Leases

9 Months Ended

Sep. 30, 2019

Note 6 - Leases

The Company adopted ASU 2016-2 “Leases” (Topic 842) as of January 1, 2019, which requires the Company to record a right-of-use asset (“ROUA”) on the consolidated balance sheets for those leases that convey rights to control use of identified assets for a period of time in exchange for consideration. The Company is also required to record a lease liability on the consolidated balance sheets for the present value of future payment commitments. All of the Company’s leases are comprised of operating leases in which the Company is lessee of real estate property for branches, ATM locations, and general administration and operations. The Company elected not to include short-term leases (i.e. leases with initial terms of twelve months or less) within the ROUA and lease liability. Known or determinable adjustments to the required minimum future lease payments were included in the calculation of the Company’s ROUA and lease liability. Adjustments to the required minimum future lease payments that are variable and will not be determinable until a future period, such as changes in the consumer price index, are included as variable lease costs. Additionally, expected variable payments for common area maintenance, taxes and insurance were unknown and not determinable at lease commencement and therefore, were not included in the determination of the Company’s ROUA or lease liability.

The value of the ROUA and lease liability is impacted by the amount of the periodic payment required, length of the lease term, and the discount rate used to calculate the present value of the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. 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. Topic 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 January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. The lease liability is reduced based on the discounted present value of remaining payments as of each reporting period. The ROUA value is measured using the amount of lease liability and adjusted for prepaid or accrued lease payments, remaining lease incentives, unamortized direct costs (if any), and impairment (if any).

The following table presents the components of lease expense for the three and nine months ended September 30, 2019:


(in thousands)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating lease cost	$	1,306	$	3,924
Short-term lease cost	65		194
Variable lease cost	(13)		(33)
Sublease income	(32)		(98)
Total lease cost	$	1,326	$	3,987

Prior to the adoption of ASU 2016-2, rent expense under operating leases was $1,161,000 and $2,937,000 during the three and nine months ended September 30, 2018, respectively. Rent expense was offset by rent income of $10,000 and $31,000 during the three and nine months ended September 30, 2018, respectively.

The following table presents supplemental cash flow information related to leases for the nine months ended September 30, 2019:


(in thousands)	Three months ended September 30, 2019		Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	1,236	$	3,683
ROUA obtained in exchange for operating lease liabilities	$	—	$	32,162

The following table presents the weighted average operating lease term and discount rate at September 30, 2019:



Weighted-average remaining lease term	9.4 years
Weighted-average discount rate	3.19	%

At September 30, 2019, future expected operating lease payments are as follows:


(in thousands)
Periods ending December 31,
2019	$	1,180
2020	4,389
2021	4,235
2022	3,896
2023	3,216
Thereafter	16,682
	33,598
Discount for present value of expected cash flows	(5,104)
Lease liability at September 30, 2019	$	28,494