Lease Commitments — The Company and its subsidiaries are obligated under operating leases for certain office premises and equipment.

The following table shows operating lease right of use assets and operating lease liabilities as of September 30, 2019.



(Dollars in thousands)	Statement of Financial Condition classification	September 30, 2019
Operating lease right of use assets	Accrued income and other assets	$	23,787
Operating lease liabilities	Accrued expenses and other liabilities	$	24,042

During the third quarter of 2019, the Company amended the lease agreement for its corporate office building by extending the lease term which resulted in an increase to its operating lease right of use assets of $14.65 million and an increase to its operating lease liabilities of $14.64 million.

The following table shows the components of operating leases expense for the three and nine months ended September 30, 2019.



(Dollars in thousands)	Statement of Income classification	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	Net occupancy expense	$	873	$	2,634
Short-term lease cost	Net occupancy expense	16		26
Variable lease cost	Net occupancy expense	—		—
Total operating lease cost		$	889	$	2,660

Gross rental expense for the three and nine months ended September 30, 2018 was $0.92 million and $2.63 million, respectively.

The following table shows future minimum rental commitments for all noncancellable operating leases with an initial term longer than 12 months for the next five years and thereafter.



(Dollars in thousands)
Remainder of 2019	$	626
2020	3,657
2021	3,623
2022	3,532
2023	2,493
Thereafter	13,570
Total lease payments	27,501
Less: imputed interest	(3,459		)
Present value of operating lease liabilities	$	24,042

The following table shows the weighted average remaining operating lease term, the weighted average discount rate and supplemental Consolidated Statement of Cash Flows information for operating leases at September 30, 2019.



(Dollars in thousands)	September 30, 2019
Weighted average remaining lease term	11.18 years
Weighted average discount rate	2.86		%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	941

During the nine months ended September 30, 2019, the Company recognized a net gain on the sale of an office building in the amount of $1.32 million. The Company commenced an operating lease with the buyer of the building to lease a portion of it for office space resulting in a new right of use asset and operating lease liability.

Financial Instruments with Off-Balance-Sheet Risk — 1st Source and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business. These off-balance-sheet financial instruments include commitments to originate and sell loans and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Statements of Financial Condition.



(Dollars in thousands)	September 30, 2019		December 31, 2018
Amounts of commitments:
Loan commitments to extend credit	$	1,045,769	$	1,095,053
Standby letters of credit	$	29,126	$	31,133
Commercial and similar letters of credit	$	1,752	$	2,500

The exposure to credit loss in the event of nonperformance by the other party to the financial instruments for loan commitments and standby letters of credit is represented by the dollar amount of those instruments. The Company uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet instruments.

The Bank grants mortgage loan commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan commitments is managed by entering into contracts for future deliveries of loans. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments that guarantee the performance of a client to a third party. The credit risk involved in and collateral obtained when issuing standby letters of credit is essentially the same as that involved in extending loan commitments to clients. Standby letters of credit generally have terms ranging from two months to one year.

Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party. Commercial letters of credit generally have terms ranging from two months to six months.