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Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

LEASES

Lessee

Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between 2 months and 8 years. These operating leases comprise substantially all of Customers' obligations in which Customers acts as the lessee. Most lease agreements consist of initial lease terms ranging between 1 and 5 years, with options to renew the leases or extend the term up to 15 years at Customers' sole discretion. Some operating leases include variable lease payments that are based on an index or rate, such as the CPI. Variable lease payments are not included in the liability or right of use asset and are recognized in the period in which the obligation for those payments are incurred. Customers' operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. Pursuant to these agreements, Customers does not have any commitments that would meet the definition of a finance lease.

As most of Customers' operating leases do not provide an implicit rate, Customers utilized its incremental borrowing rate based on the information available at either the adoption of ASC 842 or the commencement date of the lease, whichever was later, when determining the present value of lease payments. Accordingly, Customers does not present ROU assets and corresponding liabilities for operating leases for fiscal years prior to the adoption of this standard.

The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding balance sheet location:

(amounts in thousands)	Classification		March 31, 2019
ASSETS
Operating lease ROU assets	Other assets		$	22,469
LIABILITIES
Operating lease liabilities	Other liabilities		$	23,649

The following table summarizes operating lease cost and its corresponding income statement location:

			Three Months Ended March 31,
(amounts in thousands)	Classification		2019
Operating lease cost (1)	Occupancy expenses		$	1,469

(1) There were no variable lease costs for the three months ended March 31, 2019, and sublease income for operating leases is immaterial.

Maturities of non-cancelable operating lease liabilities were as follows:

(amounts in thousands)	March 31, 2019
2019	$	4,303
2020	5,135
2021	4,513
2022	3,885
2023	2,856
Thereafter	4,699
Total minimum payments	25,391
Less: interest	1,742
Present value of lease liabilities	$	23,649

Customers is not currently involved with the construction or design of an underlying asset nor are there legally binding minimum lease payments for leases signed but not yet commenced as of March 31, 2019. Cash paid under the operating lease liability was $1.4 million for the three months ended March 31, 2019 and is reported as cash flows from operating activities in the statement of cash flows.

A ROU asset of $23.8 million, net of $1.1 million in accrued rent, was recognized in exchange for lease liabilities of $24.9 million with the adoption of ASU 2016-02 on January 1, 2019.

The following table summarizes the term and discount rate information for Customers' operating leases.

(amounts in thousands)	March 31, 2019
Weighted average remaining lease term (years)
Operating leases	5.6 years
Weighted average discount rate
Operating leases	2.74	%

Future minimum rental commitments pursuant to non-cancelable operating leases as of December 31, 2018, were as follows:

(amounts in thousands)	December 31, 2018
2019	$	5,577
2020	5,135
2021	4,513
2022	3,885
2023	2,856
Thereafter	4,699
Total minimum payments	$	26,665

Rent expense was approximately $1.4 million for the three months ended March 31, 2018.

Equipment Lessor

CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance group. CCF is primarily focused on originating equipment operating and direct finance equipment leases for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. Lease terms typically range from 24 months to 120 months. CCF offers the following lease products: Capital Lease, Purchase Upon Termination, TRAC, Split-TRAC, and FMV. Direct finance equipment leases are included in commercial and industrial loans.

The estimated residual values for direct finance and operating leases are established by utilizing internally developed analysis, external studies, and/or third-party appraisals to establish a residual position. The residual values are reviewed on an annual basis, and in the event of any impairment, the resulting reduction in the net investment shall be recognized as a loss in the period in which the impairment is charged. For the direct finance leases, only for a Split-TRAC is there a residual risk and the unguaranteed portions are typically nominal.

Leased assets under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to their expected residual value. The expected residual value and, accordingly, the monthly depreciation expense, may change throughout the term of the lease. Operating lease rental income for leased assets is recognized in commercial lease income on a straight-line basis over the lease term. Customers periodically reviews its leased assets for impairment. An impairment loss is recognized if the carrying amount of the leased asset exceeds its fair value and is not recoverable. The carrying amount of leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment.

The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location:

(amounts in thousands)	Classification		March 31, 2019
ASSETS
Direct financing leases
Lease receivables	Loans and leases receivable		$	56,553
Guaranteed residual assets	Loans and leases receivable		5,540
Unguaranteed residual assets	Loans and leases receivable		622
Deferred initial direct costs	Loans and leases receivable		745
Unearned income	Loans and leases receivable		(6,342		)
Net investment in direct financing leases			$	57,118
Operating leases
Investment in operating leases	Other assets		$	67,093
Accumulated depreciation	Other assets		(6,705		)
Deferred initial direct costs	Other assets		864
Net investment in operating leases			61,252
Total lease assets			$	118,370

Leases

LEASES

Lessee

Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between 2 months and 8 years. These operating leases comprise substantially all of Customers' obligations in which Customers acts as the lessee. Most lease agreements consist of initial lease terms ranging between 1 and 5 years, with options to renew the leases or extend the term up to 15 years at Customers' sole discretion. Some operating leases include variable lease payments that are based on an index or rate, such as the CPI. Variable lease payments are not included in the liability or right of use asset and are recognized in the period in which the obligation for those payments are incurred. Customers' operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. Pursuant to these agreements, Customers does not have any commitments that would meet the definition of a finance lease.

As most of Customers' operating leases do not provide an implicit rate, Customers utilized its incremental borrowing rate based on the information available at either the adoption of ASC 842 or the commencement date of the lease, whichever was later, when determining the present value of lease payments. Accordingly, Customers does not present ROU assets and corresponding liabilities for operating leases for fiscal years prior to the adoption of this standard.

The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding balance sheet location:

(amounts in thousands)	Classification		March 31, 2019
ASSETS
Operating lease ROU assets	Other assets		$	22,469
LIABILITIES
Operating lease liabilities	Other liabilities		$	23,649

The following table summarizes operating lease cost and its corresponding income statement location:

			Three Months Ended March 31,
(amounts in thousands)	Classification		2019
Operating lease cost (1)	Occupancy expenses		$	1,469

(1) There were no variable lease costs for the three months ended March 31, 2019, and sublease income for operating leases is immaterial.

Maturities of non-cancelable operating lease liabilities were as follows:

(amounts in thousands)	March 31, 2019
2019	$	4,303
2020	5,135
2021	4,513
2022	3,885
2023	2,856
Thereafter	4,699
Total minimum payments	25,391
Less: interest	1,742
Present value of lease liabilities	$	23,649

Customers is not currently involved with the construction or design of an underlying asset nor are there legally binding minimum lease payments for leases signed but not yet commenced as of March 31, 2019. Cash paid under the operating lease liability was $1.4 million for the three months ended March 31, 2019 and is reported as cash flows from operating activities in the statement of cash flows.

A ROU asset of $23.8 million, net of $1.1 million in accrued rent, was recognized in exchange for lease liabilities of $24.9 million with the adoption of ASU 2016-02 on January 1, 2019.

The following table summarizes the term and discount rate information for Customers' operating leases.

(amounts in thousands)	March 31, 2019
Weighted average remaining lease term (years)
Operating leases	5.6 years
Weighted average discount rate
Operating leases	2.74	%

Future minimum rental commitments pursuant to non-cancelable operating leases as of December 31, 2018, were as follows:

(amounts in thousands)	December 31, 2018
2019	$	5,577
2020	5,135
2021	4,513
2022	3,885
2023	2,856
Thereafter	4,699
Total minimum payments	$	26,665

Rent expense was approximately $1.4 million for the three months ended March 31, 2018.

Equipment Lessor

CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance group. CCF is primarily focused on originating equipment operating and direct finance equipment leases for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. Lease terms typically range from 24 months to 120 months. CCF offers the following lease products: Capital Lease, Purchase Upon Termination, TRAC, Split-TRAC, and FMV. Direct finance equipment leases are included in commercial and industrial loans.

The estimated residual values for direct finance and operating leases are established by utilizing internally developed analysis, external studies, and/or third-party appraisals to establish a residual position. The residual values are reviewed on an annual basis, and in the event of any impairment, the resulting reduction in the net investment shall be recognized as a loss in the period in which the impairment is charged. For the direct finance leases, only for a Split-TRAC is there a residual risk and the unguaranteed portions are typically nominal.

Leased assets under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to their expected residual value. The expected residual value and, accordingly, the monthly depreciation expense, may change throughout the term of the lease. Operating lease rental income for leased assets is recognized in commercial lease income on a straight-line basis over the lease term. Customers periodically reviews its leased assets for impairment. An impairment loss is recognized if the carrying amount of the leased asset exceeds its fair value and is not recoverable. The carrying amount of leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment.

The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location:

(amounts in thousands)	Classification		March 31, 2019
ASSETS
Direct financing leases
Lease receivables	Loans and leases receivable		$	56,553
Guaranteed residual assets	Loans and leases receivable		5,540
Unguaranteed residual assets	Loans and leases receivable		622
Deferred initial direct costs	Loans and leases receivable		745
Unearned income	Loans and leases receivable		(6,342		)
Net investment in direct financing leases			$	57,118
Operating leases
Investment in operating leases	Other assets		$	67,093
Accumulated depreciation	Other assets		(6,705		)
Deferred initial direct costs	Other assets		864
Net investment in operating leases			61,252
Total lease assets			$	118,370

Leases

LEASES

Lessee

Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between 2 months and 8 years. These operating leases comprise substantially all of Customers' obligations in which Customers acts as the lessee. Most lease agreements consist of initial lease terms ranging between 1 and 5 years, with options to renew the leases or extend the term up to 15 years at Customers' sole discretion. Some operating leases include variable lease payments that are based on an index or rate, such as the CPI. Variable lease payments are not included in the liability or right of use asset and are recognized in the period in which the obligation for those payments are incurred. Customers' operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. Pursuant to these agreements, Customers does not have any commitments that would meet the definition of a finance lease.

As most of Customers' operating leases do not provide an implicit rate, Customers utilized its incremental borrowing rate based on the information available at either the adoption of ASC 842 or the commencement date of the lease, whichever was later, when determining the present value of lease payments. Accordingly, Customers does not present ROU assets and corresponding liabilities for operating leases for fiscal years prior to the adoption of this standard.

The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding balance sheet location:

(amounts in thousands)	Classification		March 31, 2019
ASSETS
Operating lease ROU assets	Other assets		$	22,469
LIABILITIES
Operating lease liabilities	Other liabilities		$	23,649

The following table summarizes operating lease cost and its corresponding income statement location:

			Three Months Ended March 31,
(amounts in thousands)	Classification		2019
Operating lease cost (1)	Occupancy expenses		$	1,469

(1) There were no variable lease costs for the three months ended March 31, 2019, and sublease income for operating leases is immaterial.

Maturities of non-cancelable operating lease liabilities were as follows:

(amounts in thousands)	March 31, 2019
2019	$	4,303
2020	5,135
2021	4,513
2022	3,885
2023	2,856
Thereafter	4,699
Total minimum payments	25,391
Less: interest	1,742
Present value of lease liabilities	$	23,649

Customers is not currently involved with the construction or design of an underlying asset nor are there legally binding minimum lease payments for leases signed but not yet commenced as of March 31, 2019. Cash paid under the operating lease liability was $1.4 million for the three months ended March 31, 2019 and is reported as cash flows from operating activities in the statement of cash flows.

A ROU asset of $23.8 million, net of $1.1 million in accrued rent, was recognized in exchange for lease liabilities of $24.9 million with the adoption of ASU 2016-02 on January 1, 2019.

The following table summarizes the term and discount rate information for Customers' operating leases.

(amounts in thousands)	March 31, 2019
Weighted average remaining lease term (years)
Operating leases	5.6 years
Weighted average discount rate
Operating leases	2.74	%

Future minimum rental commitments pursuant to non-cancelable operating leases as of December 31, 2018, were as follows:

(amounts in thousands)	December 31, 2018
2019	$	5,577
2020	5,135
2021	4,513
2022	3,885
2023	2,856
Thereafter	4,699
Total minimum payments	$	26,665

Rent expense was approximately $1.4 million for the three months ended March 31, 2018.

Equipment Lessor

CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance group. CCF is primarily focused on originating equipment operating and direct finance equipment leases for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. Lease terms typically range from 24 months to 120 months. CCF offers the following lease products: Capital Lease, Purchase Upon Termination, TRAC, Split-TRAC, and FMV. Direct finance equipment leases are included in commercial and industrial loans.

The estimated residual values for direct finance and operating leases are established by utilizing internally developed analysis, external studies, and/or third-party appraisals to establish a residual position. The residual values are reviewed on an annual basis, and in the event of any impairment, the resulting reduction in the net investment shall be recognized as a loss in the period in which the impairment is charged. For the direct finance leases, only for a Split-TRAC is there a residual risk and the unguaranteed portions are typically nominal.

Leased assets under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to their expected residual value. The expected residual value and, accordingly, the monthly depreciation expense, may change throughout the term of the lease. Operating lease rental income for leased assets is recognized in commercial lease income on a straight-line basis over the lease term. Customers periodically reviews its leased assets for impairment. An impairment loss is recognized if the carrying amount of the leased asset exceeds its fair value and is not recoverable. The carrying amount of leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment.

The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location:

(amounts in thousands)	Classification		March 31, 2019
ASSETS
Direct financing leases
Lease receivables	Loans and leases receivable		$	56,553
Guaranteed residual assets	Loans and leases receivable		5,540
Unguaranteed residual assets	Loans and leases receivable		622
Deferred initial direct costs	Loans and leases receivable		745
Unearned income	Loans and leases receivable		(6,342		)
Net investment in direct financing leases			$	57,118
Operating leases
Investment in operating leases	Other assets		$	67,093
Accumulated depreciation	Other assets		(6,705		)
Deferred initial direct costs	Other assets		864
Net investment in operating leases			61,252
Total lease assets			$	118,370

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