The Company adopted ASC Topic 842, Leases, on January 1, 2019 using a modified retrospective transition approach. As permitted by ASC 842, the Company elected not to reassess (i) whether any expired or existing contracts are leases or contain leases, (ii) the lease classification of any expired or existing leases, and (iii) the initial direct costs for existing leases.



(Dollars in millions)	Classification	June 30, 2019
Assets:
Operating lease right-of-use assets	Other assets		$1,128
Finance lease right-of-use assets	Premises, property, and equipment, net	25
Total right-of-use assets			$1,153
Liabilities:
Operating leases	Other liabilities		$1,205
Finance leases	Long-term debt	27
Total lease liabilities			$1,232

The Company leases certain assets, consisting primarily of real estate, and assesses at contract inception whether a contract is, or contains, a lease. A right-of-use asset and lease liability is recorded on the balance sheet for all leases except those with an original lease term of twelve months or less.

The Company's leases typically have lease terms between five years and ten years, with the longest lease term having an expiration date in 2081. Most of these leases include one or more renewal options for five years or less, and certain leases also include lessee termination options. At lease commencement, the Company assesses whether it is reasonably certain to exercise a renewal option, or reasonably certain not to exercise a termination option, by considering various economic factors. Options that are reasonably certain of being exercised are factored into the determination of the lease term, and related payments are included in the calculation of the right-of-use asset and lease liability.

rate implicit in a lease is not disclosed. Variable lease payments that are linked to a certain rate or index, such as the CPI, are included in the present value of lease payments and measured using the prevailing rate or index at lease commencement, with changes in the associated rate or index recognized in earnings during the period in which the change occurs. The right-of-use asset and lease liability are not remeasured as a result of any subsequent change in the index or rate unless remeasurement is required for another reason. Variable lease payments that are not linked to a certain rate or index are comprised primarily of operating costs. The Company accounts for each separate lease component of a contract and its associated non-lease components as a single lease component for all of its real estate leases.

At June 30, 2019, the Company had operating leases that had not yet commenced with undiscounted cash flows totaling less than $100 million. Leases that do not commence until a future date generally include executed ground and office space leases where construction is underway and the Company does not control the underlying asset during the construction.



(Dollars in millions)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Components of total lease cost:
Operating lease cost		$51			$103
Finance lease cost:
Amortization of right-of-use assets	1			2
Variable lease cost	9			17
Less: Sublease income	(2		)	(3		)
Total lease cost, net		$59			$119



(Dollars in millions)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Supplemental lease information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$48		$97
Financing cash flows from finance leases	1		2

Lease liabilities arising from obtaining right-of-use assets (subsequent to adoption):
Operating leases	5		24
Finance leases	11		11



(Dollars in millions)	June 30, 2019
Weighted-average remaining lease term (in years):
Operating leases	8.2
Finance leases	7.0
Weighted-average discount rate (annual):
Operating leases	3.3	%
Finance leases	6.6



(Dollars in millions)	Operating Leases			Finance Leases			Total
Year 1		$184			$5			$189
Year 2	191			5			196
Year 3	178			5			183
Year 4	160			6			166
Year 5	140			3			143
Thereafter	544			12			556
Total lease payments	1,397			36			1,433
Less: Imputed interest	(192		)	(9		)	(201		)
Present value of lease liabilities		$1,205			$27			$1,232

The Company’s two primary lessor businesses are equipment financing and structured real estate. In addition, the Company is the lessor in circumstances where a portion of its corporate owned real estate is leased to other tenants.

Payment terms are typically fixed; however, some agreements contain variable lease payments linked to an index or rate, such as the CPI or LIBOR. In certain agreements, lease payments increase based on a fixed percentage after a set duration of time. Variable lease payments that are based on an index or rate are included in the net lease investment for sales-type or direct financing leases, and are included in lease receivables for operating leases using the prevailing index or rate at lease commencement. The Company has elected to exclude its sales tax collection and remission activity from being reported as lease revenue with an associated expense.

The Company’s leases generally do not contain non-lease components. If a lease does contain non-lease components, the Company has elected not to separate lease and non-lease components for each class of underlying asset in which it is the lessor, when the timing and patterns of revenue recognition for the components are the same, and the lease component, if accounted for separately, would be classified as an operating lease.

The Company finances various types of essential-use business equipment, such as transportation and construction equipment, under operating, sales-type, and direct financing leases. Lease terms are generally noncancelable and range between three years and fifteen years. Most lease agreements contain renewal options that range from one month to three years, and are generally reset at the effective fair market value at time of renewal. Certain lease agreements also include an option to purchase the lease asset at least twelve months prior to the end of the lease term.

The Company evaluates various inputs when estimating the amount it expects to derive from the underlying asset following the end of the lease term, including but not limited to, appraisals and inputs from third party sources, and historical portfolio experience. The Company manages residual risk on an individual lease basis, and in certain cases, obtains lessee residual value guarantees or enters into remarketing agreements in the event of lessee default or lease termination. The Company performs a review of residual risk annually and obtains a third party appraisal for the majority of leased assets. At June 30, 2019, the carrying amount of residual assets covered by residual value guarantees was $108 million.

The Company offers structured real estate arrangements, including build-to-suit arrangements, whereby real property is leased to corporate clients under operating, sales-type, and direct financing leases. These leases typically have noncancelable terms that range between fifteen years and twenty years as well as multiple renewal options that can extend a lease up to an additional twenty years. These leases generally do not have termination or purchase options.

property appraisal values and assumptions regarding the economic life of the asset. The Company manages residual risk through continuous monitoring of the associated asset and credit quality of the lessee, which may include site visits to view the property and surrounding area. In certain cases, the Company may obtain third party residual value guarantees. In most instances, there are no lessee residual value guarantees. Assets are reviewed at least annually for impairment. At June 30, 2019, the carrying amount of residual assets covered by residual value guarantees was $29 million.



(Dollars in millions)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Interest income from sales-type and direct financing leases		$37		$74
Lease income relating to operating leases	52		106
Lease income relating to variable lease payments not included in the measurement of the lease receivable	1		2
Total lease income		$90		$182



(Dollars in millions)	June 30, 2019
Carrying amount of lease receivables		$3,807
Unguaranteed residual assets	149
Net investment in sales-type and direct financing lease assets ¹		$3,956



(Dollars in millions)	Sales-Type and Direct Financing Leases
Year 1		$834
Year 2	761
Year 3	600
Year 4	420
Year 5	341
Thereafter	1,347
Total lease receivables	4,303
Less: Reconciling items ¹	(496		)
Present value of lease receivables		$3,807



(Dollars in millions)	Useful life (in years)	June 30, 2019
Underlying lessor assets subject to operating leases: ¹
Real estate ²	15 - 20		$125
Equipment	2 - 30	1,507
Total underlying lessor assets subject to operating leases		1,632
Less: Accumulated depreciation		(554		)
Underlying lessor assets subject to operating leases, net ³			$1,078

¹ Excludes owned assets subject to operating leases that are held and used by the Company and which are included in Premises, property, and equipment, net, on the Company's Consolidated Balance Sheets.