Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

LEASES

BancShares leases certain branch locations, administrative offices and equipment. Operating lease ROU assets are included in other assets and the associated lease obligations are included in other liabilities on the Consolidated Balance Sheets. Finance leases are included in premises and equipment and other borrowings on the Consolidated Balance Sheets. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets; we instead recognize lease expense for these leases on a straight-line basis over the lease term.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our corresponding obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating and finance lease ROU asset also includes initial direct costs and pre-paid lease payments made, excluding lease incentives. As most of our leases do not provide an implicit rate, BancShares uses its incremental borrowing rate, based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is determined using secured rates for new FHLB advances under similar terms as the lease at inception. We utilize the implicit or incremental borrowing rate at the effective date of a modification not accounted for as a separate contract or a change in the lease terms to determine the present value of lease payments. BancShares used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 25 years. The exercise of lease renewal options is at our sole discretion. When it is reasonably certain that we will exercise our option to renew or extend the lease term, that option is included in calculating the value of the ROU and lease liability. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

We determine if an arrangement is a lease at inception and our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have no related party lease agreements. As of September 30, 2019, there were no leases that have not yet commenced that would have a material impact on our Consolidated Financial Statements.

The following table presents lease assets and liabilities as of September 30, 2019:

(Dollars in thousands)	Classification	September 30, 2019
Assets:
Operating	Other assets	$	79,857
Finance	Premises and equipment	9,402
Total leased assets		$	89,259
Liabilities:
Operating	Other liabilities	$	79,234
Finance	Other borrowings	8,610
Total lease liabilities		$	87,844

The following table presents lease costs for the three and nine months ended September 30, 2019. Variable lease cost primarily represents variable payments such as common area maintenance and utilities that are recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments that are adjusted periodically for inflation. While lease liabilities are not remeasured as a result of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred.

(Dollars in thousands)	Classification	Three months ended September 30, 2019			Nine months ended September 30, 2019
Lease cost:
Operating lease cost (1)	Occupancy expense	$	5,273		$	12,059
Finance lease cost:
Amortization of leased assets	Equipment expense	541			1,434
Interest on lease liabilities	Interest expense - Other borrowings	93			220
Variable lease cost	Occupancy expense	527			1,779
Sublease income	Occupancy expense	(86		)	(303		)
Net lease cost		$	6,348		$	15,189
(1) Operating lease cost includes short-term lease cost, which is immaterial.

The following table presents lease liability maturities in the next five years and thereafter:

(Dollars in thousands)	Operating Leases		Finance Leases		Total
2019 (1)	$	3,617	$	435	$	4,052
2020	14,052		2,142		16,194
2021	12,546		2,159		14,705
2022	11,142		1,876		13,018
2023	9,258		993		10,251
Thereafter	43,841		1,683		45,524
Total lease payments	$	94,456	$	9,288	$	103,744
Less: Interest	15,222		678		15,900
Present value of lease liabilities	$	79,234	$	8,610	$	87,844
(1) Represents the lease liability payments that will be made for the period October 1, 2019 through December 31, 2019.

The following table presents the remaining weighted average lease terms and discount rates as of September 30, 2019:

Weighted average remaining lease term (years):	September 30, 2019
Operating	10.3
Finance	4.9
Weighted average discount rate:
Operating	3.22	%
Finance	3.07

The following table presents supplemental cash flow information related to leases for the nine months ended September 30, 2019:

(Dollars in thousands)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9,579
Operating cash flows from finance leases	220
Financing cash flows from finance leases	1,111
Right-of-use assets obtained in exchange for new operating lease liabilities	17,762
Right-of-use assets obtained in exchange for new finance lease liabilities	1,886

Leases

LEASES

BancShares leases certain branch locations, administrative offices and equipment. Operating lease ROU assets are included in other assets and the associated lease obligations are included in other liabilities on the Consolidated Balance Sheets. Finance leases are included in premises and equipment and other borrowings on the Consolidated Balance Sheets. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets; we instead recognize lease expense for these leases on a straight-line basis over the lease term.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our corresponding obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating and finance lease ROU asset also includes initial direct costs and pre-paid lease payments made, excluding lease incentives. As most of our leases do not provide an implicit rate, BancShares uses its incremental borrowing rate, based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is determined using secured rates for new FHLB advances under similar terms as the lease at inception. We utilize the implicit or incremental borrowing rate at the effective date of a modification not accounted for as a separate contract or a change in the lease terms to determine the present value of lease payments. BancShares used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 25 years. The exercise of lease renewal options is at our sole discretion. When it is reasonably certain that we will exercise our option to renew or extend the lease term, that option is included in calculating the value of the ROU and lease liability. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

We determine if an arrangement is a lease at inception and our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have no related party lease agreements. As of September 30, 2019, there were no leases that have not yet commenced that would have a material impact on our Consolidated Financial Statements.

The following table presents lease assets and liabilities as of September 30, 2019:

(Dollars in thousands)	Classification	September 30, 2019
Assets:
Operating	Other assets	$	79,857
Finance	Premises and equipment	9,402
Total leased assets		$	89,259
Liabilities:
Operating	Other liabilities	$	79,234
Finance	Other borrowings	8,610
Total lease liabilities		$	87,844

The following table presents lease costs for the three and nine months ended September 30, 2019. Variable lease cost primarily represents variable payments such as common area maintenance and utilities that are recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments that are adjusted periodically for inflation. While lease liabilities are not remeasured as a result of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred.

(Dollars in thousands)	Classification	Three months ended September 30, 2019			Nine months ended September 30, 2019
Lease cost:
Operating lease cost (1)	Occupancy expense	$	5,273		$	12,059
Finance lease cost:
Amortization of leased assets	Equipment expense	541			1,434
Interest on lease liabilities	Interest expense - Other borrowings	93			220
Variable lease cost	Occupancy expense	527			1,779
Sublease income	Occupancy expense	(86		)	(303		)
Net lease cost		$	6,348		$	15,189
(1) Operating lease cost includes short-term lease cost, which is immaterial.

The following table presents lease liability maturities in the next five years and thereafter:

(Dollars in thousands)	Operating Leases		Finance Leases		Total
2019 (1)	$	3,617	$	435	$	4,052
2020	14,052		2,142		16,194
2021	12,546		2,159		14,705
2022	11,142		1,876		13,018
2023	9,258		993		10,251
Thereafter	43,841		1,683		45,524
Total lease payments	$	94,456	$	9,288	$	103,744
Less: Interest	15,222		678		15,900
Present value of lease liabilities	$	79,234	$	8,610	$	87,844
(1) Represents the lease liability payments that will be made for the period October 1, 2019 through December 31, 2019.

The following table presents the remaining weighted average lease terms and discount rates as of September 30, 2019:

Weighted average remaining lease term (years):	September 30, 2019
Operating	10.3
Finance	4.9
Weighted average discount rate:
Operating	3.22	%
Finance	3.07

The following table presents supplemental cash flow information related to leases for the nine months ended September 30, 2019:

(Dollars in thousands)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9,579
Operating cash flows from finance leases	220
Financing cash flows from finance leases	1,111
Right-of-use assets obtained in exchange for new operating lease liabilities	17,762
Right-of-use assets obtained in exchange for new finance lease liabilities	1,886