Note 5: Leases

The Corporation accounts for its leases in accordance with ASC 842, which was implemented on July 1, 2019, and requires the Corporation to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased assets. The Corporation’s leases primarily represent future obligations to make payments for the use of buildings, space or equipment for its operations. Liabilities to make future lease payments are recorded in accounts payable, accrued interest and other liabilities, while right-of-use assets are recorded in premises and equipment in the Corporation’s consolidated statements of financial condition. At June 30, 2020, all of the Corporation’s leases were classified as operating leases and the Corporation did not have any operating leases with an initial term of 12 months or less (“short-term leases”). Liabilities to make future lease payments and right of use assets are recorded for operating leases and do not include short-term leases. These liabilities and right-of-use assets are determined based on the total contractual base rents for each lease, which include options to extend or renew each lease, where applicable, and where the Corporation believes it has an economic incentive to extend or renew the lease. Due to the fact that lease extensions are not reasonably certain, the Corporation generally does not recognize payments occurring during option periods in the calculation of its operating right-of-use lease assets and operating lease liabilities. The Corporation utilizes the FHLB - San Francisco rates as a discount rate for each of the remaining contractual terms at the adoption date as well as for future leases if the discount rate is not stated in the lease. For leases that contain variable lease payments, the Corporation assumes future lease payment escalations based on a lease payment escalation rate specified in the lease or the specified index rate observed at the time of lease commencement. Liabilities to make future lease payments are accounted for using the interest method, being reduced by periodic contractual lease payments net of periodic interest accretion. Right-of-use assets for operating leases are amortized over the term of the associated lease by amounts that represent the difference between periodic straight-line lease expense and periodic interest accretion in the related liability to make future lease payments.

For the fiscal year ended June 30, 2020, expenses associated with the Corporation’s leases totaled $825,000, and was recorded in premises and occupancy expenses and equipment expenses in the consolidated statements of operations.

The following table presents supplemental information related to operating leases at the date and for the periods indicated:


(In Thousands)	Year Ended			As of
	June 30, 2020			June 30, 2020
Consolidated Statements of Condition:
Premises and equipment - Operating lease right of use assets			$	2,525
Accounts payable, accrued interest and other liabilities – Operating lease liabilities			$	2,640

Consolidated Statements of Operations:
Premises and occupancy expenses from operating leases (1) (2)	$	768
Equipment expenses from operating leases	$	57

Consolidated Statements of Cash Flows:
Operating cash flows from operating leases, net(2)	$	1,035

(1)Variable lease costs are immaterial.

(2)Revenue related to sublease activity is immaterial and netted against operating lease expenses.

The following table provides information related to remaining minimum contractual lease payments and other information associated with the Corporation’s leases as of June 30, 2020:


	Amount(1)
Year Ending June 30,	(In Thousands)
2021	$	750
2022		671
2023		469
2024		359
2025		255
Thereafter		275
Total contract lease payments	$	2,779

Total liability to make lease payments	$	2,640
Difference in undiscounted and discounted future lease payments	$	139
Weighted average discount rate		2.16	%
Weighted average remaining lease term (years)		4.6

⁽¹⁾

Contractual base rents do not include property taxes and other operating expenses due under respective lease agreements.

The following table summarizes the impact of the adoption of the new lease accounting guidance on the Corporation's consolidated statements of financial condition as of July 1, 2019:


			Adjustments
	June 30,		due to new		July 1,		June 30,
(In Thousands)	2019		lease guidance		2019		2020
Total assets	$	1,084,850	$	3,399	$	1,088,249	$	1,176,837
Total liabilities	$	964,209	$	3,704	$	967,913	$	1,052,861
Total equity	$	120,641	$	—	$	120,641	$	123,976