Lease Obligations Lease Obligations

6 Months Ended

Jun. 30, 2019

LEASE OBLIGATIONS

The Company has the right to utilize certain premises under non-cancelable operating leases with varying maturity dates through the year ending December 31, 2033. As of June 30, 2019, the weighted-average remaining lease term on these leases was 11.02 years. Various leases contain renewal or termination options controlled by the Company or options to purchase the leased property during or at the expiration of the lease period at specific prices. Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in consumer or other price indices. Variable payments for real estate taxes and other operating expenses are considered to be non-lease components and are excluded from the determination of the lease liability. In addition, the Company rents or subleases certain real estate to third-parties. The following summary reflects the future minimum payments by year required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year and a reconciliation of those payments to the Company's lease liability as of June 30, 2019.

Lease Liability

(Dollar amounts in thousands)



	As of June 30, 2019
Year Ending December 31,
2019	$	8,124
2020	17,409
2021	17,277
2022	17,284
2023	17,419
2024 and thereafter	115,479
Total minimum lease payments	192,992
Discount⁽¹⁾	(32,973		)
Lease liability⁽²⁾	$	160,019


⁽¹⁾	Represents the net present value adjustment related to minimum lease payments.


⁽²⁾	Included in accrued interest payable and other liabilities in the Consolidated Statements of Financial Condition.

The discount rate for the Company's operating leases is the rate implicit in the lease and, if that rate cannot be readily determined, the Company's incremental borrowing rate. The weighted-average discount rate on the Company's operating leases was 3.34% as of June 30, 2019.

As of June 30, 2019, right-of-use assets of $139.9 million associated with lease liabilities were included in accrued interest receivable and other assets in the Consolidated Statements of Financial Condition.

The following table presents net operating lease expense for the quarters and six months ended June 30, 2019 and 2018.

Net Operating Lease Expense

(Dollar amounts in thousands)



	Quarters Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Lease expense charged to operations	$	4,426		$	4,946		$	8,486		$	9,943
Accretion of operating lease intangible ⁽¹⁾	—			(210		)	—			(505		)
Accretion of deferred gain on sale-leaseback transaction ⁽¹⁾	—			(1,463		)	—			(2,926		)
Rental income from premises leased to others ⁽¹⁾	(165		)	(108		)	(322		)	(262		)
Net operating lease expense	$	4,261		$	3,165		$	8,164		$	6,250


⁽¹⁾	Included as reductions to net occupancy and equipment expense in the Condensed Consolidated Statements of Income.

During 2016, the Bank completed a sale-leaseback transaction, whereby the Bank sold to a third-party 55 branches and concurrently entered into triple net lease agreements with certain affiliates of the third-party for each of the branches sold. The sale-leaseback transaction resulted in a pre-tax gain of $88.0 million, net of transaction related expenses, of which $5.5 million was immediately recognized in earnings. Remaining deferred pre-tax gains were $65.5 million as of December 31, 2018. Upon adoption of new

lease guidance on January 1, 2019, the remaining after tax gain of $47.3 million was recognized as a cumulative-effect adjustment to equity in the Consolidated Statements of Financial Condition. For additional detail regarding the new lease guidance see Note 2, "Recent Accounting Pronouncements."