Leases

12 Months Ended

Dec. 31, 2019

NOTE 10. LEASES

The Company adopted ASU 2016-02, "Leases (Topic 842)," effective January 1, 2019, and applied the guidance to all leases within the scope of ASC Topic 842, "Leases," as of that date. We have adopted the guidance using the optional transition method under ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” and recognized a cumulative effect adjustment to increase retained earnings by $938,000, net of taxes, without restating prior periods and applying the requirements of the new standard prospectively.

We determine if an arrangement is a lease at inception by assessing whether there is an identified asset, and whether the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. ASC Topic 842 also requires a lessee to classify a lease as either finance or operating. As of December 31, 2019, we only had operating leases related to our leased facilities, which consisted of 72 full-service branch offices and 75 other offices.

ROU assets represent a lessee's right to use an underlying asset for the lease term and lease liabilities represent a lessee's obligation to make lease payments arising from the lease. On January 1, 2019, ROU assets and operating lease liabilities were initially recognized based on the present value of future minimum lease payments over the remaining lease terms. We used our incremental borrowing rates on January 1, 2019 to determine the present value of future payments. The ROU assets also include any prepaid lease payments and initial direct costs incurred less any lease incentives received. We amortize the operating lease ROU assets and record interest expense on the operating lease liabilities over the lease terms.

Our leases have remaining terms ranging from one to 27 years. Short-term leases (initial term of less than 12 months) are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. Most leases include one or more options to renew, with renewal terms that can extend the lease from one to ten years. The exercise of lease renewal options is at our sole discretion. Some of our leases also include termination options. We have determined that we do not meet the reasonably certain threshold to exercise any renewal or termination options, therefore our lease terms do not reflect any optional periods. We rent or sublease certain office space to third parties. Our subleases consist of operating leases for offices that we have fully or partially vacated.

Certain of our lease agreements also include rental payments that adjust periodically based on changes in the CPI. We initially measured our lease payments using the index at the lease commencement date. Subsequent increases in the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. The ROU assets and lease liabilities are not re-measured as a result of changes in the CPI. Our lease agreements do not contain any purchase options, residual value guarantees, or restrictive covenants.

Operating Leases as a Lessee

Our lease expense is a component of "Occupancy expense" on our consolidated statements of earnings. The following table presents the components of lease expense for the period indicated:



	Year Ended
	December 31, 2019
	(In thousands)
Operating lease expense:
Fixed costs	$	33,891
Variable costs	100
Short-term lease costs	926
Sublease income	(4,202		)
Net lease expense	$	30,715

The following table presents supplemental cash flow information related to leases for the period indicated:



	Year Ended
	December 31, 2019
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	32,991
ROU assets obtained in exchange for lease obligations:
Operating leases	$	175,569

The following table presents supplemental balance sheet and other information related to operating leases as of the date indicated:



	December 31, 2019
	(Dollars in thousands)
Operating leases:
Operating lease right-of-use assets, net	$	129,301
Operating lease liabilities	$	145,354

Weighted average remaining lease term (in years)	6.1
Weighted average discount rate	2.82		%

The following table presents the maturities of operating lease liabilities as of the date indicated:



	December 31, 2019
	(In thousands)
Year Ending December 31,
2020	$	32,898
2021	30,657
2022	24,849
2023	22,068
2024	14,885
2025 and thereafter	34,119
Total operating lease liabilities	159,476
Less: Imputed interest	(14,122		)
Present value of operating lease liabilities	$	145,354

Prior to the adoption of ASC Topic 842, the Company's operating leases were not recognized on the balance sheet. The following table presents the undiscounted future minimum lease payments under the Company's operating leases as of December 31, 2018:



	December 31, 2018
	(In thousands)
Year Ending December 31,
2019	$	32,845
2020	30,267
2021	26,852
2022	20,862
2023	17,745
2024 and thereafter	29,923
Total	$	158,494

Operating Leases as a Lessor

We provide equipment financing to our customers through operating leases where we facilitate the purchase of equipment leased to our customers. The equipment is shown on our consolidated balance sheets as "Equipment leased to others under operating leases" and is depreciated to its estimated residual value at the end of the lease term, shown as "Leased equipment depreciation" in the consolidated statements of earnings, according to our fixed asset accounting policy. We receive periodic rental income payments under the leases, which are recorded as "Noninterest Income" in the consolidated statements of earnings.

The following table presents the rental payments to be received on operating leases as of the date indicated:



	December 31, 2019
	(In thousands)
Year Ending December 31,
2020	$	41,296
2021	39,292
2022	32,240
2023	25,522
2024	20,912
2025 and thereafter	37,304
Total undiscounted cash flows	$	196,566