Leases

12 Months Ended

Dec. 31, 2023

Leases [Abstract]

LEASES

NOTE 6 — 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 34 years. Our lease terms may include options to extend or terminate the lease, and our operating leases have renewal terms that can extend from 1 to 25 years. 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	December 31, 2023			December 31, 2022
Lease assets:
Operating lease ROU assets	Other assets	$	354		$	345
Finance leases	Premises and equipment	9			7
Total lease assets		$	363		$	352
Lease liabilities:
Operating leases	Other liabilities	$	396		$	352
Finance leases	Other borrowings	9			7
Total lease liabilities		$	405		$	359
Weighted-average remaining lease terms:
Operating leases		8.1 years			9.6 years
Finance leases		15.4 years			4.1 years
Weighted-average discount rate:
Operating leases		2.70		%	2.19		%
Finance leases		3.52			2.34

As of December 31, 2023, there were no leases that have not yet commenced that would have a material impact on BancShares’ consolidated financial statements.

The following table presents components of lease cost:

Components of Net Lease Cost

dollars in millions		Year Ended December 31,
	Classification	2023		2022		2021
Operating lease cost (1)	Occupancy Expense	$	64	$	58	$	14
Finance lease ROU asset amortization	Equipment expense	2		2		2
Variable lease cost (2)	Occupancy Expense	25		12		3
Sublease income	Occupancy Expense	(3)		(2)		—
Net lease cost (1), (2)		$	88	$	70	$	19

(1) In addition, approximately $34 million and $6 million related to subleases or closures of leased real estate were included in acquisition-related expenses in the Consolidated Statements of Income for the years ended December 31, 2023 and December 31, 2022, respectively.

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

Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term.

For finance leases, the ROU asset is amortized straight-line over the lease term as equipment expense and interest on the lease liability is recognized separately; however, interest on the lease liability was less than $1 million per year and is not presented in the table above.

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	Year Ended December 31,
	2023		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	63	$	54	$	13
Operating cash flows from finance leases	—		—		—
Financing cash flows from finance leases	2		2		2
ROU assets obtained in exchange for new operating lease liabilities (1)	69		19		7
ROU assets obtained in exchange for new finance lease liabilities	4		5		—

(1) Net of lease modification events, which resulted in a decrease of $11 million in lease liabilities and ROU assets for the year ended December 31, 2023. Reductions for lease modifications were not significant for the year ended December 31, 2022.

The following table presents lease liability maturities at December 31, 2023:

Maturity of Lease Liabilities

dollars in millions	Operating Leases		Finance Leases		Total
2024	$	65	$	2	$	67
2025	67		2		69
2026	62		2		64
2027	52		1		53
2028	38		—		38
Thereafter	155		6		161
Total undiscounted lease payments	$	439	$	13	$	452
Difference between undiscounted cash flows and discounted cash flows	43		4		47
Lease liabilities, at present value	$	396	$	9	$	405

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.

Our Rail operating leases typically do not include purchase options. Many of our finance leases, and other equipment operating leases, offer the lessee the option to purchase the equipment at fair market value or for a nominal fixed purchase option. Many of the leases that do not have a nominal purchase option include renewal provisions resulting in some leases continuing beyond the initial contractual term. Our leases typically do not include early termination options. Continued rent payments are due if leased equipment is not returned at the end of the lease.

The following table provides the net book value of operating lease equipment (net of accumulated depreciation of $658 million at December 31, 2023 and $296 million at December 31, 2022) by equipment type.

Operating Lease Equipment

dollars in millions	December 31, 2023		December 31, 2022
Railcars and locomotives(1)	$	7,966	$	7,433
Other equipment	780		723
Total(1)	$	8,746	$	8,156

(1) Includes off-lease rail equipment of $253 million at December 31, 2023 and $457 million at December 31, 2022.

The following table presents the components of the finance lease net investment on a discounted basis:

Components of Net Investment in Finance Leases

dollars in millions	December 31, 2023		December 31, 2022
Lease receivables	$	1,780	$	1,786
Unguaranteed residual assets	262		317
Total net investment in finance leases	2,042		2,103
Leveraged lease net investment(1)	13		68
Total	$	2,055	$	2,171

(1) Leveraged leases are reported net of non-recourse debt of $5 million at December 31, 2023 and $11 million at December 31, 2022. Our leveraged lease arrangements commenced before the ASC 842, Leases, effective date of January 1, 2019, and continue to be reported under the leveraged lease accounting model. ASC 842 eliminated leveraged lease accounting for new leases and for existing leases modified on or after the standard’s effective date.

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

Lease Income

dollars in millions	Year Ended December 31,
	2023		2022		2021
Lease income – Operating leases	$	895	$	796	$	—
Variable lease income – Operating leases (1)	76		68		—
Rental income on operating leases	971		864		—
Interest income - Sales type and direct financing leases	171		169		18
Variable lease income included in Other noninterest income (2)	59		51		—
Interest income - Leveraged leases	12		20		—
Total lease income	$	1,213	$	1,104	$	18

(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 $17 million for the years ended December 31, 2023 and 2022, and revenue related to insurance coverage on leased equipment of $42 million and $33 million for the years ended December 31, 2023 and 2022, respectively. There was no revenue related to property tax reimbursements due from customers or insurance coverage on leased equipment during 2021.

The following tables present lease payments due on non-cancellable operating leases and lease receivables due on finance leases at December 31, 2023. Excluded from these tables are variable lease payments, including rentals calculated based on asset usage levels, rentals from future renewal and re-leasing activity, and expected sales proceeds from remarketing equipment at lease expiration, all of which are components of lease profitability.

Maturity Analysis of Operating Lease Payments

dollars in millions
2024	$	786
2025	609
2026	449
2027	316
2028	189
Thereafter	408
Total	$	2,757

Maturity Analysis of Lease Receivable Payments - Sales Type and Direct Financing Leases

dollars in millions
2024	$	793
2025	579
2026	360
2027	198
2028	79
Thereafter	26
Total undiscounted lease receivables	$	2,035
Difference between undiscounted cash flows and discounted cash flows	255
Lease receivables, at present value	$	1,780

LEASES

NOTE 6 — 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 34 years. Our lease terms may include options to extend or terminate the lease, and our operating leases have renewal terms that can extend from 1 to 25 years. 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	December 31, 2023			December 31, 2022
Lease assets:
Operating lease ROU assets	Other assets	$	354		$	345
Finance leases	Premises and equipment	9			7
Total lease assets		$	363		$	352
Lease liabilities:
Operating leases	Other liabilities	$	396		$	352
Finance leases	Other borrowings	9			7
Total lease liabilities		$	405		$	359
Weighted-average remaining lease terms:
Operating leases		8.1 years			9.6 years
Finance leases		15.4 years			4.1 years
Weighted-average discount rate:
Operating leases		2.70		%	2.19		%
Finance leases		3.52			2.34

As of December 31, 2023, there were no leases that have not yet commenced that would have a material impact on BancShares’ consolidated financial statements.

The following table presents components of lease cost:

Components of Net Lease Cost

dollars in millions		Year Ended December 31,
	Classification	2023		2022		2021
Operating lease cost (1)	Occupancy Expense	$	64	$	58	$	14
Finance lease ROU asset amortization	Equipment expense	2		2		2
Variable lease cost (2)	Occupancy Expense	25		12		3
Sublease income	Occupancy Expense	(3)		(2)		—
Net lease cost (1), (2)		$	88	$	70	$	19

(1) In addition, approximately $34 million and $6 million related to subleases or closures of leased real estate were included in acquisition-related expenses in the Consolidated Statements of Income for the years ended December 31, 2023 and December 31, 2022, respectively.

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

Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term.

For finance leases, the ROU asset is amortized straight-line over the lease term as equipment expense and interest on the lease liability is recognized separately; however, interest on the lease liability was less than $1 million per year and is not presented in the table above.

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	Year Ended December 31,
	2023		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	63	$	54	$	13
Operating cash flows from finance leases	—		—		—
Financing cash flows from finance leases	2		2		2
ROU assets obtained in exchange for new operating lease liabilities (1)	69		19		7
ROU assets obtained in exchange for new finance lease liabilities	4		5		—

(1) Net of lease modification events, which resulted in a decrease of $11 million in lease liabilities and ROU assets for the year ended December 31, 2023. Reductions for lease modifications were not significant for the year ended December 31, 2022.

The following table presents lease liability maturities at December 31, 2023:

Maturity of Lease Liabilities

dollars in millions	Operating Leases		Finance Leases		Total
2024	$	65	$	2	$	67
2025	67		2		69
2026	62		2		64
2027	52		1		53
2028	38		—		38
Thereafter	155		6		161
Total undiscounted lease payments	$	439	$	13	$	452
Difference between undiscounted cash flows and discounted cash flows	43		4		47
Lease liabilities, at present value	$	396	$	9	$	405

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.

Our Rail operating leases typically do not include purchase options. Many of our finance leases, and other equipment operating leases, offer the lessee the option to purchase the equipment at fair market value or for a nominal fixed purchase option. Many of the leases that do not have a nominal purchase option include renewal provisions resulting in some leases continuing beyond the initial contractual term. Our leases typically do not include early termination options. Continued rent payments are due if leased equipment is not returned at the end of the lease.

The following table provides the net book value of operating lease equipment (net of accumulated depreciation of $658 million at December 31, 2023 and $296 million at December 31, 2022) by equipment type.

Operating Lease Equipment

dollars in millions	December 31, 2023		December 31, 2022
Railcars and locomotives(1)	$	7,966	$	7,433
Other equipment	780		723
Total(1)	$	8,746	$	8,156

(1) Includes off-lease rail equipment of $253 million at December 31, 2023 and $457 million at December 31, 2022.

The following table presents the components of the finance lease net investment on a discounted basis:

Components of Net Investment in Finance Leases

dollars in millions	December 31, 2023		December 31, 2022
Lease receivables	$	1,780	$	1,786
Unguaranteed residual assets	262		317
Total net investment in finance leases	2,042		2,103
Leveraged lease net investment(1)	13		68
Total	$	2,055	$	2,171

(1) Leveraged leases are reported net of non-recourse debt of $5 million at December 31, 2023 and $11 million at December 31, 2022. Our leveraged lease arrangements commenced before the ASC 842, Leases, effective date of January 1, 2019, and continue to be reported under the leveraged lease accounting model. ASC 842 eliminated leveraged lease accounting for new leases and for existing leases modified on or after the standard’s effective date.

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

Lease Income

dollars in millions	Year Ended December 31,
	2023		2022		2021
Lease income – Operating leases	$	895	$	796	$	—
Variable lease income – Operating leases (1)	76		68		—
Rental income on operating leases	971		864		—
Interest income - Sales type and direct financing leases	171		169		18
Variable lease income included in Other noninterest income (2)	59		51		—
Interest income - Leveraged leases	12		20		—
Total lease income	$	1,213	$	1,104	$	18

(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 $17 million for the years ended December 31, 2023 and 2022, and revenue related to insurance coverage on leased equipment of $42 million and $33 million for the years ended December 31, 2023 and 2022, respectively. There was no revenue related to property tax reimbursements due from customers or insurance coverage on leased equipment during 2021.

The following tables present lease payments due on non-cancellable operating leases and lease receivables due on finance leases at December 31, 2023. Excluded from these tables are variable lease payments, including rentals calculated based on asset usage levels, rentals from future renewal and re-leasing activity, and expected sales proceeds from remarketing equipment at lease expiration, all of which are components of lease profitability.

Maturity Analysis of Operating Lease Payments

dollars in millions
2024	$	786
2025	609
2026	449
2027	316
2028	189
Thereafter	408
Total	$	2,757

Maturity Analysis of Lease Receivable Payments - Sales Type and Direct Financing Leases

dollars in millions
2024	$	793
2025	579
2026	360
2027	198
2028	79
Thereafter	26
Total undiscounted lease receivables	$	2,035
Difference between undiscounted cash flows and discounted cash flows	255
Lease receivables, at present value	$	1,780