Leases

9 Months Ended

Sep. 30, 2019

We lease certain retail- and full-service branch locations, ATM locations, certain equipment and a loan production office. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Operating lease cost, which is comprised of the amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is included in net occupancy expense on our consolidated statements of income. We evaluate the lease term by assuming the exercise of options to extend that are reasonably assured and those option periods covered by an option to terminate the lease, if deemed not reasonably certain to be exercised. The lease term is used to determine the straight-line expense and limits the depreciable life of any related leasehold improvements. Certain leases require us to pay real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises. These expenses are classified in net occupancy expense on our consolidated statements of income, consistent with similar costs for owned locations, but is not included in operating lease cost below.

Our leases have remaining lease terms ranging from 6 months to 19.7 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. We calculate the lease liability using a discount rate that represents our incremental borrowing rate at the lease commencement date.

We are also party to operating leases where we lease properties we own to third parties. Operating lease income received from tenants who rent our properties is reported as a reduction to occupancy expense on our consolidated statements of income. The underlying assets associated with these operating leases are included in premises and equipment on our consolidated balance sheets.

Balance sheet information related to leases was as follows (in thousands):



	September 30, 2019
Operating leases:
Operating lease right-of-use assets	$	10,046
Operating lease liabilities	$	10,478

The components of lease cost were as follows (in thousands):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	400	$	1,189

Supplemental cash flow information related to leases was as follows (in thousands):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of the lease liabilities:
Operating cash flows from operating leases	$	359	$	1,059
Right-of-use assets obtained in exchange for new operating lease liabilities	$	537	$	1,191

Additional information related to leases was as follows:



	September 30, 2019
Weighted average remaining lease term (in years)	12.2
Weighted average discount rate	3.81	%

Future minimum rental commitments due under non-cancelable operating leases at September 30, 2019 were as follows (in thousands):



Year ending December 31,
2019 (excluding the nine months ended September 30, 2019)	$	281
2020	1,456
2021	1,343
2022	1,232
2023	1,083
2024 and thereafter	8,126
Total lease payments ⁽¹⁾	13,521
Less: Interest	(3,043		)
Present value of lease liabilities	$	10,478


(1)	Excludes $9.1 million of lease payments for a lease executed but not yet commenced. Lease will commence in 2020 with a lease term of 20.4 years.

We also lease certain of our owned facilities or portions thereof to third parties. Our primary leased facility is a 202,000 square-foot office building in Fort Worth, Texas that is used for a branch location and certain bank operations. We occupy approximately 41,000 square feet of the building and lease the remaining space to various tenants. Some of these leases contain options to renew and options to terminate at the discretion of the tenant.

Gross rental income from these leases were as follows (in thousands):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Gross rental income	$	767	$	2,254

At September 30, 2019, non-cancelable operating leases with future minimum lease payments are as follows (in thousands):



Year ending December 31,
2019 (excluding the nine months ended September 30, 2019)	$	715
2020	2,847
2021	1,646
2022	1,580
2023	1,344
2024 and thereafter	4,119
Total lease payments	$	12,251

Leases