Leases

3 Months Ended

Mar. 31, 2019

LEASES

IBERIABANK as Lessee

The Company leases certain branch and corporate offices, land and ATM facilities through operating leases with terms ranging from less than one year to 45 years. The Company has no financing leases (formerly capital leases). As discussed in Note 2, Recent Accounting Pronouncements, the Company adopted new guidance for leases on January 1, 2019 which requires that leases, whether classified as operating leases or financing leases, are to be accounted for as the acquisition of a right-of-use asset (ROU asset) and a related lease liability recorded at the present value of the lease payments less any lease incentives. The ROU asset represents the Company’s right to use an underlying asset for the lease term and is included in other assets on the Company’s consolidated balance sheets. The lease liability represents the Company’s obligation to make lease payments and is included in other liabilities in the Company’s consolidated balance sheets. The cost of the lease is recognized on a straight-line basis over the lease term as lease expense. Prior to January 1, 2019, operating leases were not recorded on the balance sheet. See Note 2, Recent Accounting Pronouncements, for further discussion of the adoption of this new guidance.

Subsequent to the adoption of ASC 842 on January 1, 2019, the Company reviews new lease and service contracts to determine if the contracts contain an embedded lease. For leases that do not provide an implicit rate, the Company uses the corresponding FHLB Advance rate based on the lease term at commencement in determining the present value of lease payments. For leases with variable lease payments, the present value will be determined using the index at the lease commencement date. Changes in variable rent payments due to subsequent changes in the index or rate do not result in a re-measurement of the ROU asset or lease liability, but are recognized as expense in the period in which they occur. Certain of the Company’s leases contain options to either renew, extend or terminate the lease. As of March 31, 2019, no material extensions or terminations were considered reasonably certain, and as such, were not included in the measurement of the lease liability and ROU asset. The Company also has lease agreements with lease and non-lease components, which are generally accounted for separately. Non-lease components, which primarily consist of common area maintenance (“CAM”), utilities, and janitorial services, are based on the stand-alone price of the services and expensed as incurred.

Operating lease expense for the three months ended March 31, 2019 totaled $6.8 million. During the three months ended March 31, 2019, the Company paid $6.7 million for amounts included in the measurement of lease liabilities and $5.2 million to obtain ROU assets.

The following summarizes the ROU asset and lease liabilities as of March 31, 2019:



(in thousands)	March 31, 2019
Right-of-use assets	$	95,581
Total lease liabilities	118,430
Weighted Average Remaining Lease Term	7.4 years
Weighted Average Discount Rate	3.4		%

Maturities of operating lease liabilities as of March 31, 2019 is as follows:



(in thousands)
2019	$	20,059
2020	25,441
2021	22,038
2022	18,730
2023	12,394
2024 and thereafter	36,015
Total operating lease payments	$	134,677
Less: Imputed interest	16,247
Total lease liabilities	$	118,430

As of March 31, 2019, the Company has not entered into any material leases that have not yet commenced.

IBERIABANK as Lessor

As a lessor, the Company engages in the leasing of equipment to commercial customers primarily through direct financing and sales-type leases. Direct financing and sales-type leases are similar to other forms of installment lending in that lessors generally do not retain benefits and risks incidental to ownership of the property subject to leases. Such arrangements are essentially financing transactions that permit lessees to acquire and use property. The new guidance on leases discussed above did not have a significant impact on the lessor model of accounting. As lessor, the sum of all minimum lease payments over the lease term and the estimated residual value, less unearned interest income, is recorded as the net investment in the lease on the commencement date and is included in loans and leases, net of unearned income in the consolidated balance sheet. Interest income is accrued as earned over the term of the lease based on the net investment in leases. Fees incurred to originate the lease are deferred on the commencement date and recognized as an adjustment of the yield on the lease.

The Company’s portfolio of direct financing and sales-type leases contain remaining terms from 4 to 20 years. Some of these leases contain options to extend the leases for up to 12 months and/or to terminate the lease within one year. These direct financing and sales-type leases typically include a payment structure set at lease inception and do not provide any additional services. Expenses associated with the leased equipment, such as maintenance and insurance, are paid by the lessee directly to third parties. The lease agreement typically contains an option for the purchase of the leased property by the lessee at the end of the lease term at either the property’s residual value or a specified price. In all cases, the Company expects to sell or re-lease the equipment at the end of the lease term. Due to the nature and structure of the Company’s direct financing and sales-type leases, there is no selling profit or loss on these transactions.

At a lease’s inception, the Company determines the expected residual value of the leased property at end of the lease term based on the type of equipment leased, location and usage, as well as the contractual return provisions in the lease agreement. Additionally, the Company utilizes multiple market sources of data to establish equipment values and in many cases engages certified appraisers to provide valuation analyses. In order to manage the risk associated with the residual value of its leased assets, lease agreements typically include various provisions designed to protect the value of the leased property, such as contractual equipment maintenance, use and return provisions; remarketing agreements; and lessee guarantees. In a few cases, the Company also obtains third-party guarantees to further manage residual risk in the portfolio. On an annual basis, leased properties with material residual values are reviewed for impairment.

The components of the Company’s net investment in leases is as follows:



(in thousands)	March 31, 2019
Lease payment receivable	$	199,760
Unguaranteed residual assets	22,243
Total net investment in leases	$	222,003

For the three months ended March 31, 2019, interest income for direct financing or sales-type leases totaled $2.0 million. During the three months ended March 31, 2019, there was no profit or loss recognized at the commencement date for direct financing or sales-type leases.

Maturities of the Company's lease receivables as of March 31, 2019 is as follows:



(in thousands)
2019	$	23,873
2020	31,495
2021	31,431
2022	28,869
2023	22,414
2024 and thereafter	75,940
Total future minimum lease payments	$	214,022
Less: Imputed interest	14,262
Lease receivables	$	199,760

Leases

LEASES

IBERIABANK as Lessee

The following summarizes the ROU asset and lease liabilities as of March 31, 2019:



(in thousands)	March 31, 2019
Right-of-use assets	$	95,581
Total lease liabilities	118,430
Weighted Average Remaining Lease Term	7.4 years
Weighted Average Discount Rate	3.4		%

Maturities of operating lease liabilities as of March 31, 2019 is as follows:



(in thousands)
2019	$	20,059
2020	25,441
2021	22,038
2022	18,730
2023	12,394
2024 and thereafter	36,015
Total operating lease payments	$	134,677
Less: Imputed interest	16,247
Total lease liabilities	$	118,430

As of March 31, 2019, the Company has not entered into any material leases that have not yet commenced.

IBERIABANK as Lessor

The components of the Company’s net investment in leases is as follows:



(in thousands)	March 31, 2019
Lease payment receivable	$	199,760
Unguaranteed residual assets	22,243
Total net investment in leases	$	222,003

Maturities of the Company's lease receivables as of March 31, 2019 is as follows:



(in thousands)
2019	$	23,873
2020	31,495
2021	31,431
2022	28,869
2023	22,414
2024 and thereafter	75,940
Total future minimum lease payments	$	214,022
Less: Imputed interest	14,262
Lease receivables	$	199,760

Leases

LEASES

IBERIABANK as Lessee

The following summarizes the ROU asset and lease liabilities as of March 31, 2019:



(in thousands)	March 31, 2019
Right-of-use assets	$	95,581
Total lease liabilities	118,430
Weighted Average Remaining Lease Term	7.4 years
Weighted Average Discount Rate	3.4		%

Maturities of operating lease liabilities as of March 31, 2019 is as follows:



(in thousands)
2019	$	20,059
2020	25,441
2021	22,038
2022	18,730
2023	12,394
2024 and thereafter	36,015
Total operating lease payments	$	134,677
Less: Imputed interest	16,247
Total lease liabilities	$	118,430

As of March 31, 2019, the Company has not entered into any material leases that have not yet commenced.

IBERIABANK as Lessor

The components of the Company’s net investment in leases is as follows:



(in thousands)	March 31, 2019
Lease payment receivable	$	199,760
Unguaranteed residual assets	22,243
Total net investment in leases	$	222,003

Maturities of the Company's lease receivables as of March 31, 2019 is as follows:



(in thousands)
2019	$	23,873
2020	31,495
2021	31,431
2022	28,869
2023	22,414
2024 and thereafter	75,940
Total future minimum lease payments	$	214,022
Less: Imputed interest	14,262
Lease receivables	$	199,760