Leases

9 Months Ended

Sep. 30, 2019

The Company accounts for its leases in accordance with ASC 842, which was implemented on January 1, 2019, and requires the Company to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased asset. The Company’s leases primarily represent future obligations to make payments for the use of buildings or space for its operations. Liabilities to make future lease payments are recorded in accrued expenses and other liabilities, while right-of-use assets are recorded in other assets in the Company’s consolidated balance sheets. At September 30, 2019, all of the Company’s leases were classified as operating leases or short-term leases. Liabilities to make future lease payments and right of use assets are recorded for operating leases and not 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 Company believes it has an economic incentive to extend or renew the lease. Future contractual base rents are discounted using the rate implicit in the lease or using the Company’s estimated incremental borrowing rate if the rate implicit in the lease is not readily determinable. For leases that contain variable lease payments, the Company 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 three and nine months ended September 30, 2019, lease expense totaled $3.5 million and $10.3 million, respectively, and was recorded in premises and occupancy expense in the consolidated statements of income. For the three and nine months ended September 30, 2019, lease expense attributable to operating leases totaled approximately $2.9 million and $8.4 million, respectively. Lease expense attributable to short-term leases for the three and nine ended September 30, 2019 totaled approximately $575,000 and $1.9 million, respectively. Short-term leases are leases that have a term of 12 months or less at commencement.

The following table presents supplemental information related to operating leases as of the period indicated:



	September 30, 2019
	(dollars in thousands)
Balance Sheet:
Operating lease right of use assets	$	42,065
Operating lease liabilities	44,973
Cash Flows:
Operating cash flows from operating leases	8,786

The following table provides information related to minimum contractual lease payments and other information associated with the Company’s leases as of September 30, 2019:



	2019		2020		2021		2022		2023		Thereafter		Total
	(dollars in thousands)
Contractual base rents ⁽¹⁾:
Operating leases	$	2,798	$	9,354	$	9,773	$	9,327	$	8,346	$	13,619	$	53,217
Short-term leases	218		79		—		—		—		—		297
Total contractual base rents	$	3,016	$	9,433	$	9,773	$	9,327	$	8,346	$	13,619	$	53,514

Total liability to make lease payments													$	44,973
Difference in undiscounted and discounted future lease payments													$	8,541
Weighted average discount rate													6.26		%
Weighted average remaining lease term (years)													5.5

⁽¹⁾ Contractual base rents reflect options to extend and renewals, and do not include property taxes and other operating expenses due under respective lease agreements.

The Company from time to time leases portions of space it owns to other parties. Income received from these transactions is recorded on a straight-line basis over the term of the sublease. For the three months ended September 30, 2019 and 2018, rental income totaled $25,000 and $140,000, respectively. For the nine months ended September 30, 2019 and 2018, rental income totaled $116,000 and $389,000, respectively.

The following table provides information related to minimum contractual lease payments for the periods indicated below as of December 31, 2018 ⁽¹⁾:



	2019		2020		2021		2022		2023		Thereafter		Total
	(dollars in thousands)
Minimum contractual lease payments	$	11,468	$	10,869	$	10,133	$	9,296	$	8,124	$	10,518	$	60,408
⁽¹⁾ Contractual base rents in the table above are reflective of future lease obligations under ASC 840, prior to the implementation of ASC 842. The amounts in the table above do not reflect extensions or renewals and do not include property taxes and other operating expenses due under respective lease agreements. The amounts in the table above also reflect future lease obligations for certain leases that had not yet commenced as of December 31, 2018.