Lease Investments

12 Months Ended

Dec. 31, 2023

As a lessor, the Company’s loan and lease portfolio includes direct finance leases, which are included in Commercial and Agricultural, Renewable Energy, 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 as of December 31.


(Dollars in thousands)	2023		2022
Direct finance leases:
Minimum lease payments	$	247,256	$	224,816
Estimated unguaranteed residual values	—		—
Less: Unearned income	(57,927)		(50,633)
Net investment in direct finance leases	$	189,329	$	174,183

Operating leases:
Gross investment in operating leases	$	41,368	$	60,999
Accumulated depreciation	(21,002)		(29,299)
Net investment in operating leases	$	20,366	$	31,700

The following table shows future minimum lease payments due from clients on direct finance and operating leases at December 31, 2023.


(Dollars in thousands)	Direct Finance Leases		Operating Leases
2024	$	60,420	$	5,588
2025	47,019		3,239
2026	36,834		1,743
2027	30,475		887
2028	26,118		427
Thereafter	46,390		40
Total	$	247,256	$	11,924

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 the Company’s 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 $48.15 million and $29.65 million at December 31, 2023 and December 31, 2022, respectively.

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


(Dollars in thousands)	2023		2022		2021
Direct finance leases:
Interest income on lease receivable	$	13,553	$	9,008	$	6,634

Operating leases:
Income related to lease payments	$	8,837	$	12,274	$	16,647
Depreciation expense	7,093		10,023		13,694

Income related to reimbursements from lessees for personal property tax on operating leased equipment for the years ended December 31, 2023, 2022 and 2021 were $0.27 million, $0.35 million and $0.46 million, respectively. Expense related to personal property tax payments on operating leased equipment for the year ended December 31, 2023, 2022 and 2021 were $0.27 million, $0.35 million and $0.46 million, respectively.

During the years ended December 31, 2023, 2022, and 2021, the Company recorded impairment charges of $0.00 million, $0.06 million, and $0.00 million, respectively. The impairment charges were recorded as a result of the annual review of operating lease residual values and was recognized in Depreciation — Leased Equipment on the Consolidated Statements of Income.