OPERATING LEASES

12 Months Ended

Sep. 30, 2020

OPERATING LEASES

OPERATING LEASES

(19)       LEASES

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified premises and equipment for a period of time in exchange for consideration.  The Company is a lessor in certain leasing agreements, such as for office space, and is a lessee in others, such as for certain office space and equipment.  The Company’s operating leases have terms that expire at different dates through August 2028, and some include options to extend the leases in five year increments.

On October 1, 2019, the Company adopted FASB ASC 842 and all subsequent updates that modified FASB ASC 842.  For the Company, this update primarily affected the accounting treatment for operating lease agreements.  With the adoption of FASB ASC 842, operating lease agreements are required to be recognized on the consolidated balance sheet as an ROU asset and a corresponding lease liability.  All of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheet.

The Company’s right to use an asset over the life of a lease is recorded as an ROU asset included in other assets on the consolidated balance sheet and was $7.9 million at September 30, 2020. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received.  The Company recorded a lease liability in other liabilities on the consolidated balance sheet, which had a balance of $8.0 million at September 30, 2020.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of minimum lease payments.  Regarding the discount rate, FASB ASC 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable.  As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.  For operating leases existing prior to October 1, 2019, the rate for the remaining lease term as of October 1, 2019 was used.

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Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the term of the lease.  Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more.  The exercise of renewal options on operating leases is at the Company’s sole discretion, and certain leases may include options to purchase the leased property.  If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability.  The Company does not enter into lease agreements which contain material residual value guarantees or material restrictive covenants.  At September 30, 2020, the Company had not entered into any leases that had yet to commence that conveyed the right to control the use of the property to the Company.

Lease expense for the years ended September 30, 2020, 2019 and 2018 was $1.9 million, $1.2 million and $462,000, respectively.  The components of lease expense for the years ended September 30, 2020, 2019 and 2018 were as follows:

(In thousands)	2020		2019		2018
Operating lease cost	$	1,294	$	527	$	227
Short-term lease cost		644		679		235
	$	1,938	$	1,206	$	462

Future minimum commitments due under these lease agreements as of September 30, 2020 are as follows, including renewal options that are reasonably certain to be exercised:

Years ending September 30:	(In thousands)
2021	$	1,337
2022		1,158
2023		890
2024		758
2025		536
Thereafter		5,528
Total lease payments		10,207
Less imputed interest		(2,194)
Total	$	8,013

The lease term and discount rate at September 30, 2020 were as follows:

Weighted-average remaining lease term (years)	18.5
Weighted-average discount rate	2.35	%

Supplemental cash flow information for the year ended September 30, 2020 related to leases was as follows:

(In thousands)

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,221
ROU assets obtained in exchange for lease obligations:
Operating leases		9,083

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Lessor

The Company leases commercial office space to tenants under noncancelable operating leases with terms of three to ten years. The following is a schedule by years of future minimum lease payments with initial or remaining terms in excess of one year as of September 30, 2020:

Years ending September 30:	(In thousands)
2021	$	584
2022		507
2023		461
2024		461
2025		346
2026 and thereafter		—
Total	$	2,359