Premises and Equipment

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Premises and Equipment

Premises, Equipment and Lease Commitments

Premises and Equipment

Premises and equipment are described as follows:

	Estimated Useful Life	2019		2018
	(dollars in thousands)
Land	Indefinite	$	15,446	$	15,359
Buildings and improvements	10-50 years	76,965		78,643
Operating lease right of use asset	1-25 years	52,114		—
Leasehold improvements	5-40 years	37,716		27,573
Furniture and equipment	3-7 years	71,548		67,735
Software	3-7 years	40,399		38,800
Subtotal		294,188		228,110
Less accumulated depreciation and amortization		156,920		147,636
Total premises and equipment, net		$	137,268	$	80,474

Depreciation related to premises and equipment included in noninterest expense for the years ended December 31, 2019, 2018 and 2017 amounted to $10.5 million, $9.5 million and $9.0 million, respectively. Amortization of lease right-of-use assets totaled $3.5 million in 2019.

Lease Commitments

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 lease costs and other lease information for the year ended December 31, 2019 (dollars in thousands).

Operating lease cost classified as occupancy and equipment expense	$	5,328
Weighted average lease term, in years	15.27
Weighted average discount rate	3.43		%
Operating cash flows	$	4,656

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.

The following table reconciles future minimum lease payments due under non-cancelable operating leases (those amounts subject to recognition) to the lease liability as of December 31, 2019 (dollars in thousands):

For the twelve months ended
2020	$	5,199
2021	5,084
2022	4,961
2023	4,939
2024	4,791
Thereafter	44,391
Total future minimum lease payments	69,365
Less remaining imputed interest	16,471
Operating lease liability	$	52,894

Rent expense, net of rental income, for all operating leases totaled $4.9 million in 2019, $4.1 million in 2018 and $2.7 million in 2017. Rent expense includes amounts related to items that are not included in the determination of lease right-of-use assets including expenses related to short-term leases and non-lease components such as taxes, insurance, and common area maintenance costs.