Leases

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Leases

Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company adopted FASB Topic 842 on January 1, 2019.

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches and office space with terms extending through 2025. We do not have any subleased properties. Substantially all of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. The Company has one existing finance lease (previously referred to as a capital lease) for a branch location with a lease term through 2025.

Supplemental balance sheet information related to leases was as follows:

(in thousands)	Classification	June 30, 2020			December 31, 2019
Lease Right-of-Use Assets
Operating lease right-of-use assets	Other assets	$	4,067		$	4,499
Finance lease right-of-use asset	Premises and equipment, net	589			637
Total right-of-use assets		$	4,656		$	5,136
Lease Liabilities
Operating lease liability	Other liabilities	$	5,036		$	5,430
Finance lease liability	Long-term debt	1,162			1,224
Total lease liabilities		$	6,198		$	6,654
Weighted-average remaining lease term
Operating leases		8.22 years			8.90 years
Finance lease		6.17 years			6.67 years
Weighted-average discount rate
Operating leases		3.58		%	3.78		%
Finance lease		8.89		%	8.89		%

The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. For finance leases, the Company utilizes the rate implicit in the lease.

The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2020		2019		2020		2019
Lease Costs
Operating lease cost	$	409	$	257	$	728	$	450
Variable lease cost	109		13		147		40
Short-term lease cost	—		—		—		—
Interest on lease liabilities (1)	26		28		52		57
Amortization of right-of-use assets	24		24		48		48
Net lease cost	$	568	$	322	$	975	$	595
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	651	$	455	$	1,154	$	838
Operating cash flows from finance lease	26		41		52		83
Finance cash flows from finance lease	31		28		62		55
Right-of-use assets obtained in exchange for new operating lease liabilities	94		1,599		94		1,599
Right-of-use assets obtained in exchange for new finance lease liabilities	—		—		—		—

(1) Included in long-term debt interest expense in the Company’s consolidated statements of income. All other lease costs in this table are included in occupancy expense of premises, net.

Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more as of June 30, 2020 were as follows:

(in thousands)	Finance Leases		Operating Leases
Twelve Months Ended:
December 31, 2020	$	116	$	554
December 31, 2021	235		1,093
December 31, 2022	240		993
December 31, 2023	245		932
December 31, 2024	250		702
Thereafter	426		2,138
Total undiscounted lease payment	$	1,512	$	6,412
Amounts representing interest	(350)		(1,376)
Lease liability	$	1,162	$	5,036

Leases

Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company adopted FASB Topic 842 on January 1, 2019.

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches and office space with terms extending through 2025. We do not have any subleased properties. Substantially all of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. The Company has one existing finance lease (previously referred to as a capital lease) for a branch location with a lease term through 2025.

Supplemental balance sheet information related to leases was as follows:

(in thousands)	Classification	June 30, 2020			December 31, 2019
Lease Right-of-Use Assets
Operating lease right-of-use assets	Other assets	$	4,067		$	4,499
Finance lease right-of-use asset	Premises and equipment, net	589			637
Total right-of-use assets		$	4,656		$	5,136
Lease Liabilities
Operating lease liability	Other liabilities	$	5,036		$	5,430
Finance lease liability	Long-term debt	1,162			1,224
Total lease liabilities		$	6,198		$	6,654
Weighted-average remaining lease term
Operating leases		8.22 years			8.90 years
Finance lease		6.17 years			6.67 years
Weighted-average discount rate
Operating leases		3.58		%	3.78		%
Finance lease		8.89		%	8.89		%

The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. For finance leases, the Company utilizes the rate implicit in the lease.

The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2020		2019		2020		2019
Lease Costs
Operating lease cost	$	409	$	257	$	728	$	450
Variable lease cost	109		13		147		40
Short-term lease cost	—		—		—		—
Interest on lease liabilities (1)	26		28		52		57
Amortization of right-of-use assets	24		24		48		48
Net lease cost	$	568	$	322	$	975	$	595
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	651	$	455	$	1,154	$	838
Operating cash flows from finance lease	26		41		52		83
Finance cash flows from finance lease	31		28		62		55
Right-of-use assets obtained in exchange for new operating lease liabilities	94		1,599		94		1,599
Right-of-use assets obtained in exchange for new finance lease liabilities	—		—		—		—

(1) Included in long-term debt interest expense in the Company’s consolidated statements of income. All other lease costs in this table are included in occupancy expense of premises, net.

Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more as of June 30, 2020 were as follows:

(in thousands)	Finance Leases		Operating Leases
Twelve Months Ended:
December 31, 2020	$	116	$	554
December 31, 2021	235		1,093
December 31, 2022	240		993
December 31, 2023	245		932
December 31, 2024	250		702
Thereafter	426		2,138
Total undiscounted lease payment	$	1,512	$	6,412
Amounts representing interest	(350)		(1,376)
Lease liability	$	1,162	$	5,036