Leases

6 Months Ended

Jun. 30, 2019

The Corporation has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception.

The Corporation adopted the provisions of ASU 2016-02 (Topic 842) on January 1, 2019. Operating lease right-of-use (“ROU”) assets represent a right to use an underlying asset for the contractual lease term. Operating lease liabilities represent an obligation to make lease payments arising from the lease. Upon adoption, operating lease ROU assets totaling $28.9 million and operating lease liabilities totaling $30.9 million were recognized in our Unaudited Consolidated Balance Sheets for leases that existed at the adoption date, based on the present value of lease payments over the remaining lease term. Operating leases entered into after the adoption date will be recognized as an operating lease ROU asset and operating lease liability at the commencement date of the new lease.

The Corporation’s leases do not provide an implicit interest rate, therefore the Corporation used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine the present value of operating lease liabilities. The weighted average discount rate used to discount operating lease liabilities at June 30, 2019 was 3.66%.

The Corporation’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Corporation’s lease agreements do not contain any residual value guarantees.

Operating leases with terms of 12 months or less are included in ROU assets and operating lease liabilities recorded in the Corporation’s Unaudited Consolidated Balance Sheets. Operating lease terms include options to extend when it is reasonably certain that the Corporation will exercise such options, determined on a lease-by-lease basis. As of June 30, 2019, the Corporation does not have any leases that have not yet commenced. At June 30, 2019, lease expiration dates ranged from 3 months to 22 years, with additional renewal options on certain leases ranging from 1 to 5 years. At June 30, 2019, the weighted average remaining lease term for the Corporation’s operating leases was 14.2 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $940 thousand and $1.9 million, respectively, for the three and six months ended June 30, 2019, compared to $938 thousand and $1.9 million, respectively, for the same periods in 2018. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following table presents the undiscounted annual lease payments under the terms of the Corporation’s operating leases at June 30, 2019, including a reconciliation to the present value of operating lease liabilities recognized in the Corporation’s Unaudited Consolidated Balance Sheets:




(Dollars in thousands)
July 1, 2019 to December 31, 2019		$1,856
2020	3,515
2021	3,312
2022	3,165
2023	3,090
2024 and thereafter	24,716
Total operating lease payments (1)	39,654
Less interest	9,444
Present value of operating lease liabilities (2)		$30,210

(1) Includes $4.2 million related to options to extend lease terms that are reasonably certain of being exercised.

(2) Includes short-term operating lease liabilities of $2.5 million.

The following table presents the components of total lease expense and operating cash flows:



(Dollars in thousands)
Periods ended June 30, 2019	Three Months		Six Months
Lease Expense:
Operating lease expense		$928		$1,856
Variable lease expense	12		23
Total lease expense (1)		$940		$1,879
Cash Paid:
Cash paid reducing operating lease liabilities		$831		$1,751

(1) Included in net occupancy expenses in the Unaudited Consolidated Income Statement.

The following table presents the minimum annual lease payments under the terms of these leases, exclusive of renewal provisions at December 31, 2018:




(Dollars in thousands)
Years ending December 31:	2019		$3,544
	2020	2,980
	2021	2,677
	2022	2,293
	2023	2,059
	2024 and thereafter	22,648
Total minimum lease payments			$36,201

At December 31, 2018, lease expiration dates ranged from 5 months to 22 years, with additional renewal options on certain leases ranging from 1 to 5 years.