Note 13. Leases

On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. There was a cumulative effect adjustment of approximately $86 thousand at adoption. The Company also elected certain practical expedients within the standard and did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases and did not reassess any initial direct costs for existing leases. Prior to adoption, all of the Company’s leases were classified as operating leases and remain operating leases at adoption. The implementation of the new standard resulted in recognition of a right-of-use asset of approximately $12.2 million and an offsetting lease liability of $12.7 million for leases existing at the date of adoption.

Contracts that commence subsequent to adoption are evaluated to determine whether they are or contain a lease in accordance with Topic 842. The Company has elected the practical expedient provided by Topic 842 not to allocate consideration in a contract between lease and non-lease components. The Company also elected, as provided by the standard, not to recognize right-of-use assets and lease liabilities for short-term leases, defined by the standard as leases with terms of 12 months or less.

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

Lease payments

Lease payments for short-term leases are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Payments for leases with terms longer than twelve months are included in the determination of the lease liability. Payments may be fixed for the term of the lease or variable. If the lease agreement provides a known escalator, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability. The Company’s leases provide known escalators that are included in the determination of the lease liability, with the exception of three lease agreements.

Options to Extend, Residual Value Guarantees, and Restrictions and Covenants

The Company’s leases offer the option to extend the lease term. For each of the leases, the Company is reasonably certain it will exercise the options and has included the additional time and lease payments in the calculation of the lease liability. None of the Company’s leases provide for residual value guarantees and none provide restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following tables present information about leases:


(In thousands)	June 30, 2019
Lease Liability	$	12,177
Right-of-Use-Asset	$	11,843
Weighted Average Remaining Lease Term		10.87
Weighted Average discount rate		3.40	%


	For the Three Months Ended		For the Six Months Ended
(In thousands)	June 30, 2019		June 30, 2019
Operating Lease Expense	$	445	$	915

Cash paid for amounts included in lease liabilities	$	405	$	843

The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability:


(In thousands)	June 30, 2019
Six months ending December 31, 2019	$	763
Twelve months ending December 31, 2020		1,401
Twelve months ending December 31, 2021		1,409
Twelve months ending December 31, 2022		1,444
Twelve months ending December 31, 2023		1,437
Twelve months ending December 31, 2024		1,403
Thereafter		6,823
Total	$	14,680
Less: discount		(2,503)
	$	12,177