Leases

12 Months Ended

Dec. 31, 2019

Note 12 – Leases

As of January 1, 2019, when the Company adopted ASU

2016-02

prospectively, the Company began recording operating leases as a

right-of-use

(“ROU”) asset in other assets and operating lease liability in other liabilities on the consolidated balance sheet. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating 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 at the lease commencement date. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating liability, is recognized on a straight-line basis over the lease term, and is recorded primarily in net occupancy expense in the consolidated statements of income.

When the Company adopted the guidance on January 1, 2019, it elected the optional alternative transition method permitted by ASU

2018-11

allowing for recognition of applicable leases as of January 1, 2019. Additionally, the Company elected the following accounting policies:

•

The practical expedient package that forgoes:

•

Reassessment of any expired or existing contracts for a lease

•

Reassessment of lease classification for expired or existing leases

•

Reassessment of initial direct costs for existing leases

•

The hindsight practical expedient to determine lease term and impairment of ROU assets

•

Other practical expedients regarding combination of lease and

non-lease

components and the exclusion of short-term leases

•

The Company did not elect to follow the practical expedients for land easements and the portfolio approach

Operating leases relate primarily to bank branches and office space with remaining average lease terms of seven years. The weighted average discount rate utilized to calculate the ROU asset and operating lease liability was approximately 2.57%, which represents the incremental borrowing rate. At inception, the Company recorded a ROU asset and operating lease liability of $3.5 million. At December 31, 2019, a ROU asset of $2.7 million is included in other assets and an operating lease liability of $2.7 million is included in other liabilities. Options to extend a lease were considered in the remaining lease term determination. The lease expense for operating leases was $591,000 for the year ended December 31, 2019.

The weighted average remaining life of leases was 6.4 years at December 31, 2019.

Future minimum operating lease payments under

non-cancellable

leases with initial or remaining lease terms at December 31, 2019 were as follows:


Year	Amount
2020	$	476
2021		476
2022		504
2023		504
2024 and thereafter		1,105

Total lease payments	$	3,065

Less: Interest		(51	)

Present value of lease liabilities	$	3,014