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Leases Leases

6 Months Ended

Jun. 30, 2019

Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

Lessee Accounting

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2052. Portions of certain properties are subleased for terms extending through 2033. Substantially all of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated statements of condition. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated statements of condition as a right-of-use (“ROU”) asset and a corresponding lease liability. The Company has one existing finance lease (previously referred to as a capital lease) for a portion of the Company’s headquarters’ building with a lease term through 2052. As this lease was previously required to be recorded on the Company’s consolidated statements of condition, Topic 842 did not materially impact the accounting for this lease.

The following table represents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated statements of condition.



(dollars in thousands)	June 30, 2019
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Operating Lease Right-of-Use Assets	$	103,336
Finance lease right-of-use assets	Premises and Equipment, Net	2,412
Total Lease Right-of-Use Assets		$	105,748

Lease Liabilities
Operating lease liabilities	Operating Lease Liabilities	$	110,483
Finance lease liabilities	Other Debt	10,605
Total Lease Liabilities		$	121,088

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value 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. Regarding the discount rate, 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. For the Company’s only finance lease, the Company utilized its incremental borrowing rate at lease inception.



	June 30, 2019
Weighted-average remaining lease term
Operating leases	17.2 years
Finance leases	33.5 years
Weighted-average discount rate
Operating leases	3.67	%
Finance leases	7.04	%

The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities. Variable lease cost also includes payments for ATM location leases in which payments are based on a percentage of ATM transactions (i.e., ATM surcharge fees), rather than a fixed amount.



(dollars in thousands)		Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Lease Costs
	Operating lease cost	$	3,175		$	6,359
	Variable lease cost	734			1,594
	Short-term lease cost	134			217
	Finance lease cost
	Interest on lease liabilities ¹	187			374
	Amortization of right-of-use assets	18			36
	Sublease income	(2,035		)	(4,261		)
Net lease cost		$	2,213		$	4,319

Other Information
	Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases	$	3,174		$	6,325
	Operating cash flows from finance leases	187			374
	Financing cash flows from finance leases	19			38

	Right-of-use assets obtained in exchange for new operating lease liabilities	1,725			1,725
	Right-of-use assets obtained in exchange for new finance lease liabilities	—			—


¹	Included in other debt interest expense in the Company’s consolidated statements of income. All other lease costs in this table are included in net occupancy expense.

Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more as of June 30, 2019 were as follows:



(dollars in thousands)	Finance Leases			Operating Leases
Twelve Months Ended:
June 30, 2020	$	825		$	12,438
June 30, 2021	825			11,308
June 30, 2022	825			10,989
June 30, 2023	825			9,910
June 30, 2024	825			8,929
Thereafter	23,518			103,800
Total Future Minimum Lease Payments	27,643			157,374
Amounts Representing Interest	(17,038		)	(46,891		)
Present Value of Net Future Minimum Lease Payments	$	10,605		$	110,483

Lessee, Finance Leases

Leases

Lessee Accounting



(dollars in thousands)	June 30, 2019
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Operating Lease Right-of-Use Assets	$	103,336
Finance lease right-of-use assets	Premises and Equipment, Net	2,412
Total Lease Right-of-Use Assets		$	105,748

Lease Liabilities
Operating lease liabilities	Operating Lease Liabilities	$	110,483
Finance lease liabilities	Other Debt	10,605
Total Lease Liabilities		$	121,088



	June 30, 2019
Weighted-average remaining lease term
Operating leases	17.2 years
Finance leases	33.5 years
Weighted-average discount rate
Operating leases	3.67	%
Finance leases	7.04	%



(dollars in thousands)		Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Lease Costs
	Operating lease cost	$	3,175		$	6,359
	Variable lease cost	734			1,594
	Short-term lease cost	134			217
	Finance lease cost
	Interest on lease liabilities ¹	187			374
	Amortization of right-of-use assets	18			36
	Sublease income	(2,035		)	(4,261		)
Net lease cost		$	2,213		$	4,319

Other Information
	Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases	$	3,174		$	6,325
	Operating cash flows from finance leases	187			374
	Financing cash flows from finance leases	19			38

	Right-of-use assets obtained in exchange for new operating lease liabilities	1,725			1,725
	Right-of-use assets obtained in exchange for new finance lease liabilities	—			—


¹	Included in other debt interest expense in the Company’s consolidated statements of income. All other lease costs in this table are included in net occupancy expense.

Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more as of June 30, 2019 were as follows:



(dollars in thousands)	Finance Leases			Operating Leases
Twelve Months Ended:
June 30, 2020	$	825		$	12,438
June 30, 2021	825			11,308
June 30, 2022	825			10,989
June 30, 2023	825			9,910
June 30, 2024	825			8,929
Thereafter	23,518			103,800
Total Future Minimum Lease Payments	27,643			157,374
Amounts Representing Interest	(17,038		)	(46,891		)
Present Value of Net Future Minimum Lease Payments	$	10,605		$	110,483