Leases Leases

9 Months Ended

Sep. 30, 2019

Leases of Lessee Disclosure [Text Block]

Note 10 Leases

On January 1, 2019, the Company adopted ASU 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842 using the transition option provided in ASU 2018-11, which provides for the modified retrospective approach. Under this approach comparative periods were not restated and no cumulative effect adjustment to the opening balance of retained earnings was required.

First Commonwealth has elected to apply certain practical expedients provided under the standard including (i) to not apply the requirements in the new standard to short-term leases (ii) to not reassess the lease classification for any expired or existing lease (iii) to account for lease and non-lease components separately (iv) to not reassess initial direct costs for any existing leases. The impact of this standard primarily relates to operating leases of certain real estate properties, primarily certain branch and ATM locations and office space. First Commonwealth has no material leasing arrangements for which it is the lessor of property or equipment.

Adoption of this standard resulted in the Company recognizing an ROU asset of $38.5 million and a lease liability of $41.8 million on January 1, 2019.

The following table represents the Consolidated Statements of Condition classification of the Company’s ROU assets and lease liabilities, lease costs and other lease information as of and for the nine months ended September 30, 2019 (dollars in thousands).



Balance sheet:
Operating lease asset classified as premises and equipment	$	49,548
Operating lease liability classified as other liabilities	53,737
Income statement:
Operating lease cost classified as occupancy and equipment expense for the nine months ended September 30, 2019	$	3,959
Operating lease cost classified as occupancy and equipment expense for the three months ended September 30, 2019	1,275
Weighted average lease term, in years	15.44
Weighted average discount rate	3.42		%
Operating cash flows	$	3,351

The ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. First Commonwealth's lease agreements often include one or more options to renew at the Company's discretion. If we consider the renewal option to be reasonably certain, we include the extended term in the calculation of the ROU asset and lease liability.

First Commonwealth uses incremental borrowing rates when calculating the lease liability because the rate implicit in the lease is not readily determinable. The incremental borrowing rate used by First Commonwealth is an amortizing loan rate obtained from the Federal Home Loan Bank ("FHLB") of Pittsburgh. This rate is consistent with a collateralized borrowing rate and is available for terms similar to the lease payment schedules.

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2019 were as follows (dollars in thousands):



For the twelve months ended:
September 30, 2020	$	5,223
September 30, 2021	5,084
September 30, 2022	4,989
September 30, 2023	4,954
September 30, 2024	4,824
Thereafter	45,583
Total future minimum lease payments	70,657
Less remaining imputed interest	16,920
Present value of future minimum lease payments	$	53,737