Leases Leases

3 Months Ended

Mar. 31, 2019

Pinnacle Financial has entered into various operating leases, primarily for office space and branch facilities, and through acquisition assumed a single finance lease for a branch facility. Upon adoption of FASB ASU 2016-02 Leases on January 1, 2019, Pinnacle Financial began recognizing right-of-use assets and lease liabilities related to its operating leases. Prior to ASU 2016-02, such assets and liabilities were recognized only for capital leases (referred to as finance leases under the amendments of ASU 2016-02). In accordance with the optional transition method allowed by ASU 2016-11, comparative prior period information included within this note is presented in accordance with guidance in effect during those periods. Right-of-use assets and lease liabilities related to Pinnacle Finacial's operating and finance leases are as follows at March 31, 2019 (in thousands):



	Balance Sheet Location	March 31, 2019
Right-of-use assets
Operating leases ⁽¹⁾	Other assets	$	73,792
Finance leases	Premises and equipment, net	2,156
Total right-of-use assets		$	75,948
Lease liabilities
Operating leases	Other liabilities	$	81,768
Finance leases	Other liabilities	3,415
Total lease liabilities		$	85,183

⁽¹⁾ Presented net of tenant improvement allowances of $1.7 million and purchase accounting fair value adjustments of $2.9 million.

Lease costs during the three months ended March 31, 2019 related to these leases were as follows (in thousands):



	Three Months Ended March 31, 2019
Operating lease cost	$	3,440
Short-term lease cost	14
Finance lease cost:
Interest on lease liabilities	62
Amortization of right-of-use asset	56
Sublease income	(249		)
Net lease cost	$	3,323

Rent expense related to leases during the three months ended March 31, 2018 was $3.2 million.

Cash flows related to leases during the three months ended March 31, 2019 were as follows (in thousands):



	Three Months Ended March 31, 2019
Operating cash flows related to operating leases	$	3,381
Operating cash flows related to finance leases	62
Financing cash flows related to finance leases	55

Lease liabilities are determined based on lease term discounted at an effective rate of interest. Certain lease agreements contain renewal options which are considered in the determination of the lease term if they are deemed reasonably certain to be exercised. Discount rates used to determine the present value of lease payments are based on secured borrowing rates as of the commencement date of the lease. The following table presents the weighted average remaining lease term and weighted average discount rate used to determine lease liabilities at March 31, 2019 (in thousands):



	March 31, 2019
Weighted average remaining lease term:
Operating leases	9.74 years
Finance leases	9.58 years
Weighted average discount rate:
Operating leases	3.31	%
Finance leases	7.22	%

The following table presents a maturity analysis of undiscounted cash flows due under operating leases and finance leases and a reconciliation to total operating lease liabilities and finance lease liabilities at March 31, 2019 (in thousands):



	Operating Leases			Finance Leases
2019 ⁽¹⁾	$	10,122		$	353
2020	12,469			470
2021	12,038			470
2022	9,688			470
2023	8,874			479
Thereafter	43,967			2,548
	97,158			4,790
Less: Imputed interest	(15,390		)	(1,375		)
Total lease liabilities	$	81,768		$	3,415

⁽¹⁾Includes the period from April 1, 2019 - December 31, 2019.

At December 31, 2018, the future minimum lease payments due under operating leases and capital leases, and a reconciliation to total capital lease liabilities were as follows (in thousands):



	Operating Leases		Capital Leases
2019	$	12,889	$	470
2020	11,805		470
2021	11,527		470
2022	9,410		470
2023	8,820		479
Thereafter	43,730		2,548
Future minimum lease payments	$	98,181	4,907
Less: Imputed interest			(1,437		)
Total capital lease liabilities			$	3,470

Leases



	Balance Sheet Location	March 31, 2019
Right-of-use assets
Operating leases ⁽¹⁾	Other assets	$	73,792
Finance leases	Premises and equipment, net	2,156
Total right-of-use assets		$	75,948
Lease liabilities
Operating leases	Other liabilities	$	81,768
Finance leases	Other liabilities	3,415
Total lease liabilities		$	85,183