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Leases

9 Months Ended

Sep. 30, 2020

LEASES

Old National has operating and finance leases for land, office space, banking centers, and equipment. These leases are generally for periods of 10 to 20 years with various renewal options. We include certain renewal options in the measurement of our right-of-use assets and lease liabilities if they are reasonably certain to be exercised. Variable lease payments that are dependent on an index or a rate are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Variable lease payments that are not dependent on an index or a rate are excluded from the measurement of the lease liability and are recognized in profit and loss when incurred. Variable lease payments are defined as payments made for the right to use an asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.

Old National has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated. For certain equipment leases, Old National accounts for the lease and non-lease components as a single lease component using the practical expedient available for that class of assets.

Old National does not have any material sub-lease agreements.

The components of lease expense were as follows:


	Affected Line Item in the Statement of Income	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)		2020		2019		2020		2019
Operating lease cost	occupancy/equipment expense	$	3,952	$	4,280	$	19,786	$	12,973
Finance lease cost:
Amortization of right-of-use assets	occupancy expense	311		166		733		485
Interest on lease liabilities	interest expense	98		80		267		241
Short-term lease cost	occupancy expense	—		1		—		2
Sub-lease income	occupancy expense	(129)		(193)		(378)		(553)
Total		$	4,232	$	4,334	$	20,408	$	13,148

Supplemental balance sheet information related to leases was as follows:


(dollars in thousands)	September 30, 2020			December 31, 2019
Operating Leases
Operating lease right-of-use assets	$	77,482		$	95,477
Operating lease liabilities	88,552			99,500

Finance Leases
Premises and equipment, net	11,662			7,170
Other borrowings	12,062			7,406

Weighted-Average Remaining Lease Term (in Years)
Operating leases	10.6			10.6
Finance leases	10.5			11.3

Weighted-Average Discount Rate
Operating leases	3.40		%	3.45		%
Finance leases	3.45		%	4.43		%

Supplemental cash flow information related to leases was as follows:


	Nine Months Ended September 30,
(dollars in thousands)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	12,194	$	13,201
Operating cash flows from finance leases	267		241
Financing cash flows from finance leases	569		344

The following table presents a maturity analysis of the Company’s lease liability by lease classification at September 30, 2020:


(dollars in thousands)	Operating Leases		Finance Leases
2020	$	3,735	$	346
2021	14,344		1,394
2022	13,277		1,412
2023	9,244		1,438
2024	8,073		1,444
Thereafter	57,791		8,442
Total undiscounted lease payments	106,464		14,476
Amounts representing interest	(17,912)		(2,414)
Lease liability	$	88,552	$	12,062

Old National leases certain office space and buildings to unrelated parties in exchange for consideration. All of these tenant leases are classified as operating leases. The following table presents a maturity analysis of the Company’s tenant leases at September 30, 2020:


(dollars in thousands)	Tenant Leases
2020	$	628
2021	2,327
2022	1,878
2023	1,523
2024	1,409
Thereafter	2,520
Total undiscounted lease payments	$	10,285

Leases