Lease Investments

9 Months Ended

Sep. 30, 2019

As a lessor, the Company’s loan and lease portfolio includes direct finance leases, which are included in commercial and agricultural, auto and light truck, medium and heavy duty truck, aircraft, and construction equipment on the Consolidated Statements of Financial Condition. The Company also finances various types of construction equipment, medium and heavy duty trucks, automobiles and other equipment under leases classified as operating leases, which are included in Equipment Owned Under Operating Leases, net, on the Consolidated Statements of Financial Condition.

The following table shows the components of the investment in direct finance and operating leases.



(Dollars in thousands)	September 30, 2019			December 31, 2018
Direct finance leases:
Minimum lease payments	$	208,123		$	257,398
Estimated unguaranteed residual values	41			41
Less: Unearned income	(35,719		)	(46,709		)
Net investment in direct finance leases	$	172,445		$	210,730

Operating leases:
Gross investment in operating leases	$	189,543		$	199,954
Accumulated depreciation	(70,372		)	(65,514		)
Net investment in operating leases	$	119,171		$	134,440

The following table shows future minimum lease payments due from clients on direct finance and operating leases at September 30, 2019.



(Dollars in thousands)	Direct Finance Leases		Operating Leases
Remainder of 2019	$	12,682	$	7,798
2020	42,746		33,502
2021	35,637		20,243
2022	34,037		12,432
2023	29,310		6,767
Thereafter	53,711		3,201
Total	$	208,123	$	83,943

To mitigate the risk of loss, the Company seeks to diversify both the type of equipment leased and the industries in which the lessees participate. In addition, a portion of our leases are terminal rental adjustment clause or “TRAC” leases where the lessee effectively guarantees the full residual value through a rental adjustment at the end of term or those where partial value is guaranteed (“split-TRAC”), which has a limited residual risk. Under a split-TRAC structure, the limited residual risk would be satisfied first by the net sale proceeds of the leased asset. The lessee’s at-risk portion, or top risk, is satisfied last and is subject to repayment as additional rent, if the TRAC amount is not satisfied by the net sale proceeds. The carrying amount of residual assets covered by residual value guarantees was $75.00 million and $87.61 million at September 30, 2019 and December 31, 2018, respectively.

The following table shows interest income recognized from direct finance lease payments and operating lease equipment rental income and related depreciation expense.



	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2019		2018		2019		2018
Direct finance leases:
Interest income on lease receivable	$	2,280	$	3,020	$	8,699	$	9,689

Operating leases:
Income related to lease payments	$	7,578	$	7,977	$	23,369	$	23,836
Depreciation expense	6,198		6,580		19,122		19,692

Income related to reimbursements from lessees for personal property tax on operating leased equipment for the three and nine months ended September 30, 2019 was $0.15 million and $0.50 million, respectively. Expense related to personal property tax payments on operating leased equipment for the three and nine months ended September 30, 2019 was $0.15 million and $0.50 million, respectively.