Leases

6 Months Ended

Jun. 30, 2020

The Company accounts for its leases in accordance with ASC 842, which was implemented on January 1, 2019, and requires the Company to record liabilities for future lease obligations as well as assets representing the right to use the underlying leased asset. The Company’s leases primarily represent future obligations to make payments for the use of buildings or space for its operations. Liabilities to make future lease payments are recorded in accrued expenses and other liabilities, while right-of-use assets are recorded in other assets in the Company’s consolidated balance sheets. At June 30, 2020, all of the Company’s leases were classified as operating leases or short-term leases.

Liabilities to make future lease payments and right of use assets are recorded for operating leases and not short-term leases. These liabilities and right-of-use assets are determined based on the total contractual base rents for each lease, which include options to extend or renew each lease, where applicable, and where the Company believes it has an economic incentive to extend or renew the lease. Future contractual base rents are discounted using the rate implicit in the lease or using the Company’s estimated incremental borrowing rate if the rate implicit in the lease is not readily determinable. For leases that contain variable lease payments, the Company assumes future lease payment escalations based on a lease payment escalation rate specified in the lease or the specified index rate observed at the time of lease commencement. Liabilities to make future lease payments are accounted for using the interest method, being reduced by periodic contractual lease payments net of periodic interest accretion. Right-of-use assets for operating leases are amortized over the term of the associated lease by amounts that represent the difference between periodic straight-line lease expense and periodic interest accretion in the related liability to make future lease payments. Short-term leases are leases that have a term of 12 months or less at commencement.

The Company’s lease expense is recorded in premises and occupancy expense in the consolidated statements of income. The following table presents the components of lease expense for the periods indicated:


	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(Dollars in thousands)
Operating lease	$	3,908	$	2,785	$	7,072	$	5,524
Short-term lease	403		627		930		1,318
Total lease expense	$	4,311	$	3,412	$	8,002	$	6,842

The Company assumed operating leases in the acquisition of Opus on June 1, 2020. The liability and related right-of-use asset recorded for the assumption of these leases was approximately $42.5 million and $41.6 million, respectively. Right-of-use assets related to the Opus acquisition reflect unfavorable lease liability adjustments of approximately $900,000. Lease liabilities for leases assumed from Opus were measured based on the net present value of remaining future lease payments, with consideration given for options to extend or renew each lease. Remaining future lease payments were discounted at the Company’s estimated incremental borrowing rate on the date of acquisition.

The following table presents supplemental information related to operating leases as of and for six months ended:


	June 30, 2020		December 31, 2019
	(Dollars in thousands)
Balance Sheet:
Operating lease right of use assets	$	86,188	$	43,177
Operating lease liabilities	96,057		46,498

	Six Months Ended
	June 30, 2020		June 30, 2019
	(Dollars in thousands)
Cash Flows:
Operating cash flows from operating leases	$	5,524	$	5,957

The following table provides information related to minimum contractual lease payments and other information associated with the Company’s leases as of the dates indicated:


	2020		2021		2022		2023		2024		Thereafter		Total
	(Dollars in thousands)
As of June 30, 2020

Operating leases	$	11,227	$	22,510	$	20,550	$	18,902	$	16,223	$	22,489	$	111,901
Short-term leases	99		17		—		—		—		—		116
Total contractual base rents ⁽¹⁾	$	11,326	$	22,527	$	20,550	$	18,902	$	16,223	$	22,489	$	112,017

Total liability to make lease payments															$	96,057
Difference in undiscounted and discounted future lease payments															$	15,960
Weighted average discount rate															5.30		%
Weighted average remaining lease term (years)															5.8


	2020		2021		2022		2023		2024		Thereafter		Total
	(Dollars in thousands)

As of December 31, 2019
Operating leases	$	10,138	$	10,602	$	10,137	$	9,055	$	7,318	$	7,265	$	54,515
Short-term leases	143		7		—		—		—		—		150
Total contractual base rents ⁽¹⁾	$	10,281	$	10,609	$	10,137	$	9,055	$	7,318	$	7,265	$	54,665

Total liability to make lease payments															$	46,498
Difference in undiscounted and discounted future lease payments															$	8,167
Weighted average discount rate															6.13		%
Weighted average remaining lease term (years)															5.4

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⁽¹⁾ Contractual base rents reflect options to extend and renewals, and do not include property taxes and other operating expenses due under respective lease agreements.

The Company from time to time leases portions of space it owns to other parties. Income received from these transactions is recorded on a straight-line basis over the term of the sublease. For the three and six months ended June 30, 2020, rental income totaled $66,000 and $91,000, respectively. For the three and six months ended June 30, 2019, rental income totaled $46,000 and $91,000, respectively.