NOTE 7 Leases

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches, and office equipment rentals with terms extending through 2032. Portions of certain properties are subleased for terms extending through 2024. Substantially all of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated financial statements. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated financial statements as a right‑of‑use (“ROU”) asset and a corresponding lease liability. The Company has one existing finance lease (previously referred to as a capital lease) for a portion of the Company’s headquarters building with a lease term through 2022. As this lease was previously required to be recorded on the Company’s consolidated financial statements, Topic 842 did not materially impact the accounting for this lease.

The Company elected not to include short‑term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated financial statements. The following table presents the classification of the Company’s ROU assets and lease liabilities on the consolidated financial statements.


		September 30,
(dollars in thousands)		2019
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Operating lease right-of-use assets	$	8,877
Finance lease right-of-use assets	Land, premises and equipment, net		347
Total lease right-of-use assets		$	9,224
Lease Liabilities
Operating lease liabilities	Operating lease liabilities	$	9,401
Finance lease liabilities	Long-term debt		690
Total lease liabilities		$	10,091

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. 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. Regarding the discount rate, Topic 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 January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. For the Company’s only finance lease, the Company utilized its incremental borrowing rate at lease inception.


	September 30,
	2019
Weighted-average remaining lease term, years
Operating leases		6.5
Finance leases		3.1
Weighted-average discount rate
Operating leases		3.2	%
Finance leases		7.8	%

As the Company elected, for all classes of underlying assets, not to separate lease and non‑lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities. Variable lease cost also includes payments for usage or maintenance of those capitalized equipment operating leases.

The following table presents lease costs and other lease information for the three and nine months ending September 30, 2019.


	Three months ended		Nine months ended
(dollars in thousands)	September 30, 2019		September 30, 2019
Lease costs
Operating lease cost	$	602	$	1,772
Variable lease cost		222		633
Short-term lease cost		122		416
Finance lease cost
Interest on lease liabilities		14		45
Amortization of right-of-use assets		29		87
Sublease income		(65)		(202)
Net lease cost	$	924	$	2,751
Other information
Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases		600		1,774
Right-of-use assets obtained in exchange for new operating lease liabilities		—		—
Right-of-use assets obtained in exchange for new finance lease liabilities		—		—

Future minimum payments for finance and operating leases with initial or remaining terms of one year or more as of September 30, 2019 were as follows:


	September 30, 2019
	Finance		Operating
(dollars in thousands)	Leases		Leases
2020	$	251	$	2,291
2021		251		1,676
2022		251		1,579
2023		20		1,506
2024		—		1,061
Thereafter		—		2,460
Total future minimum lease payments	$	773	$	10,573
Amounts representing interest		(83)		(1,172)
Total operating lease liabilities	$	690	$	9,401