Leases

9 Months Ended

Sep. 30, 2021

LEASES

Operating lease assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date. Operating lease cost, which is comprised of amortization of the operating lease 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 net occupancy expense in the consolidated statements of income.

The Corporation leases certain full-serve branch offices, land and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include one or more options to renew and the exercise of the lease renewal options are at the Corporation's sole discretion. The Corporation includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Corporation will exercise the option. Certain lease agreements of the Corporation include rental payments adjusted periodically for changes in the consumer price index.


Leases	Classification	September 30, 2021		December 31, 2020
Assets:
Operating lease assets	Operating lease assets	$	19,652	$	18,407
Finance lease assets	Premises and equipment, net (1)	375		429
Total leased assets		$	20,027	$	18,836

Liabilities:
Operating lease liabilities	Operating lease liabilities	$	20,847	$	19,449
Finance lease liabilities	Accrued interest payable and other liabilities	489		550
Total leased liabilities		$	21,336	$	19,999

(1) Finance lease assets are recorded net of accumulated amortization of $841 as of September 30, 2021 and $787 as of December 31, 2020.

The components of the Corporation's net lease expense for the three and nine months ended September 30, 2021 and 2020, respectively, were as follows:


		Three months ended September 30,				Nine months ended September 30,
Lease Cost	Classification	2021		2020		2021		2020
Operating lease cost	Net occupancy expense	$	451	$	435	$	1,328	$	1,349
Variable lease cost	Net occupancy expense	10		26		45		67
Finance lease cost:
Amortization of leased assets	Net occupancy expense	18		18		54		54
Interest on lease liabilities	Interest expense - borrowed funds	6		6		18		20
Sublease income (1)	Net occupancy expense	(17)		(25)		(55)		(67)
Net lease cost		$	468	$	460	$	1,390	$	1,423

(1) Sublease income excludes rental income from owned properties.

The following table sets forth future minimum rental payments under noncancellable leases with terms in excess of one year as of September 30, 2021:


Maturity of Lease Liabilities as of September 30, 2021	Operating Leases (1)		Finance Leases		Total
2021	$	428	$	26	$	454
2022	1,766		105		1,871
2023	1,655		105		1,760
2024	1,621		105		1,726
2025	1,614		105		1,719
After 2025	21,528		105		21,633
Total lease payments	28,612		551		29,163
Less: Interest	7,765		62		7,827
Present value of lease liabilities	$	20,847	$	489	$	21,336

(1) Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude $6,587 of legally binding minimum lease payments for leases signed, but not yet commenced.

Lease terms and discount rates related to the Corporation's lease liabilities as of September 30, 2021 and December 31, 2020 were as follows:


Lease Term and Discount Rate	September 30, 2021		December 31, 2020
Weighted-average remaining lease term (years)
Operating leases	18.8		19.0
Finance leases	5.3		6.0

Weighted-average discount rate
Operating leases	3.45	%	3.46	%
Finance leases	4.49	%	4.49	%

Other information related to the Corporation's lease liabilities as of September 30, 2021 and 2020 was as follows:


Other Information	September 30, 2021		September 30, 2020

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	699	$	695