Leases

9 Months Ended

Sep. 30, 2022

The Company’s operating leases are real estate leases which are comprised of bank branch locations, loan production offices, and office spaces with remaining lease terms ranging from 1 to 10 years as of September 30, 2022. Certain lease arrangements contain extension options which are typically around 5 years. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term.

At September 30, 2022, ROU assets and related liabilities were $55.4 million and $59.3 million, respectively. At December 31, 2021, ROU assets and related liabilities were $52.7 million and $57.3 million, respectively. At September 30, 2022, the short term operating lease liability totaled $13.6 million and the long-term operating lease liability totaled $45.7 million. The Company defines short-term operating lease liabilities as liabilities due in twelve months or less and long term lease liabilities are defined as liabilities that are due in more than twelve months at the end of each reporting period. The Company did not have any finance leases at September 30, 2022 and December 31, 2021. During the nine months ended September 30, 2022, the Company extended nine leases and entered into one new lease contract. Lease extension terms ranged from one to six years and the Company reassessed the ROU assets and lease liabilities related to these leases.

Operating lease ROU assets represent the Company’s right to use the underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using the Company’s incremental borrowing rate at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in occupancy expense in the Consolidated Statements of Income. The Company’s occupancy expense also includes variable lease costs which is comprised of the Company’s share of actual costs for utilities, common area maintenance, property taxes, and insurance that are not included in lease liabilities and are expensed as incurred. Variable lease costs can also include rent escalations based on changes to indices, such as the Consumer Price Index, where the Company estimates future rent increases and records the actual difference to variable costs.

The Company uses its incremental borrowing rate to present value lease payments in order to recognize a ROU asset and the related lease liability. The Company calculates its incremental borrowing rate by adding a spread to the Federal Home Loan Bank (“FHLB”) borrowing interest rate at a given period.

The table below summarizes the Company’s net lease cost:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(Dollars in thousands)
Operating lease cost	$	3,796	$	3,778	$	11,623	$	11,498
Short term lease cost	—		—		—		—
Variable lease cost	855		892		2,434		2,393
Sublease income	(104)		(102)		(312)		(354)
Net lease cost	$	4,547	$	4,568	$	13,745	$	13,537

Rent expense for the three and nine months ended September 30, 2022 was $4.0 million and $13.3 million, respectively. Rent expense for the three and nine months ended September 30, 2021 was $4.6 million and $13.6 million, respectively.

The table below summarizes other information related to the Company’s operating leases:


	At or for the Nine Months Ended September 30, 2022			At or for the Nine Months Ended September 30, 2021
	(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	11,954		$	10,991
Right-of-use assets obtained in exchange for lease liabilities, net	13,698			965
Weighted-average remaining lease term - operating leases	4.7 years			5.4 years
Weighted-average discount rate - operating leases	2.31		%	2.56		%

The table below summarizes the maturity of remaining lease liabilities:


	September 30, 2022
	(Dollars in thousands)
2022	$	3,838
2023	14,533
2024	13,431
2025	11,680
2026	10,973
2027 and thereafter	8,666
Total lease payments	63,121
Less: imputed interest	3,787
Total lease obligations	$	59,334

As of September 30, 2022, the Company had three operating lease commitments that have not yet commenced totaling $3.3 million in lease payments over terms ranging between five and ten years.