Occupancy Expense and Information Systems and Communications Expense

12 Months Ended

Dec. 31, 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 expense in 2019, 2018 and 2017 was $842 million, $599 million and $526 million, 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 December 31, 2019 and 2018, an aggregate net book value of $78 million and $102 million, respectively, for the finance lease related to our One Lincoln Street Boston headquarters was recorded in premises and equipment, with the related liability of $136 million and $190 million, respectively, 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 December 31, 2019, accumulated amortization of the finance lease right-of-use asset was $56 million. Lease payments are recorded as a reduction of the liability, with a portion recorded as imputed interest expense. In 2019 and 2018, interest expense related to the finance lease obligation reflected in NII was $11 million and $17 million, respectively.

As of December 31, 2019, an aggregate net book value of $858 million for the operating lease right-of-use assets is recorded in other assets, with the related lease liability of $1,020 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 December 31, 2019, we have additional operating leases, primarily for office space, that have not yet commenced of approximately $484 million of undiscounted future minimum lease payments. These leases will commence between fiscal year 2020 and fiscal year 2023 with lease terms of 10 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 2019:

(In millions)	Year End December 31, 2019
Finance lease:
Amortization of right-of-use assets	$	21
Interest on lease liabilities	11
Total finance lease expense	32
Sublease income	(9		)
Net finance lease expense	23
Operating lease:
Operating lease expense	179
Sublease income	(6		)
Net operating lease expense	173
Net lease expense	$	196
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	11
Operating cash flows from operating leases	201
Financing cash flows from finance leases	54
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	120
Finance leases	—

The following table presents future minimum lease payments under non-cancellable leases as of December 31, 2019:

(In millions)	Operating Leases			Finance Leases			Total
2020	$	183		$	41		$	224
2021	180			41			221
2022	164			41			205
2023	143			31			174
2024	108			—			108
Thereafter	356			—			356
Total future minimum lease payments	1,134			154			1,288
Less imputed interest	(114		)	(18		)	(132		)
Total	$	1,020		$	136		$	1,156

The following table presents details related to remaining lease terms and discount rate as of December 31, 2019:

	December 31, 2019
Weighted-average remaining lease term (in years):
Finance leases	3.8
Operating leases	7.6
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 expense in 2019, 2018 and 2017 was $842 million, $599 million and $526 million, 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 December 31, 2019 and 2018, an aggregate net book value of $78 million and $102 million, respectively, for the finance lease related to our One Lincoln Street Boston headquarters was recorded in premises and equipment, with the related liability of $136 million and $190 million, respectively, 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 December 31, 2019, accumulated amortization of the finance lease right-of-use asset was $56 million. Lease payments are recorded as a reduction of the liability, with a portion recorded as imputed interest expense. In 2019 and 2018, interest expense related to the finance lease obligation reflected in NII was $11 million and $17 million, respectively.

As of December 31, 2019, an aggregate net book value of $858 million for the operating lease right-of-use assets is recorded in other assets, with the related lease liability of $1,020 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 December 31, 2019, we have additional operating leases, primarily for office space, that have not yet commenced of approximately $484 million of undiscounted future minimum lease payments. These leases will commence between fiscal year 2020 and fiscal year 2023 with lease terms of 10 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 2019:

(In millions)	Year End December 31, 2019
Finance lease:
Amortization of right-of-use assets	$	21
Interest on lease liabilities	11
Total finance lease expense	32
Sublease income	(9		)
Net finance lease expense	23
Operating lease:
Operating lease expense	179
Sublease income	(6		)
Net operating lease expense	173
Net lease expense	$	196
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	11
Operating cash flows from operating leases	201
Financing cash flows from finance leases	54
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	120
Finance leases	—

The following table presents future minimum lease payments under non-cancellable leases as of December 31, 2019:

(In millions)	Operating Leases			Finance Leases			Total
2020	$	183		$	41		$	224
2021	180			41			221
2022	164			41			205
2023	143			31			174
2024	108			—			108
Thereafter	356			—			356
Total future minimum lease payments	1,134			154			1,288
Less imputed interest	(114		)	(18		)	(132		)
Total	$	1,020		$	136		$	1,156

The following table presents details related to remaining lease terms and discount rate as of December 31, 2019:

	December 31, 2019
Weighted-average remaining lease term (in years):
Finance leases	3.8
Operating leases	7.6
Weighted-average discount rate:
Finance leases	7	%
Operating leases	3	%