of-use assets of approximately $0.91 billion and lease liabilities of approximately $1.06 billion.

Occupancy expense and information systems and communications expense include depreciation of buildings, leasehold improvements, computer hardware and software, equipment, furniture and fixtures, and amortization of lease right-of-use assets. Total depreciation and amortization was $214 million and $625 million in the three and nine months ended September 30, 2019, respectively.

We use our incremental borrowing rate to determine the present value of the lease payments for finance and operating leases described below. Additionally, we do not separate nonlease components such as real estate taxes and common area maintenance from base lease payments.

As of September 30, 2019, an aggregate net book value of $84 million for the finance lease related to our One Lincoln Street Boston headquarters is recorded in premises and equipment, with the related lease liability of $144 million recorded in long-term debt, in our consolidated statement of condition.

Finance lease right-of-use asset amortization is recorded in occupancy expense on a straight-line basis in our consolidated statement of income over the respective lease term. As of September 30, 2019, accumulated amortization of the finance lease right-of-use asset was $51 million. Lease payments are recorded as a reduction of the liability, with a portion recorded as imputed interest expense. In the three and nine months ended September 30, 2019, interest expense related to the finance lease obligation reflected in NII was $3 million and $9 million, respectively.

As of September 30, 2019, an aggregate net book value of $834 million for the operating lease right-of-use assets is recorded in other assets, with the related lease liability of $977 million recorded in accrued expenses and other liabilities in our consolidated statement of condition.

We have entered into non-cancellable operating leases for premises and equipment. Nearly all of these leases include renewal options, and only those reasonably certain of being exercised are included in the term of the lease. Costs for operating leases are recorded on a straight-line basis which includes both interest expense and right-of-use asset amortization. Operating lease costs for office space are recorded in occupancy expense. Costs related to operating leases for equipment are recorded in information systems and communications expense.

As of September 30, 2019, we have additional operating leases, primarily for office space, that have not yet commenced of approximately $508 million of undiscounted future minimum lease payments. These leases will commence between fiscal year 2019 and fiscal year 2023 with lease terms of 11 to 15 years. The majority of these future payments relate to the new Boston headquarters lease executed in the first quarter of 2019, replacing the One Lincoln Street Boston property.

None of our leases contain residual value guarantees.

The following table presents lease costs, sublease rental income, cash flows and new leases arising from lease transactions for the three and nine months ended September 30, 2019:

(In millions)	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Finance lease:
Amortization of right-of-use assets	$	5		$	16
Interest on lease liabilities	3			9
Total finance lease expense	8			25
Sublease income	(2		)	(7		)
Net finance lease expense	6			18
Operating lease:
Operating lease expense	43			132
Sublease income	(1		)	(4		)
Net operating lease expense	42			128
Net lease expense	$	48		$	146
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	2		$	8
Operating cash flows from operating leases	43			142
Financing cash flows from finance leases	8			47
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	21		$	54
Finance leases	—			—

The following table presents future minimum lease payments under non-cancellable leases as of September 30, 2019:

(In millions)	Operating Leases			Finance Leases			Total
2019 (excluding the first nine months ended 2019)	$	48		$	10		$	58
2020	182			42			224
2021	175			42			217
2022	153			42			195
2023	133			30			163
Thereafter	393			—			393
Total future minimum lease payments	1,084			166			1,250
Less imputed interest	(107		)	(22		)	(129		)
Total	$	977		$	144		$	1,121

The following table presents details related to remaining lease terms and discount rate as of September 30, 2019

	September 30, 2019
Weighted-average remaining lease term (in years):
Finance leases	4
Operating leases	7
Weighted-average discount rate:
Finance leases	7	%
Operating leases	3

Occupancy Expense and Information Systems and Communications Expense

Occupancy Expense and Information Systems and Communications Expense

Upon adoption of Topic 842 on January 1, 2019, we recognized right-of-use assets of approximately $0.91 billion and lease liabilities of approximately $1.06 billion.

Occupancy expense and information systems and communications expense include depreciation of buildings, leasehold improvements, computer hardware and software, equipment, furniture and fixtures, and amortization of lease right-of-use assets. Total depreciation and amortization was $214 million and $625 million in the three and nine months ended September 30, 2019, respectively.

We use our incremental borrowing rate to determine the present value of the lease payments for finance and operating leases described below. Additionally, we do not separate nonlease components such as real estate taxes and common area maintenance from base lease payments.

As of September 30, 2019, an aggregate net book value of $84 million for the finance lease related to our One Lincoln Street Boston headquarters is recorded in premises and equipment, with the related lease liability of $144 million recorded in long-term debt, in our consolidated statement of condition.

Finance lease right-of-use asset amortization is recorded in occupancy expense on a straight-line basis in our consolidated statement of income over the respective lease term. As of September 30, 2019, accumulated amortization of the finance lease right-of-use asset was $51 million. Lease payments are recorded as a reduction of the liability, with a portion recorded as imputed interest expense. In the three and nine months ended September 30, 2019, interest expense related to the finance lease obligation reflected in NII was $3 million and $9 million, respectively.

As of September 30, 2019, an aggregate net book value of $834 million for the operating lease right-of-use assets is recorded in other assets, with the related lease liability of $977 million recorded in accrued expenses and other liabilities in our consolidated statement of condition.

We have entered into non-cancellable operating leases for premises and equipment. Nearly all of these leases include renewal options, and only those reasonably certain of being exercised are included in the term of the lease. Costs for operating leases are recorded on a straight-line basis which includes both interest expense and right-of-use asset amortization. Operating lease costs for office space are recorded in occupancy expense. Costs related to operating leases for equipment are recorded in information systems and communications expense.

As of September 30, 2019, we have additional operating leases, primarily for office space, that have not yet commenced of approximately $508 million of undiscounted future minimum lease payments. These leases will commence between fiscal year 2019 and fiscal year 2023 with lease terms of 11 to 15 years. The majority of these future payments relate to the new Boston headquarters lease executed in the first quarter of 2019, replacing the One Lincoln Street Boston property.

None of our leases contain residual value guarantees.

The following table presents lease costs, sublease rental income, cash flows and new leases arising from lease transactions for the three and nine months ended September 30, 2019:

(In millions)	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Finance lease:
Amortization of right-of-use assets	$	5		$	16
Interest on lease liabilities	3			9
Total finance lease expense	8			25
Sublease income	(2		)	(7		)
Net finance lease expense	6			18
Operating lease:
Operating lease expense	43			132
Sublease income	(1		)	(4		)
Net operating lease expense	42			128
Net lease expense	$	48		$	146
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	2		$	8
Operating cash flows from operating leases	43			142
Financing cash flows from finance leases	8			47
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	21		$	54
Finance leases	—			—

The following table presents future minimum lease payments under non-cancellable leases as of September 30, 2019:

(In millions)	Operating Leases			Finance Leases			Total
2019 (excluding the first nine months ended 2019)	$	48		$	10		$	58
2020	182			42			224
2021	175			42			217
2022	153			42			195
2023	133			30			163
Thereafter	393			—			393
Total future minimum lease payments	1,084			166			1,250
Less imputed interest	(107		)	(22		)	(129		)
Total	$	977		$	144		$	1,121

The following table presents details related to remaining lease terms and discount rate as of September 30, 2019

	September 30, 2019
Weighted-average remaining lease term (in years):
Finance leases	4
Operating leases	7
Weighted-average discount rate:
Finance leases	7	%
Operating leases	3