Lease Obligations - Lessee

9 Months Ended

Sep. 30, 2019

Lessee Disclosure [Abstract]

Lease Obligations - Lessee

10. Lease Obligations - Lessee

The Bancorp leases certain banking centers, ATM sites, land for owned buildings and equipment. Substantially all of the Bancorp’s leases include options to renew and the exercise of lease renewal options is at the Bancorp’s discretion. At the lease commencement date, the Bancorp assesses whether it is reasonably certain to exercise the renewal option by considering all economic factors relevant to the contract. If the Bancorp is reasonably certain to exercise the option, the renewal period is included in the lease term in measuring the right-of-use asset and lease liability at the commencement of the lease.

The Bancorp’s lease agreements typically do not contain any residual value guarantees or any material restrictive covenants. The Bancorp has elected not to recognize leases with an initial term of 12 months or less (“short-term leases”) on the Condensed Consolidated Balance Sheets.

The Bancorp recognizes lease costs associated with operating leases in the Condensed Consolidated Statements of Income on a straight-line basis over the remaining lease term unless there is another systematic and rational basis that better reflects how the benefits of the underlying asset are consumed over the lease term. Variable lease payments associated with operating leases are recognized in the period in which the obligation for those payments is incurred.

After the commencement of a finance lease, the Bancorp measures its lease liability by using the effective interest method such that the liability is increased for interest based on the discount rate that is implicit in the lease, or the Bancorp’s incremental borrowing rate if the implicit rate cannot be readily determined, offset by a decrease in the liability resulting from the periodic lease payments. The right-of-use asset associated with a finance lease is amortized on a straight-line basis unless there is another systematic and rational basis that better reflects how the benefits of the underlying asset are consumed over the lease term. The period over which the right-of-use asset is amortized is generally the lesser of the remaining lease term or the remaining useful life of the leased asset. Variable lease payments associated with finance leases are recognized in the period in which the obligation for those payments is incurred.

The following table provides a summary of lease assets and lease liabilities as of:
($ in millions)	Condensed Consolidated Balance Sheets Caption		September 30, 2019
Assets
Operating lease right-of-use assets	Other assets	$	462
Finance lease right-of-use assets	Bank premises and equipment		25
Total right-of-use assets(a)		$	487
Liabilities
Operating lease liabilities	Accrued taxes, interest and expenses	$	543
Finance lease liabilities	Long-term debt		26
Total lease liabilities		$	569

(a) Operating and finance lease right-of-use assets are recorded net of accumulated amortization of $57 and $25 as of September 30, 2019, respectively.

The following table presents the components of lease costs:
				For the three months ended September 30, 2019	For the nine months ended September 30, 2019
($ in millions)		Condensed Consolidated Statements of Income Caption
Lease costs:
	Amortization of right-of-use assets	Net occupancy and equipment expense	$	2	5
	Interest on lease liabilities	Interest on long-term debt		-	-
Total finance lease costs			$	2	5
	Operating lease cost	Net occupancy expense	$	25	72
	Short-term lease cost	Net occupancy expense		-	-
	Variable lease cost	Net occupancy expense		7	23
	Sublease income	Net occupancy expense		(1)	(3)
Total operating lease costs			$	31	92
Total lease costs			$	33	97

The Bancorp performs impairment assessments for ROU assets when events or changes in circumstances indicate that their carrying values may not be recoverable. In addition to the lease costs disclosed in the table above, the Bancorp recognized $5 million and $12 million of impairment losses and termination charges for the ROU assets related to certain operating leases for the three and nine months ended September 30, 2019, respectively. The recognized impairment losses were recorded in net occupancy expense in the Condensed Consolidated Statements of Income.

The following table presents undiscounted cash flows for both operating leases and finance leases for the remainder of 2019 through 2024 and thereafter as well as a reconciliation of the undiscounted cash flows to the total lease liabilities as follows:
		Operating Leases	Finance Leases
As of September 30, 2019 ($ in millions)				Total
Remainder of 2019	$	25	2	27
2020		88	6	94
2021		77	5	82
2022		72	4	76
2023		63	1	64
2024		55	1	56
Thereafter		258	14	272
Total undiscounted cash flows	$	638	33	671
Less: Difference between undiscounted cash flows and discounted cash flows		95	7	102
Present value of lease liabilities	$	543	26	569

The following table presents the weighted-average remaining lease term and weighted-average discount rate as of:
		September 30, 2019
Weighted-average remaining lease term (years):
	Operating leases	9.35
	Finance leases	11.35
Weighted-average discount rate:
	Operating leases	3.24	%
	Finance leases	4.78

The following table presents information related to lease transactions for the nine months ended:
($ in millions)			September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:(a)
	Operating cash flows from operating leases	$	72
	Operating cash flows from finance leases		1
	Financing cash flows from finance leases		3
Gains on sale and leaseback transactions			5
(a)	The cash flows related to the short-term and variable lease payments are not included in the amounts in the table as they were not included in the measurement of lease liabilities.