Leases

12 Months Ended

Dec. 31, 2019

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (“Topic 842”) and all subsequent ASU's that modified Topic 842. The Company’s leases primarily relate to real estate property for branches and office space with terms extending from nine months up to 35.5 years. At December 31, 2019, all of the Company's leases are classified as operating leases.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the consolidated balance sheets. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recorded at the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of lease payments. Certain leases include options to renew, with one or more renewal terms ranging from five to 10 years. As these extension options are not generally considered reasonably certain of renewal, they are not included in the lease term.

At December 31, 2019, the Company’s operating lease right-of-use assets and related lease liabilities included in the consolidated balance sheet were $39.5 million and $44.1 million, respectively. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are recognized as incurred. Variable lease payments include common area maintenance charges, real estate taxes, repairs and maintenance costs and utilities. Operating and variable lease expenses are recorded in occupancy expense in the consolidated statements of income.

Supplemental lease information at or for the year ended December 31, 2019 is as follows (dollars in thousands):



Operating lease cost	$	6,698
Variable lease cost	2,813
Net lease cost	$	9,511
Cash paid for amounts included in measurement of operating lease liabilities	$	5,901
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,013
Weighted average remaining lease term (in years) at December 31, 2019	12.77
Weighted average discount rate at December 31, 2019	3.62		%

The following table summarizes lease payment obligations for each of the next five years and thereafter in addition to a reconcilement to the Company's current lease liability (dollars in thousands):



Year	Amount
2020	$	6,160
2021	5,730
2022	5,068
2023	4,975
2024	4,629
Thereafter	30,668
Total lease payments	$	57,230
Less: imputed interest	(13,161		)
Present value of lease liabilities	$	44,069

Net rental expense included in occupancy expense was approximately $6.8 million, $5.7 million, and $5.3 million for the years ended December 31, 2019, 2018, and 2017, respectively. Included in rental expense for the year ended December 31, 2019, is approximately $579,000 of accelerated rental expense related to the consolidation of three branches on December 31, 2019.

As of December 31, 2019, the Company had not entered into any leases that have not yet commenced.