LEASES

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

Upon adoption the Bank has elected to use the following optional exemptions that are permitted under Topic 842, which have been applied consistently:


•	the Bank elected the optional transition method and recorded an immaterial cumulative-effect adjustment to retained earnings to recognize the appropriate amount of lease assets and liabilities on the balance sheet as of the adoption date of the standard. Prior period financial statements were not restated.


•	the Bank elected the expedient package to not reassess (1) whether any existing or expired contracts are or contain leases, (2) lease classification for any existing or expired leases, and (3) initial direct costs for any existing leases.


•	the Bank elected to not separate lease components from non-lease components for all classes of underlying assets for lessee or lessor transactions.

We determine if a contract is a lease or contains a lease at inception. The right to use leased assets for the lease term are considered ROU assets. Operating lease assets are included in “Other assets” while finance lease assets are included in “Premises, equipment and software, net.” Lease liabilities for operating leases are included in “Other liabilities” while finance leases are included in “Long-term debt” on our consolidated balance sheet.

Lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The lease ROU asset also incorporates any amortization incurred, including initial direct costs, and excludes lease incentives received. Our lease terms may include options to extend or terminate the lease, and the lease term incorporates these when it is reasonably certain that we will exercise these options. The Bank enters into certain lease agreements with both lease and non-lease components, which are not separated out for lessees and lessors on a relative standalone basis.

We have operating and finance leases for branches, corporate offices, and data centers. Our equipment leases are not material. At March 31, 2019, we had 433 branches, of which 276 are owned and 157 are leased. We lease our headquarters in Salt Lake City, Utah, and other office or data centers are either owned or leased.

The Bank may enter into certain lease arrangements with a term of 12 months or less, and it has elected to exclude these from capitalization. The length of our commitments for leases ranges from 2019 to 2062, some of which include options to extend or terminate the leases.

As of March 31, 2019, assets recorded under operating leases were $244 million, while assets recorded under finance leases were less than $1 million. We utilized a secured incremental borrowing rate based on the remaining term of the lease as of the effective date for the discount rate to determine our lease ROU assets and liabilities. The following schedule presents lease-related assets, their weighted average remaining life, and the weighted average discount rate.



(Dollar amounts in millions)	March 31, 2019

Operating
Operating right-of-use assets	$	244
Operating lease liabilities	252
Weighted average remaining lease term (years)
Operating leases	9.4
Finance leases	1.1
Weighted average discount rate
Operating leases	3.2		%
Finance leases	13.1		%

The components of lease expense are as follows:



(In millions)	Three Months Ended March 31, 2019

Operating lease costs	$	12
Variable lease costs	13
Total lease cost	$	25

Supplemental cash flow information related to leases is as follows:



(In millions)	Three Months Ended March 31, 2019

Cash paid for amounts in the measurement of lease liabilities:
Operating cash disbursements from operating leases	$	10

Maturities analysis for lease liabilities as of March 31, 2019 is as follows (undiscounted lease payments):



(In millions)

2019 ¹	$	41
2020	45
2021	39
2022	35
2023	31
Thereafter	114
Total	$	305

¹ Contractual maturities for the nine months remaining in 2019.

The Bank enters into certain lease agreements where it is the lessor of real estate. Real estate leases are made from bank-owned and subleased property to generate cash flow from the property, including from leasing vacant suites in which the Bank occupies portions of the building. Operating lease income was $2 million and $3 million for the first three months of 2019 and 2018, respectively. Maturities analysis of operating lease payments to be received as of March 31, 2019 is as follows:



(In millions)

2019 ¹	$	6
2020	8
2021	8
2022	7
2023	7
Thereafter	25
Total	$	61

¹ Contractual maturities for the nine months remaining in 2019.

The Bank also has a lending division that makes equipment leases, considered to be sales-type leases or direct financing leases, totaling $312 million and $371 million as of March 31, 2019 and 2018, respectively. The Bank uses leasing of equipment as a venue for customers to access equipment without purchasing upfront. For the first quarters of 2019 and 2018, the Bank recorded income of $4 million and $3 million on these leases.