Leases

12 Months Ended

Dec. 31, 2020

Leases

The Company adopted ASU 2016-02, "Leases", and its related amendments on January 1, 2019 using a modified retrospective approach. The Company's leasing activities include leasing certain real estate and equipment, providing lease financing to commercial customers, and leasing office space to third parties. The Company adopted the package of practical expedients permitted within the standard, along with the lease component expedient for all lease classes and the disclosure expedient. The Company uses the FHLB fixed-advance rate at lease commencement or at any subsequent remeasurement event date based on the remaining lease term to calculate the liability for each lease.

Lessee

The Company primarily has operating leases for branches, office space, ATM locations, and certain equipment. As of December 31, 2020, the right-of-use asset for operating leases, reported within premises and equipment, net, and lease liability, reported within other liabilities, recognized on the Company's consolidated balance sheets totaled $28.3 million and $29.2 million, respectively, compared to right-of-use assets of $26.3 million and lease liability of $27.0 million at December 31, 2019. Total lease cost for the year ended December 31, 2020 was $7.4 million, compared to $7.3 million for the year ended December 31, 2019. For leases with a term of 12 months or less, an election was made not to recognize lease assets and lease liabilities

for all asset classes, and to recognize lease expense for these leases on a straight-line basis over the lease term. The Company's leases have remaining terms of 1 month to 33 years, most of which contain renewal options. However, the renewal options are generally not included in the leased asset or liability because the option exercises are uncertain.

The maturities of operating leases are included in the table below.


(in thousands)	Operating Leases(1)
2021	$	6,078
2022	5,305
2023	4,715
2024	3,454
2025	2,025
After 2025	14,453
Total lease payments	$	36,030
Less: Interest(2)	6,813
Present value of lease liabilities	$	29,217

(1) Excludes $2.9 million of legally binding minimum lease payments for operating leases signed but not yet commenced.

(2) Calculated using the interest rate for each lease.

The following table presents the average lease term and discount rate of operating leases.


	December 31, 2020		December 31, 2019
Weighted-average remaining lease term	11.3 years		11.7 years
Weighted-average discount rate	3.29	%	3.67	%

Supplemental cash flow information related to operating leases is included in the table below.


	For the Year Ended December 31
(in thousands)	2020		2019
Operating cash paid toward lease liabilities	$	6,213	5,989
Leased assets obtained in exchange for new lease liabilities	$	7,482	3,958

The Company adopted the lease standard using the effective date as the date of initial application as noted above, and as required, the table below provides the disclosure for periods prior to adoption. Under ASC Topic 840, Leases, rent expense amounted to $7.7 million in 2018. Future minimum lease payments as of December 31, 2018 are shown below, which include leases that have not yet commenced.


(in thousands)
Year Ended December 31	Total
2019	$	5,763
2020	4,817
2021	4,055
2022	3,598
2023	3,273
After	15,161
Total minimum lease payments	$	36,667

Lessor

The Company has net investments in direct financing and sales-type leases to commercial, industrial, and tax-exempt entities. These leases are included within business loans on the Company's consolidated balance sheets. The Company primarily leases various types of equipment, trucks and trailers, and office furniture and fixtures. Lease agreements may include options for the lessee to renew or purchase the leased equipment at the end of the lease term. The Company has elected to adopt the lease component expedient in which the lease and nonlease components are combined into the total lease receivable. The Company also leases office space to third parties, and these leases are classified as operating leases. The leases may include options to renew or to expand the leased space, and currently the leases have remaining terms of 3 months to 7 years.

The following table provides the components of lease income.


	For the Year Ended December 31
(in thousands)	2020		2019
Direct financing and sales-type leases	25,380		24,062
Operating leases(1)	8,589		7,951
Total lease income	$	33,969	$	32,013

(1) Includes rent from Tower Properties, a related party, of $76 thousand and $75 thousand for the year ended December 31, 2020 and 2019, respectively.

The following table presents the components of the net investments in direct financing and sales-type leases.


(in thousands)	December 31, 2020		December 31, 2019
Lease payment receivable	$	729,649	$	738,809
Unguaranteed residual assets	64,211		53,408

Total net investments in direct financing and sales-type leases	$	793,860	$	792,217
Deferred origination cost	3,581		3,609
Total net investment included within business loans	$	797,441	$	795,826

The maturities of lease receivables are included in the table below.


(in thousands)	Direct Financing and Sale-Type Leases		Operating Leases		Total
2021	$	229,175	$	7,729	$	236,904
2022	187,212		14,148		201,360
2023	119,628		5,845		125,473
2024	87,937		5,113		93,050
2025	56,777		3,168		59,945
After 2025	106,940		6,055		112,995
Total lease receipts	787,669		$	42,058	$	829,727
Less: Net present value adjustment	58,020
Present value of lease receipts	$	729,649