NOTE 15 – RIGHT OF USE ASSET AND LEASE LIABILITY

Effective January 1, 2019, the Company adopted ASC Update 2016-02, "Leases (Topic 842)," using the modified retrospective method of applying the new standard at the adoption date. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard as the lessee. This permitted the carry forward of the conclusions on lease identification, lease classification and initial direct costs. The Company also elected not to separate lease and non-lease components. Financial results for reporting periods beginning on or after January 1, 2019 are presented under the new guidance (Topic 842), while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance (Topic 840).

As a lessee, the majority of the operating lease portfolio consists of real estate leases for the Company's branches and office space. The operating leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for 5 years or more. The Company recognized and elected the 5-year option for each of its branch locations where an extension was available. Right-of-use (“ROU”) assets and lease liabilities are not recognized for leases with an initial term of 12 months or less. The Company does not have any finance leases as the lessee.

Operating lease expense primarily represents fixed lease payments for operating leases recognized on a straight-line basis over the applicable lease term. Variable lease expense represents the payment of real estate taxes, insurance and common area maintenance based on the Company's pro-rata share.

The following table presents the components of the Company’s lease costs for operating leases as the lessee, which is included in net occupancy expense on the consolidated statements of income (in thousands):


	Three Months Ended
	March 31, 2020

Operating lease expense	$	184
Short term lease expense		86
Total lease expense	$	270

Supplemental balance sheet information related to leases was as follows (in thousands, except for weighted-averages):


Operating Leases	Classification	March 31, 2020
ROU assets	Right of use asset, net	$	4,535
Lease liabilities	Lease liability	$	4,676
Weighted-average remaining lease term			9.0
Weighted-average discount rate			3.09	%

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption and as of the lease commencement or modification date for leases subsequently entered into.

Supplemental cash flow information related to operating leases was as follows (in thousands):


	Three Months Ended
	March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities	$	182
ROU assets obtained in exchange for lease obligations	$	171

Lease payment obligations for each of the next five years and thereafter with a reconciliation to the Company’s lease liability are as follows (in thousands):


Year	Operating Leases
2020	$	480
2021		561
2022		561
2023		561
2024		561
Thereafter		2,712
Total lease payments		5,436
Less imputed interest		(760)
Total (1)	$	4,676

(1)

Lease liability maturities include 1st option of extension