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Leases

3 Months Ended

Mar. 31, 2023

LEASES

Lessee

BancShares leases primarily include administrative offices and bank locations. Substantially all of our lease liabilities relate to United States real estate leases under operating lease arrangements. Our real estate leases have remaining lease terms of up to 16 years. Our lease terms may include options to extend or terminate the lease. The options are included in the lease term when it is determined that it is reasonably certain the option will be exercised.

The following table presents supplemental balance sheet information and remaining weighted average lease terms and discount rates.

Supplemental Lease Information


dollars in millions	Classification	March 31, 2023			December 31, 2022
ROU assets:
Operating leases	Other assets	$	337		$	345
Finance leases	Premises and equipment	7			7
Total ROU assets		$	344		$	352
Lease liabilities:
Operating leases	Other liabilities	$	345		$	352
Finance leases	Other borrowings	7			7
Total lease liabilities		$	352		$	359
Weighted-average remaining lease terms:
Operating leases		9.4 years			9.6 years
Finance leases		3.8 years			4.1 years
Weighted-average discount rate:
Operating leases		2.22		%	2.19		%
Finance leases		2.34		%	2.34		%

The following table presents components of lease cost:

Components of Net Lease Cost


dollars in millions		Three Months Ended March 31,
	Classification	2023		2022
Lease cost
Operating lease cost(1)	Occupancy Expense	$	13	$	16
Finance lease cost
Amortization of leased assets	Equipment expense	—		1
Interest on lease liabilities	Interest expense - other borrowings	—		—
Variable lease cost	Occupancy Expense	4		3
Sublease income	Occupancy Expense	(1)		(1)
Net lease cost		$	16	$	19

(1) Includes short-term lease cost, which is not significant.

Variable lease cost includes common area maintenance, property taxes, utilities, and other operating expenses related to leased premises recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments adjusted periodically for inflation. While lease liabilities are not remeasured because of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred. Sublease income results from leasing excess building space that BancShares is no longer utilizing under operating leases, which have remaining lease terms of up to 13 years.

The following table presents supplemental cash flow information related to leases:

Supplemental Cash Flow Information


dollars in millions	Three Months Ended March 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	13	$	14


ROU assets obtained in exchange for new operating lease liabilities	4		8

Lessor

BancShares leases equipment to commercial end-users under operating lease and finance lease arrangements. The majority of operating lease equipment is long-lived rail equipment, which is typically leased several times over its life. We also lease technology and office equipment, and large and small industrial, medical, and transportation equipment under both operating leases and finance leases.

The table that follows presents lease income related to BancShares’ operating and finance leases:

Lease Income


dollars in millions	Three Months Ended March 31,
	2023		2022
Lease income – Operating leases	$	214	$	195
Variable lease income – Operating leases(1)	19		13
Rental income on operating leases	233		208
Interest income - Sales type and direct financing leases	41		42
Variable lease income included in Other noninterest income(2)	15		11
Interest income - Leveraged leases	5		5
Total lease income	$	294	$	266

(1) Primarily includes per diem railcar operating lease rental income earned on a time or mileage usage basis.

(2) Includes leased equipment property tax reimbursements due from customers of $4 million and $3 million for the three months ended March 31, 2023 and 2022, respectively and revenue related to insurance coverage on leased equipment of $10 million and $7 million for the three months ended March 31, 2023 and 2022, respectively.

Leases