Note 6 – Leases

Effective January 1, 2019, CTBI adopted ASU No. 2016-02, Leases, (Topic 842) and all subsequent ASUs that modified Topic 842. Based on leases outstanding at December 31, 2018, the impact of adoption was recording a lease liability of approximately $16.1 million, a right-of-use asset of approximately $15.5 million, and a cumulative-effect adjustment to retained earnings of approximately $0.5 million, net of a $0.1 million adjustment to our deferred tax liability. CTBI has no finance leases or material subleases or leasing arrangements for which it is the lessor of property or equipment.

CTBI has operating leases for banking and ATM locations. These leases have remaining lease terms of 1 year to 45 years, some of which include options to extend the leases for up to 5 years. We evaluated the original lease terms for each operating lease, some of which include options to extend the leases for up to 5 years, using hindsight. These options, some of which include variable costs related to rent escalations based on recent financial indices, such as the Consumer Price Index, where CTBI estimates future rent increases, are included in the calculation of the lease liability and right-of-use asset when management determines it is reasonably certain the option will be exercised. CTBI determines this on each lease by considering all relevant contract-based, asset-based, market-based, and entity-based economic factors. Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate on a collateralized basis, over a similar term at the lease commencement date. Right-of-use assets are further adjusted for prepaid rent, lease incentives, and initial direct costs, if any.

The components of lease expense for the three months ended March 31, 2019 were as follows:

(in thousands)	2019
Short-term lease cost	$	71
Operating lease cost		461
Sublease income		(68	)
Total lease cost	$	464

Supplemental cash flow information related to CTBI’s operating leases for the three months ended March 31, 2019 was as follows:

(in thousands)	2019
Operating lease – operating cash flows (fixed payments)	$	458
Right-of-use assets obtained in exchange for new operating lease liabilities	$	0
Weighted average lease term – operating leases	15.35 years
Weighted average discount rate – operating leases		3.47	%

Maturities of lease liabilities as of March 31, 2019 are as follows:

(in thousands)	Operating Leases
2019	$	1,271
2020		1,715
2021		1,744
2022		1,729
2023		1,650
Thereafter		12,822
Total lease payments		20,931
Less imputed interest		(5,188	)
Total	$	15,743

At December 31, 2018, minimum non-cancellable rental payments were as follows:

(in thousands)	Operating Lease Payments
2019	$	1,999
2020		1,710
2021		1,737
2022		1,760
2023		1,696
Thereafter		13,031
Total	$	21,933