Leases

6 Months Ended

Jun. 30, 2019

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 one finance lease for property but no 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 and six months ended June 30, 2019 were as follows:

(in thousands)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Finance lease cost:
Amortization of right-of-use assets – finance leases	$	9	$	17
Interest on lease liabilities – finance leases		13		27
Total finance lease cost		22		44

Short-term lease cost		68		139
Operating lease cost		442		888

Sublease income		63		131

Total lease cost	$	469	$	940

Supplemental cash flow information related to CTBI’s operating and finance leases for the three and six months ended June 30, 2019 was as follows:

(in thousands)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Finance lease – operating cash flows	$	13		$	27
Finance lease – financing cash flows		4			7
Operating lease – operating cash flows (fixed payments)		407			848
Weighted average lease term – financing leases	26.5 years			26.92 years
Weighted average lease term – operating leases	14.17 years			14.34 years
Weighted average discount rate – financing leases		3.70	%		3.70	%
Weighted average discount rate – operating leases		3.26	%		3.00	%

Maturities of lease liabilities as of June 30, 2019 are as follows:

(in thousands)	Operating Leases			Finance Leases
2019	$	813		$	34
2020		1,647			67
2021		1,668			75
2022		1,654			75
2023		1,575			75
Thereafter		10,895			2,060
Total lease payments		18,252			2,386
Less imputed interest		(4,171	)		(923	)
Total	$	14,081		$	1,463

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