Leases

The Company adopted ASU 2016-02 and ASU 2018-11 using the modified retrospective approach with an effective date of January 1, 2019, and recognized on the consolidated balance sheets a right-of-use asset (“ROU”) included in prepaid expenses and other assets and lease liabilities included in other liabilities. As such, prior year financial statements were not restated under the new standard. At June 30, 2019, the Company had ten operating leases for retail branch locations. The remaining lease terms range from 1.2 to 6.0 years, with most leases carrying optional extensions of 3-5 years. The Company will include optional lease term extensions in the ROU assets and lease liabilities when management believes it is reasonably certain that the term extension will be exercised, and will be determined based on indicators that the Company would have an economic incentive to extend the lease. The Company has elected to not apply ASU 2016-02 to short term leases, which are those that have a term of one year or less. To calculate the present value of lease payments not yet paid, the Company uses the incremental borrowing rate, which is equal to the FHLB advance rate for the term of the lease that was in place at each lease inception.

The minimum monthly lease payments are generally based on square footage of the leased premises, with escalating minimum rent over the lease term. At June 30, 2019, the Company was committed to paying $51,000 per month in minimum monthly lease payments. The minimum monthly lease payment over the initial lease term, including any free rent period, was used to calculate the ROU and lease liability. The Company’s current leases do not include any non-lease components.

Total lease expense included in the Company’s Consolidated Income Statement for the three and six months ended June 30, 2019, was $169,000 and $344,000, respectively. This included the amortized lease expense under ASU 2016-02 combined with variable lease expenses for maintenance or other expenses as defined in the individual lease agreements. The right-of-use asset and lease liability both had a balance of $1.6 million on the Company’s consolidated balance sheet at June 30, 2019, and are amortizing over a weighted-average remaining term of 4.1 years. The weighted-average discount rate used to calculate the present value of future minimum lease payments was 2.96% at June 30, 2019.

The following table provides a reconciliation between the undiscounted minimum lease payments at June 30, 2019 and the discounted lease liability at that date:



	June 30, 2019
	(in thousands)
Due through one year	$	535
Due after one year through two years	419
Due after two years through three years	290
Due after three years through four years	247
Due after four years through five years	173
Due after five years	75
Total minimum lease payments	1,739
Less: present value discount	(106		)
Lease liability	$	1,633

The Company has secured a lease for a new retail branch in Kirkland, Washington. The initial lease term is for 65 months and includes options to extend the lease. The minimum rent will be determined at commencement and will increase annually thereafter. This lease was not included in the calculation of discounted lease payments at June 30, 2019.