Quarterly report pursuant to Section 13 or 15(d)

LEASES

v3.22.2.2
LEASES
9 Months Ended
Sep. 30, 2022
Leases [Abstract]  
LEASES

5. LEASES

The Company enters into both lessor and lessee arrangements and determines if an arrangement is a lease at inception. As both a lessee and lessor, the Company elected the practical expedient permitted under the transition guidance within the standard to account for lease and non-lease components as a single lease component for all asset classes.

Lessor Arrangements

The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment. Lease payment terms are fixed and are typically payable in monthly installments with terms ranging from 14 months to 125 months. The lease arrangements may contain renewal options and purchase options that allow the lessee to purchase the leased equipment at the end of the lease term. The leases generally do not contain non-lease components.

At lease inception the Company estimates the expected residual value of the leased property at the end of the lease term by considering both internal and third-party appraisals. In certain cases, the Company obtains lessee-provided residual value guarantees and third-party RVI to reduce its residual asset risk. At September 30, 2022 and December 31, 2021, the carrying value of residual assets covered by residual value guarantees and RVI was $36.7 million and $23.0 million, respectively.

The net investment in sales-type and direct financing leases consists of the carrying amount of the lease receivables plus unguaranteed residual assets, net of unearned income and any deferred selling profit on direct financing leases. The lease receivables include the lessor’s right to receive lease payments and the guaranteed residual asset value the lessor expects to derive from the underlying assets at the end of the lease term. The Company’s net investment in sales-type and direct financing leases are included in “Loans held for investment, net of deferred fees and costs” on the Company’s Consolidated Balance Sheets. Lease income is recorded in “Interest and fees on loans” on the Company’s Consolidated Statements of Income.

Total net investment in sales-type and direct financing leases consists of the following (dollars in thousands):

    

September 30, 2022

December 31, 2021

Sales-type and direct financing leases:

Lease receivables, net of unearned income and deferred selling profit

$

254,773

$

199,423

Unguaranteed residual values, net of unearned income and deferred selling profit

12,219

8,911

Total net investment in sales-type and direct financing leases

 

$

266,992

$

208,334

Lessee Arrangements

The Company’s lessee arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate leases with remaining lease terms of up to 23 years. The Company’s real estate lease agreements do not contain residual value guarantees and most agreements do not contain restrictive covenants. The Company does not have any material arrangements where the Company is in a sublease contract.

Lessee arrangements with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. The ROU assets and lease liabilities associated with operating and finance leases greater than 12 months are recorded in the Company’s Consolidated Balance Sheets; ROU assets within “Other assets” and lease liabilities within “Other liabilities.” ROU assets represent the Company’s right to use an underlying asset over the course of the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The initial measurement of lease liabilities and ROU assets are the same for operating and finance leases. Lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments, discounted using the incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets are recognized at commencement date based on the initial measurement of the lease liability, any lease payments made excluding lease incentives, and any initial direct costs incurred. Most of the Company’s operating leases include one or more options to renew and if the Company is reasonably certain to exercise those options, it would be included in the measurement of the operating ROU assets and lease liabilities.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and recorded in “Occupancy expenses” on the Company’s Consolidated Statements of Income. Finance lease expenses consist of straight-line amortization expense of the ROU Assets recognized over the lease term and interest expense on the lease liability. Total finance lease expenses for the amortization of the ROU assets are recorded in “Occupancy expenses” on the Company’s Consolidated Statements of Income and interest expense on the finance lease liability is recorded in “Interest on long-term borrowings” on the Company’s Consolidated Statements of Income.

The tables below provide information about the Company’s lessee lease portfolio and other supplemental lease information (dollars in thousands):

    

September 30, 2022

December 31, 2021

Operating

Finance

Operating

Finance

ROU assets

$

31,821

$

5,817

$

40,653

$

6,506

Lease liabilities

44,145

8,593

50,742

9,477

Lease Term and Discount Rate of Operating leases:

 

Weighted-average remaining lease term (years)

 

6.44

6.33

6.75

7.08

Weighted-average discount rate (1)

 

2.63

%

1.17

%

2.57

%

1.17

%

(1) An incremental borrowing rate is used based on information available at commencement date of lease or at remeasurement date

Nine months ended September 30, 

 

2022

2021

Cash paid for amounts included in measurement of lease liabilities:

Operating Cash Flows from Finance Leases

$

79

$

89

Operating Cash Flows from Operating Leases

 

8,514

8,961

Financing Cash Flows from Finance Leases

885

851

ROU assets obtained in exchange for lease obligations:

Operating leases

$

1,268

$

2,412

Three months ended September 30, 

Nine months ended September 30, 

2022

2021

2022

2021

Net Operating Lease Cost

$

2,117

$

2,535

 

$

6,658

$

7,615

Finance Lease Cost:

Amortization of right-of-use assets

230

230

689

689

Interest on lease liabilities

25

29

 

79

89

Total Lease Cost

$

2,372

$

2,794

$

7,426

$

8,393

The maturities of lessor and lessee arrangements outstanding at September 30, 2022 are presented in the table below (dollars in thousands):

September 30, 2022

Lessor

Lessee

Sales-type and Direct Financing

Operating

Finance

For the remaining three months of 2022

    

$

16,842

$

2,806

$

329

2023

65,059

10,388

1,325

2024

 

62,282

9,441

1,358

2025

 

48,508

7,297

1,392

2026

 

36,606

4,826

1,427

Thereafter

 

50,030

13,642

3,088

Total undiscounted cash flows

 

279,327

48,400

8,919

Less: Adjustments (1)

 

24,554

4,255

326

Total (2)

$

254,773

$

44,145

$

8,593

(1) Lessor – unearned income and unearned guaranteed residual value; Lessee – imputed interest

(2) Represents lease receivables for lessor arrangements and lease liabilities for lessee arrangements