Leases

6 Months Ended

Mar. 31, 2021

Leases

Leases

15. 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 is a lessor in certain leasing agreements, such as for office space, and is a lessee in others, such as for certain office space and equipment. The Company’s operating leases have terms that expire at different dates through August 2028, and some include options to extend the leases in five year increments.

On October 1, 2019, the Company adopted FASB ASC 842 and all subsequent updates that modified FASB ASC 842. For the Company, this update primarily affected the accounting treatment for operating lease agreements.  With the adoption of FASB ASC 842, operating lease agreements are required to be recognized on the consolidated balance sheet as a “right of use” (“ROU”) asset and a corresponding lease liability. All of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheet.

The Company’s right to use an asset over the life of a lease is recorded as an ROU asset included in other assets on the consolidated balance sheet and was $7.5 million and $7.9 million at March 31, 2021 and September 30,2020, respectively.  Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received.  The Company recorded a lease liability in other liabilities on the consolidated balance sheet, which had a balance of $7.6 million and $8.0 million at March 31, 2021 and September 30, 2020, respectively.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of minimum lease payments.  Regarding the discount rate, FASB ASC 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 October 1, 2019, the rate for the remaining lease term as of October 1, 2019 was used.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the term of the lease.  Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more.  The exercise of renewal options on operating leases is at the Company’s sole discretion, and certain leases may include options to purchase the leased property.  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.  The Company does not enter into lease agreements which contain material residual value guarantees or material restrictive covenants. At March 31, 2021, the Company had not entered into any leases that had yet to commence.

Lease expense for the three and six–month periods ended March 31, 2021 was $495,000 and $1.0 million, respectively. Lease expense for the three and six-month periods ended March 31, 2020 was $490,000 and $900,000 respectively.  The components of lease expense for the three and six-month periods ended March 31, 2021 and 2020 were as follows:

	Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended
	March 31,		March 31,		March 31,		March 31,
	2021		2021		2020		2020
Operating lease cost	$	260	$	634	$	295	$	585
Short-term lease cost		235		412		195		315
	$	495	$	1,046	$	490	$	900

Future minimum commitments due under these lease agreements as of March 31, 2021 are as follows, including renewal options that are reasonably certain to be exercised:

2021 (remaining six months)	$	665
2022		1,215
2023		882
2024		790
2025		540
Thereafter		5,479
Total lease payments		9,571
Less imputed interest		(1,947)
Total	$	7,624

The lease term and discount rate at March 31, 2021 and September 30, 2020 were as follows:

	March 31,		September 30,
	2021		2020
Weighted-average remaining lease term (years)	18.7		22.6
Weighted-average discount rate	2.27	%	2.75	%

Supplemental cash flow information for the six–month periods ended March 31, 2021 and 2020 related to leases was as follows:

	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	710	$	524
ROU assets obtained in exchange for lease obligations:
Operating leases	$	2,037	$	7,506