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Leases

12 Months Ended

Dec. 31, 2019

10. Leases

As a lessee, we enter into leases of land, buildings, and equipment. Our real estate leases primarily relate to bank branches and office space. The leases of equipment principally relate to technology assets for data processing and data storage. As a lessor, we primarily provide financing through our equipment leasing business.

Lessee

Our leases are classified as either operating or financing and have remaining terms ranging from 1 to 20 years with the exception of certain ground leases that have terms over 30 years. For leases with initial terms greater than one year, a lease liability, measured as the present value of unpaid lease payments, and a corresponding right-of-use asset for the right to use the leased properties are reported on the balance sheet. Lease payments are discounted using Key’s incremental borrowing rate, consistent with what Key would pay to borrow on a collateralized basis over a term similar to each lease. Leases with an initial term of less than one year are not recorded on the balance sheet. The related expense is recognized on a straight-line basis over the lease term.

Certain leases contain options to extend the lease term for up to five years. Some leases give us the option to terminate, for a penalty or at the lessor's discretion. Leases with variable payments are primarily based on adjustments for inflation over the term of the lease based on a contractually defined index. Certain ATM leases include variable payments based on volume of transactions.

Operating lease expense is recognized in "net occupancy" and "equipment" on the income statement. The components of lease expense are summarized as follows:



in millions	Twelve months ended December 31, 2019
Operating lease cost	$	136
Finance lease cost:
Amortization of right-of-use assets	2
Interest on lease liabilities	1
Variable lease cost	24
Total lease cost ^(a)	$	163


(a)	Short-term lease cost was less than less than $1 million for the twelve months ended December 31, 2019.

Cash flows related to leases are summarized as follows:



in millions	Twelve months ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	1
Operating cash flows from operating leases	146
Financing cash flows from finance leases	2
Right-of-use assets obtained in exchange for lease obligations: ^(a)
Operating leases	$	81
Net gain recognized from sale leaseback transaction ^(b)	$	14


(a)	There were no right-of-use assets obtained in exchange for finance lease obligations for the twelve months ended December 31, 2019.


(b)	During the third quarter of 2019, we entered into a sale leaseback transaction related to one branch which resulted in total proceeds of $16 million.

Additional balance sheet information related to leases is summarized as follows:



in millions	Balance sheet classification	December 31, 2019
Operating lease assets	Accrued income and other assets	$	654
Operating lease liabilities	Accrued expense and other liabilities	748
Finance leases:
Property and equipment, gross	Premises and equipment	28
Accumulated depreciation	Premises and equipment	(17		)
Property and equipment, net		11

Finance lease liabilities	Long-term debt	13

Information pertaining to the lease term and weighted-average discount rate is summarized as follows:



	December 31, 2019
Weighted-average remaining lease term:
Operating leases	7.5
Finance leases	6.06
Weighted-average discount rate:
Operating leases	3.26	%
Finance leases	3.94	%

Maturities of lease liabilities are summarized as follows:



in millions	Operating Leases		Finance Leases		Total
2020	$	142	$	3	$	145
2021	131		3		134
2022	117		2		119
2023	101		2		103
2024	82		1		83
Thereafter	265		4		269
Total lease payments	838		15		853
Less imputed interest	90		2		92
Total	$	748	$	13	$	761

Lessor Equipment Leasing

Leases may have fixed or floating rate terms. Variable payments are based on an index or other specified rate and are included in rental payments. Certain leases contain an option to extend the lease term or the option to terminate at the discretion of the lessee. Under certain conditions, lease agreements may also contain the option for a lessee to purchase the underlying asset.

Interest income from sales-type and direct financing leases is recognized in "interest income — loans" on the statement of income. Income related to operating leases is recognized in “operating lease income and other leasing gains” on the income statement. The components of equipment leasing income are summarized in the table below:



in millions	Twelve months ended December 31, 2019
Sales-type and direct financing leases
Interest income on lease receivable	$	121
Interest income related to accretion of unguaranteed residual asset	13
Interest income on deferred fees and costs	—
Total sales-type and direct financing lease income	134
Operating leases
Operating lease income related to lease payments	133
Other operating leasing gains	28
Total operating lease income and other leasing gains	161
Total lease income	$	295

Equipment leasing receivables relate to sales-type and direct financing leases. The composition of the net investment in sales-type and direct financing leases is as follows:



in millions	December 31, 2019
Lease receivables	$	3,792
Unearned income	(329		)
Unguaranteed residual value	490
Deferred fees and costs	16
Net investment in sales-type and direct financing leases	$	3,969

The residual value component of a lease represents the fair value of the leased asset at the end of the lease term. We rely on industry data, historical experience, independent appraisals and the experience of the equipment leasing asset management team to value lease residuals. Relationships with a number of equipment vendors give the asset management team insight into the life cycle of the leased equipment, pending product upgrades and competing products. Effective January 1, 2019, as a result of the implementation of ASU 2016-02, Key assesses net investments in leases, including residual values, for impairment and recognizes any impairment losses in accordance with the impairment guidance for financial instruments. The carrying amount of residual assets covered by residual value guarantees was $289 million at December 31, 2019.

At December 31, 2019, minimum future lease payments to be received for sales-type and direct financing leases are as follows:



in millions	Sales-type and direct financing lease payments
2020	$	1,127
2021	867
2022	634
2023	413
2024	258
Thereafter	496
Total lease payments	$	3,795

At December 31, 2019, minimum future lease payments to be received for operating leases are as follows:



in millions	Operating lease payments
2020	$	129
2021	114
2022	97
2023	80
2024	69
Thereafter	167
Total lease payments	$	656

The carrying amount of operating lease assets at December 31, 2019, was $941 million.

Leases

10. Leases

Lessee

Operating lease expense is recognized in "net occupancy" and "equipment" on the income statement. The components of lease expense are summarized as follows:



in millions	Twelve months ended December 31, 2019
Operating lease cost	$	136
Finance lease cost:
Amortization of right-of-use assets	2
Interest on lease liabilities	1
Variable lease cost	24
Total lease cost ^(a)	$	163


(a)	Short-term lease cost was less than less than $1 million for the twelve months ended December 31, 2019.

Cash flows related to leases are summarized as follows:



in millions	Twelve months ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	1
Operating cash flows from operating leases	146
Financing cash flows from finance leases	2
Right-of-use assets obtained in exchange for lease obligations: ^(a)
Operating leases	$	81
Net gain recognized from sale leaseback transaction ^(b)	$	14


(a)	There were no right-of-use assets obtained in exchange for finance lease obligations for the twelve months ended December 31, 2019.


(b)	During the third quarter of 2019, we entered into a sale leaseback transaction related to one branch which resulted in total proceeds of $16 million.

Additional balance sheet information related to leases is summarized as follows:



in millions	Balance sheet classification	December 31, 2019
Operating lease assets	Accrued income and other assets	$	654
Operating lease liabilities	Accrued expense and other liabilities	748
Finance leases:
Property and equipment, gross	Premises and equipment	28
Accumulated depreciation	Premises and equipment	(17		)
Property and equipment, net		11

Finance lease liabilities	Long-term debt	13

Information pertaining to the lease term and weighted-average discount rate is summarized as follows:



	December 31, 2019
Weighted-average remaining lease term:
Operating leases	7.5
Finance leases	6.06
Weighted-average discount rate:
Operating leases	3.26	%
Finance leases	3.94	%

Maturities of lease liabilities are summarized as follows:



in millions	Operating Leases		Finance Leases		Total
2020	$	142	$	3	$	145
2021	131		3		134
2022	117		2		119
2023	101		2		103
2024	82		1		83
Thereafter	265		4		269
Total lease payments	838		15		853
Less imputed interest	90		2		92
Total	$	748	$	13	$	761

Lessor Equipment Leasing



in millions	Twelve months ended December 31, 2019
Sales-type and direct financing leases
Interest income on lease receivable	$	121
Interest income related to accretion of unguaranteed residual asset	13
Interest income on deferred fees and costs	—
Total sales-type and direct financing lease income	134
Operating leases
Operating lease income related to lease payments	133
Other operating leasing gains	28
Total operating lease income and other leasing gains	161
Total lease income	$	295

Equipment leasing receivables relate to sales-type and direct financing leases. The composition of the net investment in sales-type and direct financing leases is as follows:



in millions	December 31, 2019
Lease receivables	$	3,792
Unearned income	(329		)
Unguaranteed residual value	490
Deferred fees and costs	16
Net investment in sales-type and direct financing leases	$	3,969

At December 31, 2019, minimum future lease payments to be received for sales-type and direct financing leases are as follows:



in millions	Sales-type and direct financing lease payments
2020	$	1,127
2021	867
2022	634
2023	413
2024	258
Thereafter	496
Total lease payments	$	3,795

At December 31, 2019, minimum future lease payments to be received for operating leases are as follows:



in millions	Operating lease payments
2020	$	129
2021	114
2022	97
2023	80
2024	69
Thereafter	167
Total lease payments	$	656

The carrying amount of operating lease assets at December 31, 2019, was $941 million.

Leases

10. Leases

Lessee

Operating lease expense is recognized in "net occupancy" and "equipment" on the income statement. The components of lease expense are summarized as follows:



in millions	Twelve months ended December 31, 2019
Operating lease cost	$	136
Finance lease cost:
Amortization of right-of-use assets	2
Interest on lease liabilities	1
Variable lease cost	24
Total lease cost ^(a)	$	163


(a)	Short-term lease cost was less than less than $1 million for the twelve months ended December 31, 2019.

Cash flows related to leases are summarized as follows:



in millions	Twelve months ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	1
Operating cash flows from operating leases	146
Financing cash flows from finance leases	2
Right-of-use assets obtained in exchange for lease obligations: ^(a)
Operating leases	$	81
Net gain recognized from sale leaseback transaction ^(b)	$	14


(a)	There were no right-of-use assets obtained in exchange for finance lease obligations for the twelve months ended December 31, 2019.


(b)	During the third quarter of 2019, we entered into a sale leaseback transaction related to one branch which resulted in total proceeds of $16 million.

Additional balance sheet information related to leases is summarized as follows:



in millions	Balance sheet classification	December 31, 2019
Operating lease assets	Accrued income and other assets	$	654
Operating lease liabilities	Accrued expense and other liabilities	748
Finance leases:
Property and equipment, gross	Premises and equipment	28
Accumulated depreciation	Premises and equipment	(17		)
Property and equipment, net		11

Finance lease liabilities	Long-term debt	13

Information pertaining to the lease term and weighted-average discount rate is summarized as follows:



	December 31, 2019
Weighted-average remaining lease term:
Operating leases	7.5
Finance leases	6.06
Weighted-average discount rate:
Operating leases	3.26	%
Finance leases	3.94	%

Maturities of lease liabilities are summarized as follows:



in millions	Operating Leases		Finance Leases		Total
2020	$	142	$	3	$	145
2021	131		3		134
2022	117		2		119
2023	101		2		103
2024	82		1		83
Thereafter	265		4		269
Total lease payments	838		15		853
Less imputed interest	90		2		92
Total	$	748	$	13	$	761

Lessor Equipment Leasing



in millions	Twelve months ended December 31, 2019
Sales-type and direct financing leases
Interest income on lease receivable	$	121
Interest income related to accretion of unguaranteed residual asset	13
Interest income on deferred fees and costs	—
Total sales-type and direct financing lease income	134
Operating leases
Operating lease income related to lease payments	133
Other operating leasing gains	28
Total operating lease income and other leasing gains	161
Total lease income	$	295

Equipment leasing receivables relate to sales-type and direct financing leases. The composition of the net investment in sales-type and direct financing leases is as follows:



in millions	December 31, 2019
Lease receivables	$	3,792
Unearned income	(329		)
Unguaranteed residual value	490
Deferred fees and costs	16
Net investment in sales-type and direct financing leases	$	3,969

At December 31, 2019, minimum future lease payments to be received for sales-type and direct financing leases are as follows:



in millions	Sales-type and direct financing lease payments
2020	$	1,127
2021	867
2022	634
2023	413
2024	258
Thereafter	496
Total lease payments	$	3,795

At December 31, 2019, minimum future lease payments to be received for operating leases are as follows:



in millions	Operating lease payments
2020	$	129
2021	114
2022	97
2023	80
2024	69
Thereafter	167
Total lease payments	$	656

The carrying amount of operating lease assets at December 31, 2019, was $941 million.

Leases

10. Leases

Lessee

Operating lease expense is recognized in "net occupancy" and "equipment" on the income statement. The components of lease expense are summarized as follows:



in millions	Twelve months ended December 31, 2019
Operating lease cost	$	136
Finance lease cost:
Amortization of right-of-use assets	2
Interest on lease liabilities	1
Variable lease cost	24
Total lease cost ^(a)	$	163


(a)	Short-term lease cost was less than less than $1 million for the twelve months ended December 31, 2019.

Cash flows related to leases are summarized as follows:



in millions	Twelve months ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	1
Operating cash flows from operating leases	146
Financing cash flows from finance leases	2
Right-of-use assets obtained in exchange for lease obligations: ^(a)
Operating leases	$	81
Net gain recognized from sale leaseback transaction ^(b)	$	14


(a)	There were no right-of-use assets obtained in exchange for finance lease obligations for the twelve months ended December 31, 2019.


(b)	During the third quarter of 2019, we entered into a sale leaseback transaction related to one branch which resulted in total proceeds of $16 million.

Additional balance sheet information related to leases is summarized as follows:



in millions	Balance sheet classification	December 31, 2019
Operating lease assets	Accrued income and other assets	$	654
Operating lease liabilities	Accrued expense and other liabilities	748
Finance leases:
Property and equipment, gross	Premises and equipment	28
Accumulated depreciation	Premises and equipment	(17		)
Property and equipment, net		11

Finance lease liabilities	Long-term debt	13

Information pertaining to the lease term and weighted-average discount rate is summarized as follows:



	December 31, 2019
Weighted-average remaining lease term:
Operating leases	7.5
Finance leases	6.06
Weighted-average discount rate:
Operating leases	3.26	%
Finance leases	3.94	%

Maturities of lease liabilities are summarized as follows:



in millions	Operating Leases		Finance Leases		Total
2020	$	142	$	3	$	145
2021	131		3		134
2022	117		2		119
2023	101		2		103
2024	82		1		83
Thereafter	265		4		269
Total lease payments	838		15		853
Less imputed interest	90		2		92
Total	$	748	$	13	$	761

Lessor Equipment Leasing



in millions	Twelve months ended December 31, 2019
Sales-type and direct financing leases
Interest income on lease receivable	$	121
Interest income related to accretion of unguaranteed residual asset	13
Interest income on deferred fees and costs	—
Total sales-type and direct financing lease income	134
Operating leases
Operating lease income related to lease payments	133
Other operating leasing gains	28
Total operating lease income and other leasing gains	161
Total lease income	$	295

Equipment leasing receivables relate to sales-type and direct financing leases. The composition of the net investment in sales-type and direct financing leases is as follows:



in millions	December 31, 2019
Lease receivables	$	3,792
Unearned income	(329		)
Unguaranteed residual value	490
Deferred fees and costs	16
Net investment in sales-type and direct financing leases	$	3,969

At December 31, 2019, minimum future lease payments to be received for sales-type and direct financing leases are as follows:



in millions	Sales-type and direct financing lease payments
2020	$	1,127
2021	867
2022	634
2023	413
2024	258
Thereafter	496
Total lease payments	$	3,795

At December 31, 2019, minimum future lease payments to be received for operating leases are as follows:



in millions	Operating lease payments
2020	$	129
2021	114
2022	97
2023	80
2024	69
Thereafter	167
Total lease payments	$	656

The carrying amount of operating lease assets at December 31, 2019, was $941 million.

Leases

10. Leases

Lessee

Operating lease expense is recognized in "net occupancy" and "equipment" on the income statement. The components of lease expense are summarized as follows:



in millions	Twelve months ended December 31, 2019
Operating lease cost	$	136
Finance lease cost:
Amortization of right-of-use assets	2
Interest on lease liabilities	1
Variable lease cost	24
Total lease cost ^(a)	$	163


(a)	Short-term lease cost was less than less than $1 million for the twelve months ended December 31, 2019.

Cash flows related to leases are summarized as follows:



in millions	Twelve months ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	1
Operating cash flows from operating leases	146
Financing cash flows from finance leases	2
Right-of-use assets obtained in exchange for lease obligations: ^(a)
Operating leases	$	81
Net gain recognized from sale leaseback transaction ^(b)	$	14


(a)	There were no right-of-use assets obtained in exchange for finance lease obligations for the twelve months ended December 31, 2019.


(b)	During the third quarter of 2019, we entered into a sale leaseback transaction related to one branch which resulted in total proceeds of $16 million.

Additional balance sheet information related to leases is summarized as follows:



in millions	Balance sheet classification	December 31, 2019
Operating lease assets	Accrued income and other assets	$	654
Operating lease liabilities	Accrued expense and other liabilities	748
Finance leases:
Property and equipment, gross	Premises and equipment	28
Accumulated depreciation	Premises and equipment	(17		)
Property and equipment, net		11

Finance lease liabilities	Long-term debt	13

Information pertaining to the lease term and weighted-average discount rate is summarized as follows:



	December 31, 2019
Weighted-average remaining lease term:
Operating leases	7.5
Finance leases	6.06
Weighted-average discount rate:
Operating leases	3.26	%
Finance leases	3.94	%

Maturities of lease liabilities are summarized as follows:



in millions	Operating Leases		Finance Leases		Total
2020	$	142	$	3	$	145
2021	131		3		134
2022	117		2		119
2023	101		2		103
2024	82		1		83
Thereafter	265		4		269
Total lease payments	838		15		853
Less imputed interest	90		2		92
Total	$	748	$	13	$	761

Lessor Equipment Leasing



in millions	Twelve months ended December 31, 2019
Sales-type and direct financing leases
Interest income on lease receivable	$	121
Interest income related to accretion of unguaranteed residual asset	13
Interest income on deferred fees and costs	—
Total sales-type and direct financing lease income	134
Operating leases
Operating lease income related to lease payments	133
Other operating leasing gains	28
Total operating lease income and other leasing gains	161
Total lease income	$	295

Equipment leasing receivables relate to sales-type and direct financing leases. The composition of the net investment in sales-type and direct financing leases is as follows:



in millions	December 31, 2019
Lease receivables	$	3,792
Unearned income	(329		)
Unguaranteed residual value	490
Deferred fees and costs	16
Net investment in sales-type and direct financing leases	$	3,969

At December 31, 2019, minimum future lease payments to be received for sales-type and direct financing leases are as follows:



in millions	Sales-type and direct financing lease payments
2020	$	1,127
2021	867
2022	634
2023	413
2024	258
Thereafter	496
Total lease payments	$	3,795

At December 31, 2019, minimum future lease payments to be received for operating leases are as follows:



in millions	Operating lease payments
2020	$	129
2021	114
2022	97
2023	80
2024	69
Thereafter	167
Total lease payments	$	656

The carrying amount of operating lease assets at December 31, 2019, was $941 million.