Leases

3 Months Ended

Mar. 31, 2019

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842)” and all subsequent ASUs that modified Leases (Topic 842). For the Company, Leases (Topic 842) primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

The Company leases are comprised of real estate property for branches, ATM locations and office space with terms extending through 2050. The majority of the Company’s leases are classified as operating leases, and therefore, were not previously included on the consolidated statements of financial condition. As part of the adoption of Leases (Topic 842), operating lease agreements are required to be recognized on the consolidated statements of financial condition as a right-of-use (“ROU”) and a corresponding lease liability. The Company had two existing finance leases (previously referred to as capital leases), which were acquired in the Sun acquisition and have lease terms through 2029. These leases were previously required to be recorded on the Company’s consolidated statements of financial condition. As such, the adoption of Leases (Topic 842) did not have a material impact on the accounting for these leases.

The following table represents the classification of the Company’s ROU assets and lease liabilities on the consolidated statements of financial condition (in thousands):



		March 31, 2019
Lease ROU Assets	Classification
Operating lease ROU asset	Other Assets	$	20,617
Finance lease ROU asset	Premises and equipment, net	3,388
Total Lease ROU Asset		$	24,005

Lease Liabilities
Operating lease liability	Other Liabilities	$	20,651
Finance lease liability	Other Borrowings	5,269
Total Lease Liability		$	25,920

The calculated amount of the ROU assets and lease liabilities are impacted by the lease term and the discount rate used to calculate the present value of the minimum lease payments. Lease agreements often include one or more options to renew the lease at the Company’s discretion. If the exercise of a renewal option is considered to be reasonably certain, the Company includes the extended term in the calculation of the ROU asset and lease liability. For the discount rate, Topic 842 requires the Company to use the rate implicit in the lease, provided the rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate, at lease inception, over a similar term. For operating leases existing prior to January 1, 2019, the Company used the incremental borrowing rate for the remaining lease term as of January 1, 2019. For the finance leases, the Company utilized its incremental borrowing rate at lease inception.



	March 31, 2019
Weighted-Average Remaining Lease Term
Operating leases	9.97 years
Finance leases	7.92 years
Weighted-Average Discount Rate
Operating leases	3.44	%
Finance leases	7.05	%

The following table represents lease expenses and other lease information (in thousands):



	Three Months Ended March 31, 2019
Lease Expense
Operating Lease Expense	$	969
Finance Lease Expense:
Amortization of ROU assets	108
Interest on lease liabilities⁽¹⁾	90
Total	$	1,167

Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	934
Operating cash flows from finance leases	90
Financing cash flows from finance leases	127


(1)	Included in borrowed funds interest expense on the consolidated statements of income. All other costs are included in occupancy expense.

Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more as of March 31, 2019 were as follows (in thousands):



	Finance Leases			Operating Leases
For the Twelve Months Ended March 31,
2020	$	864		$	3,681
2021	905			3,286
2022	936			3,022
2023	936			2,677
2024	936			1,943
Thereafter	2,484			10,312
Total	$	7,061		$	24,921
Less: Imputed Interest	(1,792		)	(4,270		)
Total Lease Liabilities	$	5,269		$	20,651

Leases

The following table represents the classification of the Company’s ROU assets and lease liabilities on the consolidated statements of financial condition (in thousands):



		March 31, 2019
Lease ROU Assets	Classification
Operating lease ROU asset	Other Assets	$	20,617
Finance lease ROU asset	Premises and equipment, net	3,388
Total Lease ROU Asset		$	24,005

Lease Liabilities
Operating lease liability	Other Liabilities	$	20,651
Finance lease liability	Other Borrowings	5,269
Total Lease Liability		$	25,920



	March 31, 2019
Weighted-Average Remaining Lease Term
Operating leases	9.97 years
Finance leases	7.92 years
Weighted-Average Discount Rate
Operating leases	3.44	%
Finance leases	7.05	%

The following table represents lease expenses and other lease information (in thousands):



	Three Months Ended March 31, 2019
Lease Expense
Operating Lease Expense	$	969
Finance Lease Expense:
Amortization of ROU assets	108
Interest on lease liabilities⁽¹⁾	90
Total	$	1,167

Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	934
Operating cash flows from finance leases	90
Financing cash flows from finance leases	127


(1)	Included in borrowed funds interest expense on the consolidated statements of income. All other costs are included in occupancy expense.

Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more as of March 31, 2019 were as follows (in thousands):



	Finance Leases			Operating Leases
For the Twelve Months Ended March 31,
2020	$	864		$	3,681
2021	905			3,286
2022	936			3,022
2023	936			2,677
2024	936			1,943
Thereafter	2,484			10,312
Total	$	7,061		$	24,921
Less: Imputed Interest	(1,792		)	(4,270		)
Total Lease Liabilities	$	5,269		$	20,651